Wednesday, July 18, 2012
In the red corner - The US Treasury
In the blue corner - The Congressional Research Service
The bout - mandatory payouts from donor advised funds
In December, 2011, Treasury issued the long awaited "Report to Congress on Supporting Organizations and Donor Advised Funds," which was mandated by the Pension Protection Act (PPA). In general, the Treasury report took the position that many of the reforms implemented as part of the PPA were sufficient to address the abuses seen in the area. With specific regard to DAF distributions, Treasury noted favorably that the average payout rates for donor advised funds exceeded the private foundation 5% requirement, although Treasury did indicate that it was premature to make any recommendation based on the paucity of available data (DAF information was added to the Form 990 in 2008)(Treasury Report pp. 81-82).
Fast forward six months. On July 11, the Congressional Research Service issued, "An Analysis of Chariable Giving and Donor Advised Funds," using many of the statistics regarding donor advised funds cited in the Treasury report. Unlike the more cautious but generally favorable Treasury report, the CRS report concluded that donor advised funds should have a mandatory distribution requirement - and further, that it should be applied on a per fund basis. The CRS report focuses on the fact that although average distribution rates among donor advised funds are quite high, there are many DAFs that make little or no distributions at all. Janne Gallagher at the Council on Foundations (CoF posted the CRS report linked above, which is not generally available online) wrote a critique of the CRS report, posted at the CoF site here.
Interestingly, the Summary section of the CRS report notes that "The Treasury study was released in 2011. Senator Chuck Grassley, Senate Finance commitee chairman at the time of the 2006 legislation, has criticized the study as being 'disappointing and nonresponsive.'"
Despite all the statistics and analysis, however, it seems to me that the case has not been made from a policy perspective as to why we should (or should not) require a payout from DAFs. I find myself saying, "well, so there are a few DAFs not making annual distributions - so what?" To some degree, the CRS report comes the closest to reciting a reason - that DAFs are in fact under the functional control of their donors and therefore, they should be regulated similarly to private foundations. Treasury appears not to assume donor control; CRS assumes donor control because the DAF sponsoring organizations generally follow donor suggestions. Clearly, the parties disagree on factual nature this issue - I guess we will see more in Round 2.
Hat tip to my friend Chris Hoyt at the University of Missouri (KC) Law School (you know him... really, really terrible jokes!) for pointing me to the CoF materials.