Paul L. Caron
Dean


Wednesday, October 2, 2019

Colinvaux & Madoff: A Donor-Advised Fund Proposal That Would Work For Everyone

Chronicle of Philanthropy op-ed:  A Donor-Advised Fund Proposal That Would Work for Everyone, by Roger Colinvaux (Catholic) & Ray D. Madoff (Boston College):

More than $110 billion that Americans have earmarked for charity are now housed in donor-advised funds. DAFs are a fundraising phenomenon that make it easy to set aside dollars for good causes and get significant tax benefits right away.

But while the dollars are flooding into DAFs, too few dollars are coming out. That is because the legal framework governing these funds is out of sync with the way tax incentives are supposed to work. The reason for tax incentives is to get people to take an action deemed good for society, in this case, to make funds available so that charities can use them in support of their mission. But with donor-advised funds, the system is backwards: the federal government provides donors huge tax subsidies upfront, handing them out when the donor sets up a fund or augments it, but there is  no incentive to actually give the money away.

As legal scholars focused on public policy, we have long been concerned that the tax rules are not working as they should to get money to charities. When it comes to DAFs, we have advocated for the imposition of a payout term to ensure that DAF funds are distributed within a reasonable amount of time — say, a decade.

While a payout is one solution, as we have been studying the issue and hearing objections from sponsors of donor-advised funds, we have realized there is an even better approach that could maximize contributions, help donors save on taxes, and avoid abuses that lose money for the Treasury.

Our proposal essentially splits the tax benefit into two parts: Donors would get some financial benefits when they put money into the fund and receive additional benefits when they send money out of the fund to nonprofits they want to support. ...

Fixing the problem is simple and based on the bedrock principle that no charitable deduction should be available until donors give up complete control of their gift.  Suspending the income tax deduction until donors release their advisory privileges will promote more charitable activity and allow donors to continue to reap all the benefits associated with DAFs. We hope charities will join us to urge Congress to act. New legislation is the only way to guarantee that more dollars will flow more quickly to the causes that urgently need more resources to serve the public interest.

https://taxprof.typepad.com/taxprof_blog/2019/10/colinvaux-madoff-a-donor-advised-fund-proposal-that-would-work-for-everyone.html

Tax, Tax News | Permalink

Comments

I happen to know a recently retired gent named Mike who contributed dough to a DAF in order to ensure that he could help charities during his non income-earning years. Why should this ability be limited to 10 years?

Posted by: Mike Petrik | Oct 2, 2019 2:44:08 PM