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As Donor-Advised Funds Grow In Popularity, They May Draw More Scrutiny
FYI: An increasingly popular way to make charitable donations while maintaining the tax benefits of philanthropy could face greater regulatory scrutiny.
"The tax reform law of 2017 eliminated many deductions, including those for charitable contributions."
No, and that's the point. Charitable contributions are still deductible, though because of a higher standard deduction you're less likely to benefit from itemizing them. Hence an increased value in using DAFs. As the article later explains: "A donor-advised fund allows benefactors to group donations into one contribution that would make it worthwhile to itemize one year versus taking the standard deduction."
Rather than eliminate charitable deductions, the tax law actually expanded them. You're now allowed to deduct up to 60% of AGI for cash contributions; previously you were limited to 50%.
BTW, for those over 70.5, QCDs (qualified charitable deductions) are another way to get around the "problem" of higher standard deductions.
"Unlike a private foundation, gifts from a donor-advised fund are anonymous."
Anonymity is merely permitted, not required. As the article goes on to say: "But in a statement, Schwab Charitable said approximately 97% of grants from its accounts include donor names."
The only potential regulation explicitly mentioned in the article is to close a tax loophole. When you donate directly to a charity, you get a deduction only to the extent that you did not receive something of value. When you contribute to a DAF, you get a 100% deduction. So you shouldn't receive anything of value when the DAF passes that money on to your designated charity. How can this be enforced?
Not mentioned as a target for additional regulation is the discretion that DAFs exercise in deciding what organizations can receive money from them. Some DAFs may give money to any organization that the IRS recognizes as a 501(c)(3) nonprofit. Others may prohibit money from going to what they consider dubious organizations; if so those DAFs should make this clear up front.
Comments
No, and that's the point. Charitable contributions are still deductible, though because of a higher standard deduction you're less likely to benefit from itemizing them. Hence an increased value in using DAFs. As the article later explains: "A donor-advised fund allows benefactors to group donations into one contribution that would make it worthwhile to itemize one year versus taking the standard deduction."
Rather than eliminate charitable deductions, the tax law actually expanded them. You're now allowed to deduct up to 60% of AGI for cash contributions; previously you were limited to 50%.
BTW, for those over 70.5, QCDs (qualified charitable deductions) are another way to get around the "problem" of higher standard deductions.
"Unlike a private foundation, gifts from a donor-advised fund are anonymous."
Anonymity is merely permitted, not required. As the article goes on to say: "But in a statement, Schwab Charitable said approximately 97% of grants from its accounts include donor names."
The only potential regulation explicitly mentioned in the article is to close a tax loophole. When you donate directly to a charity, you get a deduction only to the extent that you did not receive something of value. When you contribute to a DAF, you get a 100% deduction. So you shouldn't receive anything of value when the DAF passes that money on to your designated charity. How can this be enforced?
Not mentioned as a target for additional regulation is the discretion that DAFs exercise in deciding what organizations can receive money from them. Some DAFs may give money to any organization that the IRS recognizes as a 501(c)(3) nonprofit. Others may prohibit money from going to what they consider dubious organizations; if so those DAFs should make this clear up front.
This is what connects the dots back to anonymous contributions mentioned in the article.
https://www.phillymag.com/news/2019/02/25/vanguard-charitable-splc-hate-groups/