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S. 1981 Imposes Ineffective and Counterproductive Limits on Private Foundations

The Bill Would Prohibit Private Foundations From Counting DAF Gifts Toward Their Required 5% Payout Rate, Without Justification

 

Under current law, private foundations may include contributions to a DAF toward their annual qualifying distributions. 

  • The bill would generally exclude DAF gifts from the definition of qualifying distributions, unless the DAF gift is distributed to a charity by the end of the following year of the gift.
  • Any private foundation that contributes to a DAF would be subjected to new reporting requirements, including:
    • The amount of DAF contributions in a given year;
    • The name of the DAF sponsoring organization; and
    • Any donation advice given to the DAF sponsoring organization

Impact:

  • There are many valid and useful ways that private foundations use DAFs to further their charitable missions, including: to protect donor information when granting to a controversial cause; to issue a one-time, off-mission grant, such as COVID relief, without opening the door for further solicitations; and to pool resources with other givers, without burdening the receiving charity with extra administrative work.
  • The bill also imposes new reporting requirements on private foundations giving to DAFs that would undermine some of the legitimate reasons that foundations may use DAFs as a private giving vehicle. In our current divisive culture, donor privacy is crucial. Forced disclosure of some donations may threaten the safety and well-being of donors as well as chill charitable giving overall.

The Bill Would Arbitrarily Prohibit Family Foundations From Including Salaries and Expenses of Working Family Members As Administrative Expenses That Count Toward Payout

 

Current law requires private foundations to distribute at least 5% of assets each year. Foundations are allowed to count certain administrative expenses associated with their grantmaking, such as the salaries and work-travel expenses of employees, as part of the required payout.

  • The bill would exclude any administrative expenses (e.g. salary and travel expenses) that are paid to certain “disqualified persons” for purposes of payout. Under this provision, the definition of “disqualified persons” would:
    • Exclude foundation managers (officers, directors or trustees, so long as they are not related), meaning that their expenses would continue to count toward payout; and
    • Include substantial contributors to the foundation, along with family members (spouses, ancestors, children, grandchildren, great-grandchildren and their spouses), meaning that their expenses would no longer count toward payout.

Impact:

  • There is no evidence to support the discrimination against working family members at foundations. Data show family foundations are not more likely to claim higher administrative expenses than staff-run foundations.
  • This bill will handcuff family foundations and hamper the work they do to effectively and efficiently achieve their charitable missions.