Washington, DC – On March 24, the Charity Reform Initiative at the Institute for Policy Studies released three independent studies on Donor-Advised Funds (DAFs). These original analyses draw from the IPS 990 Analytics Lab, a comprehensive data set of digital charitable tax returns.
These studies explore several ways that DAFs have been used to transform philanthropy into a taxpayer-subsidized extension of private power and influence for the wealthiest people in the country — and how this has delayed delivery of much-needed funds to working charities.
IPS’s analysis concludes that charitable giving needs to be modernized to discourage hoarding of charitable dollars, ensure that those dollars go to actual working nonprofits, protect the integrity of the tax system, and shut down abuses that enable the rich to get away with squirreling away wealth under the guise of charitable giving.
Overview of Three DAF Studies:
An analysis of the tax returns of DAF sponsors shows that in 2019 alone, at least $1 billion in commercial DAF grants went to other commercial DAFs, shuffling money between giving vehicles rather than distributing it outright to working charities and skewing payout rates reported by these institutions.
Private Foundation Giving to Commercial DAFs (March 24, 2022)
This analysis examined the 2016-2018 tax returns of private foundations filing electronically to see how many of their contributions went to the 45 largest national commercial DAF sponsors in the U.S, including those affiliated with wealth management firms such as Fidelity Investments and Goldman Sachs. This report revealed that private foundation grants to commercial DAFs averaged $737 million per year from 2016 to 2018, and more than $934 million in 2018 alone.
Community foundations take in public donations and distribute much-needed funds out to local charities. But community foundations have increasingly marketed to donors the option of giving through DAFs rather than to the foundations’ discretionary funds. According to a new analysis, DAFs now account for a quarter of the typical community foundation’s assets, and a third of both incoming contributions and outgoing grants. Larger community foundations are much more heavily reliant on DAFs than smaller ones; for the very largest, DAFs account for nearly half of their assets and three-quarters of their incoming contributions.
“Donor-Advised Funds are the fastest growing recipient of charity funds now,” said Chuck Collins, co-author of the new DAF studies and Director of the Program on Inequality and the Common Good at the Institute for Policy Studies. “So there is a tremendous need for independent research on DAFs, not cherry-picked data from self-interested DAF sponsors. Through the charitable tax deduction, U.S. taxpayers subsidize billionaire contributions to DAFs by up to 74 cents on the dollar. We have an interest in making sure that DAFs are actually used as instruments for the greater good, rather than serving as tax avoidance vehicles for the wealthy.”
“The rules governing charity should not only encourage giving, but also make sure that donations flow in a timely way to active charities instead of sitting in intermediaries like private foundations and donor-advised funds,”said Helen Flannery, co-author of the new DAF studies and an Associate Fellow at the Institute for Policy Studies’ Program on Inequality and the Common Good.
Wealthy donors reap substantial tax breaks when they put their money into DAFs. But the rules around DAFs are broken. The money stockpiled in them — now estimated at $160 billion — often fails to make its way out to working charities serving the public. And they are ripe for abuse by donors and for-profit actors alike.
The fact that DAFs do not have a payout requirement is one fundamental design flaw: donors to DAFs receive immediate tax reductions, but funds can sit for generations without coming out. Good legislative reforms would require DAFs to have a minimum payout or to align the timing of benefits to donors with benefits to charities.
Private foundations should also not be able to count donations to DAFs as part of their payout. This is another loophole that allows taxpayer-subsidized donations to be delayed in reaching qualified working charities.
Urgent Need for Independent DAF Research
Over the last several months, private foundations and DAF sponsors have mounted a defense of the philanthropic status quo. They have attacked proposals like the bipartisan Accelerating Charitable Efforts Act (ACE Act), sponsored in the U.S. Senate by Angus King (I-Maine) and Charles Grassley (R-Iowa), and the Patriotic Millionaires’ Emergency Charity Stimulus — both of which would require DAFs to have some form of payout requirement.
Some DAF sponsors are cherry-picking data on DAF activity to make their case. For example, DAF sponsors frequently tout how much money flows out of DAFs, but do not talk about how much money flows in. As the Chronicle of Philanthropy reported:
“Both Fidelity and Vanguard released 2021 data about grant making, but neither provided information about how much money that year flowed into the accounts they manage, nor would they provide their total asset levels for 2021. In a response to a request for that data, Fidelity spokesman Steve Austin said Fidelity would release only ’audited’ figures, and those won’t be publicly available until months later, in the IRS tax forms that Fidelity Charitable is required to file.”
Fidelity reports that they gave out 13% more in grants in 2021 than in 2020. But what they don’t say is that, by IPS’s calculations, they brought in 26% more in contributions.
To contact one of the report authors for interviews or further information, contact Olivia Alperstein at (202) 704-9011 or email@example.com.
About the Charity Reform Initiative
The Charity Reform Initiative of the Institute for Policy Studies aims to modernize the rules governing philanthropy to increase the flow of resources to the nonprofit independent sector and protect the integrity of the tax system. The Charity Reform Initiative is not affiliated with any DAFs, so it is able to conduct independent research on charitable giving.
About the Institute for Policy Studies
For nearly six decades, the Institute for Policy Studies has provided critical research support for major social movements and progressive leaders inside and outside government and on the ground around the United States and the world. As the United States’ oldest progressive multi-issue think tank, IPS turns bold ideas into action through public scholarship and mentorship of the next generation of progressive scholars and activists.