Two key U.S. senators on Wednesday introduced legislation to speed up payments from donor-advised funds and foundations, giving new impetus to an effort that has deeply divided philanthropy.
Republican Senator Chuck Grassley of Iowa, a former chairman of the finance committee that still sits on that group, and Senator Angus King, an independent from Maine who caucuses with the Democrats, have joined together on legislation that follows de fter a plan put out by the Initiative to Accelerate Charitable Giving, a group of prominent donors, foundations and charitable giving specialists.
“The federal government offers tax incentives to Americans who give back, but in order to ensure that these funds do the most good possible, we need to reform the rules that govern certain charitable giving,” King said in a statement.
Wealthy donors can take advantage of immediate tax benefits to set up family foundations or make large deposits into donor-advised fund accounts. Foundations are required by federal law to distribute at least 5 percent of assets per year, but donor-advised funds do not have such requirements.
King-Grassley legislation would allow donors to get an initial tax deduction for deposits of donor-advised funds if they distribute the money within 15 years. Alternatively, donors could choose to delay tax deductions and be 50 years old to distribute their charitable funds. Donors could still receive immediate capital gains and inheritance and gift tax savings.
The legislation also contains provisions designed to prevent donors of complex assets such as real estate from claiming tax benefits that far exceed the actual value of the donations.
For foundations, the legislation would waive the annual excise tax of 1.39% of their net investment income for each year their payout exceeds 7% of their assets. Private foundations created after the entry into force of the legislation could be exempt from tax if they agree to transfer all assets within 25 years of their founding.
The law would prohibit foundations from meeting their payment obligations by making distributions to funds advised by donors. A recent Chronicle analysis found that $ 740 million of such transfers were made in 2018, the most recent year for which data was available. Such transfers can help foundations meet their annual payment requirements, but critics say transfers do nothing for operating charities.
In addition, the legislation would not allow foundations to meet their payment obligations by paying the salaries or travel expenses of family members of the foundation, as they currently can.
Some of the country’s largest donor-advised fund sponsors are affiliated with commercial finance companies like Fidelity and Vanguard. They generally oppose efforts to require minimum annual distributions from advised funds.
Community foundations, which also sponsor donor-advised funds, have also been suspicious of these kinds of efforts to increase payments, arguing that they operate differently.
Ray Madoff, a professor of law at Boston College and one of the architects of the proposal, said these differences are legitimate and the legislation would waive reporting requirements for fund accounts advised by million-dollar donors. or less managed by community foundations. Accounts over $ 1 million in community foundations should be distributed within 15 years or should contribute at least 5 percent per year.
Jeff Hamond, coordinator of the Community Foundations Public Outreach Initiative, said he has yet to see the legislation. Overall, Hamond said the efforts to impose new distribution requirements have been too broad and are “a solution in search of a problem,” but noted that community foundations are “not opposed to all reforms ”.
Independent Sector, a national coalition of charities and foundations, did not weigh in on the effort and declined to comment for this article.
The Philanthropy Roundtable and other conservative groups oppose the new distribution requirements, saying they would discourage charitable giving.
Madoff said conversations were continuing on Capitol Hill about how the legislation could progress and whether it could attract more supporters, including in the House.
Madoff noted that recent reports of billionaires paying tiny amounts of taxes should serve as an “accelerator” for efforts to boost charitable giving.
“This is a time when we are appropriately reshaping our tax rules,” Madoff said. “As a company, we invest heavily in charitable giving, especially the charitable giving of the rich. It is important that we make sure that these resources are made available to the public and not just for the use of fund managers.
This article was provided to The Associated Press by the Chronicle of Philanthropy. Dan Parks is editor of The Chronicle. Email: email@example.com. The AP and The Chronicle receive support from the Lilly Endowment for coverage of philanthropy and nonprofit organizations. The AP and the Chronicle are solely responsible for all content. For all of AP’s philanthropic coverage, visit https://apnews.com/hub/philanthropy.