Donor-Advised Funds Update: New Articles by Colinvaux and Heist et al.; NY AG Action; Fidelity Charitable Just Keeps Growing

Roger Colinvaux (Catholic University) has published Speeding Up Benefits to Charity by Reforming Gifts to Intermediaries, 63 Boston College Law Review 2621 (2022). Here is the abstract:

Charitable giving tax incentives are intended to encourage giving for public benefit. Gifts to intermediaries frustrate this goal. Presently, $1.26 trillion has accumulated in donor advised funds (DAFs) and private foundations. These are charitable intermediaries that do not benefit the public until they release their funds for public use. Congress has long recognized that intermediaries cause a "delay in benefit" problem because the tax incentive is awarded before the public benefits from the gift. Congress addressed this problem for foundations in 1969 by requiring them to pay out a minimum amount annually. Congress, however, has not addressed the problem for DAFs, and the foundation payout now has too many loopholes. The Article explains that reform of charitable intermediaries is essential to the continued viability of the charitable giving incentives. The status quo allows donors to a take a tax deduction, retain effective control over their donations indefinitely, and provides no guarantees that the public will ever benefit from tax subsidized charitable gifts. This Article responds to arguments against charitable intermediary reform and analyzes bipartisan legislation, the ACE Act, introduced to accelerate charitable giving from DAFs and foundations. The Article also considers whether community foundations and other mission-driven DAF sponsors warrant distinct legal treatment. The Article concludes that the status quo undermines generosity and perpetuates wealth, and that reform is required. This Article further concludes that, though the ACE Act is sound legislation, it should apply to existing DAF accounts and require further study of its incentives for private foundations and whether DAFs at mission-driven sponsors further their mission.

H. Daniel Heist (BYU), Benjamin F. Cummings (Utah Valley University), Megan M. Farwell, Ram Cnaan (University of Pennsylvania), and Erinn Andrews (GiveTeam) have published Tubs, tanks, and towers: Donor strategies for donor-advised funds giving, Nonprofit & Management Leadership (2022), which provides interesting information about the various ways donors use DAFs. Here is the abstract:

The increasing use of donor-advised funds (DAFs) creates challenges for nonprofit managers and fundamentally changes the way that many donors give to charity. We conducted 48 in-depth interviews with DAF donors to understand their strategies of how they give through a DAF. From the interviews, we found three distinct models of DAF giving strategies: tubs, tanks, and towers. Tub donors give quickly through a DAF, moving money in and out annually. Tank donors contribute large lump sums and grant the money away in the relatively near future. Tower donors take a calculated approach with the DAF to sustain their philanthropic activity over time. Several factors relate to these strategies, including the sources and timing of contributions, different purposes of grantmaking, tax implications, investment strategies, and family involvement. Our findings may help nonprofit managers, fundraisers, and other stakeholders to better understand the various ways donors give through DAFs.

In other news, last month the New York Attorney General filed an Assurance of Discontinuance relating to Peter Fleischmann, former chief executive office of the Foundation for Jewish Philanthropies (FJP), a donor-advised fund (DAF) sponsoring organization. According to news reports, four years ago Fleischmann resigned from his role with the charity that then managed nearly $200 million in assets. I could not find a ready link to the document - I received it from the New York AG's office - but it contains findings and relief agreed to by the AG and Fleischmann, including:

• A disclosure by FJP of an internal investigation to the AG's office triggered the AG's inquiry.

• Fleischmann breached his fiduciary duties in various ways, specifically facilitating a donor's award of scholarships from a fund held by FPJ to relatives of the donor (which FJP reported to the IRS as violations of section 4966 relating to DAFs and obtained repayment from the donor for) and making charitable donations in violation of the terms of other funds and claiming those donations as his personal ones for charitable contribution deduction purposes (which he has since repaid in significant part to FJP).

• Fleischmann agreed to be permanently barred from serving in a position with fiduciary responsibilities for any New York nonprofit and has corrected the tax returns on which he claimed the improper charitable contribution deductions.

Finally, Fidelity Charitable announced that new grants are expected to surpass deposits in 2022, according to AP News, with grants expected to exceed the $10.3 billion donated in 2021. And Bloomberg Law (subscription required) reports on the details of Fidelity Charitable's latest IRS Form 990, including that of those 2021 donations hundreds of millions of dollars flowed to other DAF sponsoring organizations.

Lloyd Mayer