Last week, 14 Republican state attorneys general published an open letter to Congressional leaders expressing opposition to legislation that would impose onerous restrictions on donor-advised funds (DAFs) and private foundations. The legislation, misleadingly called the Accelerating Charitable Efforts Act or ACE Act, aims to solve a problem that does not exist and will ultimately harm communities most in need of charitable support. While there are various complexities in the legislation’s proposed framework, the AG letter focuses on the threat to donor privacy and limits on foundation contributions to DAFs.
The authors of the letter argue this legislation, S.1981/H.R.6595, contains several provisions that would chill charitable giving. One such provision would make it more difficult for charities to meet the public support test with DAF donations. Under current law, public charities must demonstrate broad support from the public to obtain and retain public charity status. This bill would count all anonymous DAF contributions received from sponsoring organizations as coming from one single person. The attorneys general write, “Only where the DAF’s sponsoring organization identifies individual donors by name … could charities continue to use DAF contributions to satisfy the public-support test.” In effect, according to the AG’s, “The Act’s disclosure requirements would cause donors who might otherwise anonymously contribute to a preferred charity through a DAF to not donate at all. This harms not just the donor but the charity itself.”
The AGs have a strong record of supporting donor privacy. Last summer, 14 Republican attorneys general filed an amicus brief opposing California’s sweeping donor disclosure regime in a landmark U.S. Supreme Court case. In their ruling, the justices determined charitable contributions to nonprofit organizations should be considered free speech protected by the First Amendment of the U.S. Constitution. The current concerns of the attorneys general on donor privacy reflect a continuation of their established record, urging all levels of government to protect the right of Americans to privately give to the causes they care about.
The AGs also drew attention in their letter to the bill’s proposed restrictions on how private foundations use DAFs. Under current law, private foundations must distribute at least 5% of their asset value annually. The legislation, however, would exclude DAF contributions from counting toward that 5% requirement. In their letter, the AGs assert, “This prohibition would make it harder for those foundations to further their charitable missions.”
In fact, private foundations may use DAF contributions as a tool to help meet their giving goals for many legal, valid reasons. This could include protecting donor information when granting to a controversial cause or to pool resources with other givers, without burdening the receiving charity with extra administrative work. When private foundations are permitted to make qualifying distributions to DAFs, this ultimately encourages charitable giving, putting more money in the hands of operating charities.
This letter is one of many rebukes of the proposed legislation by a diverse array of voices. In March, a bipartisan coalition of members of the U.S. House Ways and Means Committee published a Dear Colleague letter expressing their concern about attempts to impose regulatory burdens on philanthropy through the so-called ACE Act. Last summer, the Roundtable joined a coalition of over 285 national and community foundations to express opposition to S.1981/H.R.6595. This growing protest demonstrates a broad alignment of constituencies alarmed by the legislation’s unnecessary threat to philanthropy.
Fortunately, there has been little momentum on this legislation since a companion bill was introduced in the U.S. House of Representatives earlier in the year, sponsored by Rep. Chellie Pingree (D-Maine) and Rep. Tom Reed (R-N.Y.) with Reps. Ro Khanna (D-Calif.) and Katie Porter (D-Calif.). Reed, a Republican, recently resigned from Congress, leaving the legislation without bipartisan co-sponsors in the House, without a supporter on the tax-writing House Ways and Means Committee – and with few allies.
Meanwhile, this group of 14 state attorneys general join a robust and growing coalition of voices from across the country united to protect philanthropy from onerous restrictions that will harm charitable giving. The Roundtable applauds their willingness to take a stand for charities, their donors and the communities they support.