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Treasury Department Greenbook Proposes Private Foundation and DAF Reforms

Tax Alert

On March 9, 2023, the Department of Treasury (Treasury) released its General Explanations of the Administration's Fiscal Year 2024 Revenue Proposals, colloquially known as the Greenbook. The Greenbook contains two proposals relating to private foundations and donor-advised funds (DAFs), both of which Treasury says will raise only modest amounts of revenue but are necessary to close loopholes in the tax code. 

Private Foundation Contributions to DAFs 

A DAF is an account that is held at a sponsoring organization, which is a section 501(c)(3) entity.1 The donor-advisor contributes money to the sponsoring organization which holds that money in the DAF. The donor-advisor has rights to advise with respect to the sponsoring organization's distribution of the contributed funds, including appreciation of those funds, to other section 501(c)(3) entities, which are typically operating charities.2 There is currently no statutory time limit on how quickly a sponsoring organization must distribute funds in a DAF to another section 501(c)(3) entity.

Private foundations are generally required under section 4942 to distribute at least five percent of the total fair market value of their non-charitable use assets from the preceding taxable year or pay a 30 percent excise on the undistributed amount.3 Under current law, a distribution from a private foundation to a DAF at a sponsoring organization that is a public charity are "qualifying distributions" that count toward the five percent, as are distributions to public charities generally.4

The Greenbook asserts that current law impedes the goal of the five percent distribution requirement, which it describes as "the current charitable use of the associated funds."5 Under the Greenbook proposal, a contribution by a private foundation to a DAF would not be a qualifying distribution unless the sponsoring organization causes the contributed funds to be expended in a qualifying distribution by the end of the taxable year following the distribution and the private foundation maintains adequate records to show such a qualifying distribution took place. Significantly, a qualifying distribution under this exception does not include a distribution to another DAF.

The administration included a similar proposal in last year's Greenbook, albeit without the caveat that the qualifying distribution from the DAF could not be to another DAF. A similar proposal was also included in the Accelerating Charitable Efforts (ACE) Act, which was introduced in both in the House of Representatives and Senate in the last Congress (S. 1981 and H.R. 6595) but did not become law. 

The proposal is to be effective on the date of enactment. The Office of Management and Budget (OMB) estimates the proposal would raise $83 million over 10 years. 

Private Foundation Payments to Family Members

Under current law, the five percent private foundation distribution requirement may also be satisfied through payments to a person, including a "disqualified person" (such as a family member of a substantial contributor to or manager of the private foundation) in exchange for personal services that are reasonable and necessary to carry out the foundation's exempt purpose.6

The Greenbook asserts some private foundations meet their entire payout requirement by hiring family members. As the intent of the five percent payout requirement is "to ensure private foundations use at least five percent of the total fair market value of their non-charitable use assets from the preceding taxable year for charitable purposes, such as grants to needy persons or to operating charities," the Greenbook argues that these payments should not be permitted. Therefore, the Greenbook proposes that paying compensation to (or reimbursing expenses of) a disqualified person (other than a foundation manager of such private foundation who is not a member of the family of any substantial contributor) is not a qualifying distribution that satisfies the five percent payout requirement.

This proposal was not included in last year's Greenbook, but was part of the previously mentioned ACE Act. OMB estimates the proposal would raise $7 million over 10 years. 

While the Greenbook is an important document outlining the Biden administration's tax policy priorities, they are only recommendations and Congress will decide what gets enacted. Because of the current political realities of divided government, many of the revenue proposals contained in the administration's $6.9 trillion budget may be tough sells. However, the Greenbook proposals will still be reviewed and receive attention by Congress, so it is important for taxpayers to remain engaged with policymakers and monitor legislative developments. Miller & Chevalier will continue to track the proposals in the Greenbook as the administration attempts to pass its budget. 

For more information, please contact:

Jorge E. Castro,, 202-626-5859

Andy L. Howlett,, 202-626-5821


1All section references are to the Internal Revenue Code of 1986 as amended and currently in effect.
2See section 4966(d)(2). Under section 4966(c)(2) the distribution must be to an organization described in section 170(b)(1)(A) (other than a disqualified supporting organization), to the sponsoring organization itself, or to any other DAF. 
3Section 5952(a).
4Section 4942(g)(1).
5Greenbook at 140.
6See section 4942(g)(1), 4946(a)(1).

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