Schwab Charitable Admits to The Absurdity in Commercially Sponsored Donor Advised Funds

Yesterday, Bloomberg ran what was intended as a sensational article regarding a Schwab Charitable Donor Advised Fund.  The headline reads shockingly, Schwab Charity Funnels $250 Milion to Right Wing Causes."  But the reporter missed the biggest story, I'm afraid. There is nothing wrong with donating to right wing causes, even if they are a buncha scared stupid idiots desperately clinging to a world gone with the wind.  The big story is that Schwab Charitable is a tax exempt charity, with supposed ultimate control over all donations.  And Schwab told the reporter in an instance of candid but unnecessary defensiveness:   "What the donors want done with their money is their business.  We just do what they tell us." 

That's the big story.  Its a donor advised fund operated by a 501(c)(3) that admits to two things:  (1) it doesn't care about charity and (2) it does whatever the donor tells it to do, no questioned asked.  We all knew this, didn't we? Both of those admissions are inconsistent with tax exemption. Schwab's admission proves the absurdity of it all.  Commercial sponsors are commercial sponsors, just here to make a fee.  They haven't an independent charitable impulse amongst the lot of them.  They should not be tax exempt.  It is dumb and inefficient to exempt them in the first place.  Not because they allow disbursements to causes I despise.  But because the funds are supposed to be Schwab's and Schwab is supposed to disburse them for charitable purposes determined by Schwab.  They can hear advice, but they are supposed to make an independent decision.  That's not what Schwab or any other commercial sponsor does.  

Here is the gist of the expose:  

The major donor-advised fund gave $141 million to a group associated with Leo between July 2022 and June 2023, according to a new tax filing with the Internal Revenue Service. In total, the Schwab Charitable Fund has given more than a quarter billion dollars to the Leo-connected 85 Fund in two years, helping to fund conservative campaigns against racial justice education in schools and healthcare for transgender people, among other causes. 

Another Leo-linked group gave more than $150 million to the Schwab Charitable Fund in 2022, showing how the fund can act as a pass-through for money from big donors and fundraisers. Leo received $1.6 billion from a major GOP donor – one of the largest-ever single political donations – in 2021 through his group Marble Freedom Trust. Marble Freedom Trust then gave $153.75 million to Schwab Charitable Fund in 2022.

Ok, so here is how commercial sponsors are supposed to work in exchange for tax exemption:  A donor establishes a fund with a sponsor that is tax exempt.  All his, her or its disbursement advisories request donations to conservative things.  The commercial sponsor should study and think about it, contemplating the disbursement's charitable effect on the sponsor's own charitable purpose, all before deciding whether to make the distribution as requested, to another recipient, or not at all right now.  Schwab's admission proves that things just don't work like that. Schwab can't work like that because its a commercial sponsor.  Commercial sponsors have no charitable purpose.  They collect a fee for doing whatever the donor says.  So when the reporter asked Schwab why a particular Schwab DAF supported Leo Leonard's crusade against critical race theory, donated money to keep Handmaidens in their place and bought Clarence Thomas' mama's house, Schwab responded thusly:

Meghan Miller, a spokesperson for Schwab Charitable, said the fund “facilitates grants recommended by donors for qualified charitable purposes to 501(c)(3) charitable organizations deemed eligible by the IRS and state regulators. Grants recommended by donors do not reflect the values or beliefs of Schwab Charitable, Schwab, or its management.” 

Ahhh, did you see what some lawyer said there?  Grants "recommended" by donors do not reflect the values or beliefs of Schwab Charitable." Maybe not, but disbursements are supposed to reflect values and beliefs of the fund's real owner -- the tax exempt sponsor!  Because the sponsor is supposed to be a charity, with a charitable purpose and with unfettered discretion over money even in donor advised funds.  With charitable "values and beliefs" of its own.  Commercial sponsors are not that, let's not be naïve.  

By the way, Schwab Charitable would be doing nothing wrong if it had a charitable impulse and in accordance with that impulse decided to fund the conservative causes mentioned in the first quote above.  But that's the point.  Schwab Charitable, a 501(c)(3), hardly gives a rat's ass.  None of the commercial sponsors do.  Commercial sponsors should not be tax exempt. Whose idea was this?

Only non-commercial charities -- churches, and community and private foundations, for example -- should be allowed to sponsor donor advised funds.  At least in those cases, the sponsor is a real charity with a stake in the charitable outcome.  Schwab Charitable admits -- like all other commercial sponsors if they are being honest -- that it couldn't care less the destination of the funds over which it supposedly has ultimate authority.   

We only tie ourselves up in knots when we indulge these silly legal fictions.

darryll k. jones