TAX TAKE: Senate Legislation Introduced Reforming Donor-Advised Funds and Private Foundations

Tax Alert

Bipartisan legislation was recently introduced in the Senate imposing significant restrictions on donor-advised funds (DAFs) and private foundations. The Accelerating Charitable Efforts Act (S. 1981), introduced by Senators Angus King (I-ME) and Charles Grassley (R-IA), aligns with robust lobbying campaigns currently underway proposing reforms to DAFs and private foundations. DAFs, in particular, have grown exponentially with donors and charitable organizations in recent years. With their rise in popularity, so too has their criticism, with many arguing that these proposals would resolve inefficiencies in our tax laws and ensure that funds flow faster to charities.

Under present law, a donor is allowed an immediate deduction for a contribution to a DAF in the amount of the contribution and is able to exercise advisory privileges over the timing and recipient of distributions from the DAF. S. 1981 separates DAFs into two groups: 15-year DAFs, which must distribute contributed funds within 15 years, and 50-year DAFs, which must distribute contributed funds within 50 years. The legislation imposes restrictions on both 15- and 50-year DAFs regarding the timing and amount of deductions donors are allowed to take in connection with their contributions, and the restrictions on 50-year DAFs are particularly onerous. The legislation also proposes new rules regarding the interaction between DAFs and other public charities and between DAFs and private foundations. Finally, the legislation aims to incentivize increased and quicker distributions by private foundations.

For potential donors and those organizations that run DAFs or private foundations, this is an important bill to follow. There are loud voices in Congress seeking to increase taxes on the wealthy, by way of raising the capital gains tax, enacting an inheritance or wealth transfer tax, or increasing the top marginal income tax rate. The proponents of this legislation may try to fit these proposals into that political narrative, which could gain traction as Congress looks for revenue raisers to pay for the Biden Administration's social infrastructure package. It is also important to note that Senator King is a key moderate in the Senate, and Senator Grassley is a senior member (and former Chairman) of the Senate Finance Committee; both factors are likely to create momentum for the proposals in S. 1981.

You can find a comprehensive summary of the legislation here. #TaxTake

Upcoming Speaking Engagements and Events

On June 30, Loren will participate in a virtual discussion on global tax policy titled, "A Fireside Chat with Catherine Schultz and Loren Ponds on the OECD Tax Negotiations," with members of the Trade Policy Forum.

In the News

In Bloomberg Law's Hill Tax Briefing, Jorge said "growing bipartisan recognition for the IRS to address the tax gap, which has been grown significantly," in response to legislation released on June 23 by the House Appropriations Committee, which includes $13.2 billion in baseline IRS funding for fiscal 2022.

Jorge commented in International Tax Review on why the Biden Administration is proposing to expand the IRS reporting of tax information for cryptocurrency and assets. "The IRS and Treasury Department don't feel that they have the regulatory authority alone, to expand this reporting. So, they are seeking approval from Congress to give them the authority to do this."

Jorge was quoted in Bloomberg Law about the possible increase to the IRS's budget. "In the end I think the Senate will – at the Administration's urging – increase the IRS's budget in order to achieve Congress's objective," Castro said. 

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