Charitable giving tax incentives are intended to encourage giving for public benefit. Gifts to intermediaries frustrate this goal. Presently, $1.26 trillion has accumulated in donor advised funds (DAFs) and private foundations. These are charitable intermediaries that do not benefit the public until they release their funds for public use. Congress has long recognized that intermediaries cause a “delay in benefit” problem because the tax incentive is awarded before the public benefits from the gift. Congress addressed this problem for foundations in 1969 by requiring them to pay out a minimum amount annually. Congress, however, has not addressed the problem for DAFs, and the foundation payout now has too many loopholes. The Article explains that reform of charitable intermediaries is essential to the continued viability of the charitable giving incentives. The status quo allows donors to a take a tax deduction, retain effective control over their donations indefinitely, and provides no guarantees that the public will ever benefit from tax subsidized charitable gifts. This Article responds to arguments against charitable intermediary reform and analyzes bi-partisan legislation, the ACE Act, introduced to accelerate charitable giving from DAFs and foundations. The Article also considers whether community foundations and other mission driven DAF sponsors warrant distinct legal treatment. The Article concludes that the status quo undermines generosity and perpetuates wealth, and that reform is required. This Article further concludes that, though the ACE Act is sound legislation, it should apply to existing DAF accounts and require further study of its incentives for private foundations and whether DAFs at mission-driven sponsors further their mission.
Roger Colinvaux, Speeding Up Benefits to Charity by Reforming Gifts to Intermediaries, 63 B. C. L. Rev. 2621 (2022).