Nonprofit Law Prof Blog

Philanthropy in the Age of Covid

Last week, Candid and the Center for Disaster Philanthropy released Philanthropy and Covid-19: Examining Two Years of Giving. There's a lot of interesting information there, but the topline conclusion is this: Covid-related giving declined significantly between 2020 and 2021, on several metrics.

Survey respondents reported $2.119 billion of Covid support in 2020. The number declined 31% to $1.462 billion in 2021. In that same period, overall grantmaking went up 11%. (Candid does say that, since there is no precise definition of Covid support, respondents used their own judgment to determine whether their giving represented Covid support.)

Anyway, it's an interesting survey and an interesting report, and probably worth taking some time with.

Samuel D. Brunson

New Nonprofit Data Tools: New Giving Dashboard and Form 990 Data Recommendations

The ever increasing flood of data about nonprofits demands new tools to help analyze it. Fortunately, two new resources have recently become available.

First, the Urban Institute's Center on Nonprofits and Philanthropy has launched a Giving Dashboard. Its categories cover a range of giving forms, including individual giving, noncash contributions, volunteering, impact investing, political giving, donor-advised funds, digital currency, and crowdfunding. Here is the description:

Below, we have collected and organized data into a giving dashboard that provides a snapshot of the many ways Americans give. We define giving expansively to include not only donations to tax-exempt nonprofits, but also crowdfunding, impact investing, and more. Many of our categories contain several measures from a range of data sources. On the right side of the dashboard, we provide a quick overview of each category by highlighting how the first measure in the category changed during the latest year for which data are available. By clicking on the category, you can explore all the measures within it. Although many types of giving resist quantification, the figures in this dashboard represent indicators that illuminate the dominant trends shaping the contemporary giving landscape in the United States.

Second, the Aspen Institute's Program on Philanthropy and Social Innovation has published a new report, Stories From the Frontier: Breakthroughs, Challenges, and Recommendations from the First Five Years of Open 990 Data. Here is the description:

Read our new report to learn how open Form 990 data is empowering change throughout the nonprofit sector! PSI commissioned the Dorothy A. Johnson Center for Philanthropy at Grand Valley State University to author the report.

Making 990 data searchable and available for free to the public has revolutionized nonprofit information and scholarship by massively reducing costs and increasing efficiency. Researchers, nonprofits, government regulators, and journalists are using previously inaccessible data to further transparency, educate donors, advance knowledge, and fuel innovation. The report also provides a list of tools and resources for accessing 990 data.

Lloyd Mayer

DAF Update: Biden Administration Tips Toe In; Studies and More Studies

Cherry picking an issue flagged by the IRS in 2017 (Notice 2017-73) and addressed by one provision of the pending ACE Act (section 5), the Biden Administration's FY2023 Budget includes a provision (see page 132) that would bar private foundations from counting distributions to donor advised funds toward their minimum payout requirement under IRC 4942, except in limited circumstances (for more details, see pages 58-59 of the General Explanations of the Administration's revenue proposals). While passage of this provision is of course uncertain, it is important because it indicates that the Administration is at least tipping its toe into the DAF reform area. At the same time, 12 bipartisan members of the 43-member Ways and Means Committee issued a letter supporting DAFs and opposing recent DAF reform proposals. (Hat tip: Chronicle of Philanthropy (but incorrectly identifying the signers as all Republicans, when 7 of the 12 are Democrats)).

At the same time studies of DAFs continue to accumulate. The Institute of Policy Studies recently issued the results from two studies:

• Private Foundation Giving to Commercial Donor-Advised Funds based on the IRS returns of private foundations that filed electronically from 2016 to 2018 and a list of the 45 largest commercial DAF sponsors, with the following findings: 
  • Private foundation giving to these commercial DAFs averaged $737 million per year from 2016 to 2018.
  • From 2016 to 2018, gifts from DAF-giving private foundations to these commercial DAFs averaged about $605,000 each, while their gifts to other recipients averaged just under $119,000 each.
  • 229 foundations gave $1 million or more to these commercial DAFs from 2016 to 2018.
  • Grants to these commercial DAFs made up one hundred percent of all charitable distributions for 157 foundations from 2016 to 2018.

• Larger Community Foundations Have Become Heavily Reliant on Donor-Advised Funds based on the electronically filed IRS returns of 206 community foundations that participated in Candid's 2019 Columbus Survey, with the following findings:
  • DAFs accounted for a median 24 percent of assets.
  • A median 41 percent of all incoming contributions consisted of contributions to DAFs.
  • A median 42 percent of all outgoing grants were grants from DAFs.
  • Larger community foundations tend to be much more heavily reliant on DAFs for their incoming revenue streams; DAFs account for a much larger proportion of their outgoing grants; and DAFs make up a much larger proportion of their total assets.

The Donor Advised Fund Research Collaborative also recently made available the result of this study:

• Donor-Advised Fund Account Patterns and Trends (2017-2020) based on 13,000 DAF accounts from 2017 to 2020 at 21 community foundations and religiously-affiliated DAF sponsors in the United States (but not including national, commercial DAFs), with findings including:
  • While 11% of DAFs had over $1 million in assets, the typical DAF is equally likely to be a small-sized DAF with assets under $50,000 or a medium-sized DAF with assets between $50,000 and $1 million.
  • The median four-year average payout rate among all accounts was 11%; among spendable DAFs, the median payout rate was 13%.
  • Large accounts over $1 million were 11% of all accounts and represented at least 85% of the assets in the DAFRC sample.
  • The majority of DAF contributions were received in the fourth quarter, including approximately 55% of dollars contributed and 42% of contribution transactions.

The Chronicle of Philanthropy also reported that giving from two of the largest sponsors of donor-advised funds grew slower in 2021 than in 2020.

Lloyd Mayer

 

DAFs Update: Anonymous Giving Study, COF Community Foundation Recommendations, OpEds

UPDATE: Fellow blogger Roger Colinvaux (Catholic) also responded to Katherine Enright's OpEd discussed below, in a Letter to the Editor titled The Status Quo Is Not Acceptable When It Comes to Donor-Advised Funds. And as previously noted in this space, he has written an article on the ACE Act, Speeding Up Benefits to Charity: Donor Advised Fund and Foundation Reform, Boston College Law Review (forthcoming).

Even as we await congressional action on the Accelerating Charitable Efforts (ACE) Act, studies, recommendations, and dueling opeds continue to emerge.

In terms of studies, Howard Husock at the American Enterprise Institute has posted a recent study on anonymous giving through DAFs that makes these points:

• A review of grant data from the five largest sponsors of donor-advised funds—including the independent public charities, serviced by financial firms Fidelity, Vanguard, and Schwab—shows that anonymous grants comprise only 4.3 percent of all grants. It also shows that grants in the anonymous category that may include support for public policy matters include a small minority (12 percent) of that small group.

• Most anonymous giving supports well-known and noncontroversial organizations, including American Red Cross, Doctors Without Borders, and Salvation Army.

• Any regulation designed to limit anonymous giving risks discouraging charity by donors that may choose anonymity for various reasons, including fear of public criticism, unwanted solicitation, or religiously motivated reasons.

Coverage: Chronicle of Philanthropy (including criticism of the study; subscription required). At the same time, Hayden Ludwig at the Capital Research Center posted a short report critical of the Silicon Valley Foundation, titled The Gilded Left’s Favorite Bay Area Bankroller. 

The Council on Foundations's Strengthening Community Philanthropy Ad Hoc Working Group also recently issued a set of recommendations for community foundations that hold donor-advised funds. The recommendations address the following issues:

• Standardizing Community Foundation Inactive Funds Policy
• Aggregate DAF Annual Distribution Requirement
• Private Foundation Distributions to Donor-Advised Funds
• Donation of Complex Gifts
• Expanding Charitable Giving

Finally, Katherine Enright of the Council of Foundations wrote an OpEd titled Donor-Advised Funds Are Essential to Democratizing Philanthropy, which led to a response from a former director development titled Donor-Advised Funds Don’t Pass the Democracy Smell Test. And at the Wall Street Journal, Jeremy D. Tedesco of the Alliance Defending Freedom wrote a commentary pushing back the Unmasking Fidelity movement titled Cancel Culture Targets Charity: Left-wing political activists want to destroy America’s long tradition of private philanthropy.

It seems the DAF debate is quickly becoming a vehicle for a number of political arguments and divides. 

Lloyd Mayer

Study: Churches' Ministry to Those Hurt by Pandemic Shows Monumental Growth

Today's Religion News Service (RNS) is reporting that according to a survey conducted by the Hartford Institute for Religion Research, more than half of Christian congregations say they have started a new ministry or expanded an existing one during the COVID-19 pandemic. On average, in fact, these Christian houses of worship began or broadened more than three of their outreach activities in response to the pandemic. 

The Hartford Institute's report is the second installment in a five-year project that began earlier this year called “Exploring the Pandemic Impact on Congregations,” based on a collaboration among 13 denominations from the Faith Communities Today cooperative partnership and institute staffers. If their findings are representative of the roughly 320,000 Christian congregations in the country, the institute said, the researchers estimate that nearly 175,000 churches launched or expanded ministries, funds and supplies in response to the pandemic over the past two years. Overall, almost three-quarters (74%) of churches have offered social support during the pandemic and close to two-thirds of congregations say they have been involved in new ministries.

According to the RNS report,

The new findings, a November survey drawn from 820 responses from representatives of 38 Christian denominational groups, showed significant changes in congregations’ attitudes toward change, particularly increasing diversity. Less than three-quarters (73%) agreed in 2020 that their congregations were willing to change to meet new challenges. That increased to 86% in November.

There also seemed to be greater interest in striving to be diverse, with 38% describing themselves as doing so in November compared with 28% in summer of 2021 and 26% before the pandemic and before the majority of the 2020 protests spurred by the murder of George Floyd, a Black man who died under the knee of a white Minneapolis police officer.

But even as congregations considered new ways of operating, an increasing number are concerned about their future, with 23% saying they are worried about their ability to continue, compared to 16% in the summer.

This worry may well be the result of a grim reality: the institute’s researchers estimated that some 200,000 church members have lost their lives due to COVID-19. The percentage of churches reporting deaths within their membership increased from 17% in the summer to 28% in November, when the second survey was conducted. The average number of deaths among those reporting losses in their congregation was 2.3, up slightly from 2 in the summer.

In response, Allison Norton, co-investigator of the study, told RNS in an email, “This is a sobering picture; however, we would have expected an even greater loss, given the aging population of regular churchgoers.” 

The project’s first report, based on responses from summer 2021, showed that about a third of congregations had increased requests for food. About a quarter received more requests for financial assistance during the pandemic. The November survey found that 22% said they had added or increased food distribution and 21% had enhanced or begun financial assistance for their community.

It is good to see churches functioning in society as they should.

Prof. Vaughn E. James, Texas Tech University School of Law

 

Mayo, Navigating the Notches: Charity Responses to Ratings

Jennifer Mayo (Ph.D. Candidate in Economics, University of Michigan) has posted Navigating the Notches: Charity Responses to Ratings. She summarizes her research in a Twitter thread here. Here is her introduction:

This paper studies both donor and nonprofit responses to the star rating system designed by Charity Navigator. Using IRS Form 990 data from 2002 to 2019, I find that an increase in a charity’s rating from 3- to the highest 4-star rating is associated with a 6% rise in contributions, with larger effects among smaller charities. Some charities respond to the incentives by changing their behavior to try to get themselves above the star thresholds, leading to “bunching” at the thresholds. This response is equal to the effect of charities halving spending on administration. I find that some of the response is due to misreporting of expenses in order to achieve a higher star rating. The analysis suggests that a notched rating system induces greater behavioral change than a continuous measure, but affects a smaller number of charities. Which rating system is preferred depends on the relative value placed on these effects.

Samuel D. Brunson

DAFs, Private Foundations, and Payout Rates

While the Accelerating Charitable Efforts (ACE) Act appears to be stuck in the Senate Finance Committee, at least for now, that has not slowed the publication of studies focusing on donor advised funds, private foundations, and payout rates. This includes reports from Giving USA, the National Philanthropic Trust, and the American Enterprise Institute, along with the latest case study of a wealth individual's private foundation.

Giving USA released this week a special report titled Donor-Advised Funds: New Insights. Here is the description:

This new special report analyzes $74 billion in grant funds going to over 240,000 organizations, answering important questions like:

1. What types of organizations receive grants from DAFs?
2. How have DAF trends changed over time?
3. How do trends differ among various types of DAF sponsoring organizations – for example, how might granting patterns at community foundations differ from grants at other types of DAF-sponsoring organizations such as national funds or single-issue charities?

Unfortunately it is only available on a paid basis, either as part of the paid annual subscription to Giving USA or separately.

The National Philanthropic Trust also just released The 2021 DAF Report. Key findings include:

• DAF donors granted at historic levels. Grants from DAFs to qualified charities totaled an estimated $34.67 billion, representing a 27.0 percent increase compared to 2019 and a new high-water mark. This is the highest DAF grant increase in a decade.
• The DAF payout rate was 23.8 percent, one of the highest payouts on record. Payout has remained above 20 percent for every year on record, reflecting the consistent charitable support that DAF donors provide.
• Other key metrics, like contributions and charitable assets, also increased. These increases demonstrate that DAF donors are committed to supporting charities now and in the future.

And Howard Husock at the American Enterprise Institute has published America’s largest foundations: Examining payout rates and perpetuity. Here are its key points:

• An examination of payout rates of the largest American philanthropic foundations reveals that the growth of their financial assets is significantly greater than the percentage of increased wealth distributed as grants. Foundation payout rates are also significantly lower than those of the individual charitable accounts known as donor-advised funds (DAFs), a growing philanthropic financial vehicle.
• DAFs, their relatively high payout rates notwithstanding, have been targeted by proposed legislation aimed at increasing those rates. Large foundations, despite controlling far more wealth and distributing a lower percentage of assets, have not been singled out. The substantial increase in the assets and extent of US private charitable foundations over the past 10 years suggest that foundation payout rates might be increased in light of substantial asset growth. Ideally, America’s largest private foundations would do this voluntarily.
• Foundations should, as best practice, seek to align grant payouts with asset growth, rather than settling for adhering to the 5 percent minimum.  In doing so, they could both better fulfill their mission and preempt what could be potential regulatory demands.  At the same time, asset growth should be the occasion for foundations to reflect on the perpetuity issue—and regulation should call for explicit indication as to whether foundations choose perpetuity and, if so, why.

Finally, in case anyone needs another real life example of how the wealthy use private foundations in their giving, the Institute for Policy Studies has posted an article (Phil Knight’s Billion-Dollar Philanthropy: Generosity or Self-Service?) based on a Bloomberg piece that is behind a paywall. The article focuses on "Nike founder and billionaire Phil Knight’s strategies to avoid estate tax and maximize transfers to his heirs and charitable foundations."

Lloyd Mayer

Giving Remains Steady As Pandemic Continues, But Some Giving Patterns Change

Several recent studies of giving in the United States reveal various trends as the pandemic and other crises continue.

The Fundraising Effectiveness Project released this week its 2021 Second Quarter Fundraising Report. According to the report's announcement, the key findings include: 

• While giving in 2021 has not seen the explosive growth of 2020, the pace of giving and number of donors has remained roughly the same or even a little higher. The estimated number of donors increased by 0.7% in the first half of 2021 compared to the same period in 2020, while the total amount of money given has risen by a projected 1.7%.
•  
• Fundraising has remained strong in the first half of the year due to the number of newly retained donors—that is, the number of new donors in 2020 who have continued to give in 2021. The number of newly retained donors increased 22.4% over the first half of 2021. 
•  
• Total giving and the number of donors grew by record rates in the first quarter of 2021 (10% and 6%, respectively), but the growth was much more nominal in the second quarter. The drop in growth in the second quarter might be a developing trend that leads to flat or decreasing in the third quarter, or the result of abnormally strong first quarter growth.

The IUPUI Lilly Family School of Philanthropy also released this month Understanding Philanthropy in Times of Crisis: The Role of Giving Back During COVID-19. Its key findings were:

• Individual Giving: 1. Americans have maintained their commitment to charitable giving throughout the pandemic, with some notable exceptions. 2. Donors who gave to COVID-related causes often indicated that other people can be trusted and were more motivated to strive for the wellbeing of others and society. 3. End-of-year giving made up a larger portion of giving in 2020 than in the previous two years. 4. Nonprofit subsectors directly related to responding to the pandemic, such as human services, health, and public-society benefit, saw significant increases in donations. 5. The characteristics of donors to COVID-related causes appear similar to general patterns in giving to charitable causes more broadly. 6. Innovation and digital adaptation were vital to meeting new demands during COVID-19.
•  
• Corporate Giving: 1. Corporations responded to the increased health demands imposed by COVID-19 with increased giving and multi-year pledges. 2. The commitment of corporate philanthropy to health causes is distinct from other types of donors. 3. Finance and insurance companies dominated U.S. corporate giving to COVID-19 relief in 2020. 4. Corporations (that participated in interviews with the school) adapted their workplace giving programs in response to COVID-19, with a heavy reliance on technology.

Earlier this fall, Bank of American and the IUPUI Lilly Family School of Philanthropy released The 2021 Bank of America Study of Philanthropy: Charitable Giving by Affluent Households. According to the overview, it found "[t]he vast majority (88.1 percent) of affluent households gave to charity in 2020, and nearly a third (30.4 percent) of affluent individuals volunteered their time (down significantly from 47.8 percent in 2017), despite the COVID-19 global pandemic. On average, affluent donor households gave $43,195 to charity in 2020. By comparison, donor households in the general population gave $2,581." It also found that issues drove giving roughly as much as organizations, in a shift from previous studies indicating that organizations were a strong influence, and that support for social and racial justice grew in significance. 

Lloyd Mayer

Nonprofits Struggling to Meet Service and Organizational Demands During Pandemic

A special report published in yesterday's NonProfit Times revealed that more than half (53%) of nonprofits have had greater demand for their services during the COVID-19 pandemic, and one-third are experiencing higher operating costs. Indeed, four in 10 nonprofits have cut operating costs, and one-third have pared back programs or services. 

The Times' report cites to the 2021 Nonprofit Leadership Survey Report from Grassi Advisors & Accountants. According to the report, cutbacks hit smaller nonprofits harder than larger ones, with 48% of those having costs less than $5 million experiencing cutbacks, compared with 37% of those with expenses in the $5 to $25 million range and 36% with costs greater than $25 million.

Nonprofits have explored a variety of cost-cutting and revenue-supplementing activities. Slightly fewer than one-quarter (23%) have renegotiated leases and other contractual financial obligations. Some 7% have terminated automatic payments and 15% have increased their draws on their endowments. And, 5% merged with another nonprofit during the past year.

Human capital is also being affected. Nearly one-third of nonprofits had layoffs and furloughs, while 12% reduced employee benefits. Two in 10 are operating under a hiring freeze.

Nonprofits are experiencing great difficulty in locating volunteers to make up for their lost employee time. According to the report, 22% report challenges recruiting and managing volunteers. Given COVID concerns, this is not surprising. More than two-thirds (68%) of nonprofits have at least some staff that work in close physical contact with the populations they serve. Officials at nearly that many (63%) said the outbreaks had been at least somewhat of a problem for them.

In more bad news, notwithstanding their cost cutbacks, nonprofits are not on steady financial footing: A mere 2% report having at least 12 months of liquidity, with officials at roughly one-third indicating they have fewer than three months, between four and six months or between seven and twelve months of liquidity.

The Times continues:

[W]hile fewer than half (47%) report drops in funding, that level is likely due to Paycheck Protection Program loans and other federal relief programs. Another quarter said their funding had remained steady, while only 26% reported funding increases.

Working capital lines of credit offer only finite hope for nonprofits. Overall, 63% have access to this resource while one-third do not. And of those with this resource, 27% have availed themselves of it during the past 12 months.

Nonprofits aren’t being static in the face of COVID-related challenges. More than seven in 10 (71%) implemented new technologies during the past year, although many of these likely were in support of remote or home-based staff. Another 42% created new programs and services, while 36% launched new collaborations with other organizations.

Nonprofit managers also used the pandemic as a time for organizational self-reflection: 22% began to target and serve new client populations, 22% renewed their mission statements and 12% changed their mission.

Looking to the future, The Times -- and the report from Grassi Advisors & Accountants -- opine that to be successful, nonprofits will need

Funding, funding, funding. While 60% said their top priority was attracting [and] retaining qualified people, the next three priorities bunched revenue concerns, with 56% seeking improved fundraising, 55% indicating a pressing need for more funding for overhead costs, and 54% citing the need to stabilized revenue and cash flow.

For many, however, the future will look different. Currently 43% are considering working collaborations with other organizations to deliver their services, and 21% are mulling a merger. Two percent say closure is a possibility, and barely over half – 54% – indicated none of these options are on the table.

Things certainly look different for the future.

Prof. Vaughn E. James, Texas Tech University School of Law

 

  

 

 

Pew Research Center, Pastors Often Discussed Election, Pandemic, and Racism in Fall of 2020

Over the summer the Pew Research Center released an analysis of sermons during the run-up to the 2020 election. Its conclusions included:

• "[A]mong churches that posted their sermons, homilies or worship services online between Aug. 31 and Nov. 8, 2020, two-thirds posted at least one message from the pulpit mentioning the election." 

• There were significant variations between major Christian groups (Catholic, mainline Protestant, historically Black Protestant, and evangelical Protestant), including with respect to language used and the proportion of sermons that discussed specific issues, parties, or candidates.

• "[R]elatively few pastors openly stumped for particular candidates or parties," although some sermons clearly favored either Republicans or Democrats.

Hattip: EO Tax Journal

Lloyd Mayer

Study: Household Charitable Giving Continues to Plunge

The Giving Environment: Understanding Prepandemic Trends in Charitable Giving, a new study by the Indiana University Lilly Family School of Philanthropy at IUPUI, examines giving patterns across the past two decades from five nationally representative studies and concludes that giving to charity by U.S. households has been on the decline not only since the Great Recession but since the turn of the century: One out of two American households donated to charity in 2018 compared with two out of three in 2000.

The report, based on research funded by the Bill & Melinda Gates Foundation, noted that 66.2% of American households gave charitable contributions in 2000, a figure that dropped by 17% to 49.6% in 2018, the latest year for which data is available. It is the first time that giving has dipped below 50% of U.S. households since the studies began tracking this information. 

It is also the first time since the Philanthropy Panel Study (PPS) began tracking the share of American households that donated to charity in a given year that the participation rate dropped to half.

Commenting on the study's conclusions, Una Osili, Ph.D., associate dean for research and international programs at the Lilly School, stated, “The new research offers clear evidence of a substantial decline in formal charitable giving rates prior to the unprecedented challenges of 2020.” With an eye on crowdfunding and impact investing as additional means of charitable giving, Dr. Osili further stated, “It’s also important to acknowledge the many additional ways individuals are participating in philanthropy today.”

According to a report in the NonProfitTimes which analyzed the study:

Data is not yet available to show whether the decline in participation continued in 2020. The study analyzed the latest data from the PPS, a module of the University of Michigan’s Panel Study of Income Dynamics. The study follows more than 9,000 households over time and provides the most comprehensive data available on giving trends by U.S. households.

Giving participation rates decreased for members of all racial and ethnic groups studied between 2000 and 2019. While giving to religious groups began its decline before the Great Recession in 2008-09 — 46% between 2000 and 2004 to 29% in 2018 — giving to secular causes didn’t begin to dip until after the economic downturn of 2008-09. In 2008, about 57% of households donated to secular causes, down to 52% in 2010, and a low of 42% by 2018. The decline in average amount donated to religious causes ($1,107 in 2000 to $771 in 2018) has outpaced the decline in average amount given to secular causes ($684 in 2000 to $509 in 2018).

The Times continues:

The largest drops in giving participation were found among Hispanic households, from 44% in 2000 to 25.5% in 2018, about 18.5%. During the same period, giving by Black households declined from almost 49% to less than 33% (16%) while participation by White households dropped from 71% to 58% (13%).

About one-third of the decrease in participation from 2000-16 can be directly attributed to shifts in income, wealth, and homeownership, according to the report’s authors, suggesting that factors like interpersonal trust, empathy and compassion, among others, also may play a role.

The General Social Survey (GSS), which includes questions about interpersonal trust, was another study examined for the report. It indicated that trust and giving participation rates declined simultaneously between 2002 and 2014:

The drop was more severe among Americans 30 and younger than among those older than 30. Younger Americans in 2002 reported giving participation of 84.5% with a 24.7% trust rate, compared with 78.9% and 18.6%, respectively, in 2014. Although the correlation does not mean that the decline in trust helped cause the decline in giving participation, it suggests there may be a relationship, according to researchers.

Now, that is something to think about.

Prof. Vaughn E. James, Texas Tech University School of Law

 

 

Accelerating Charitable Efforts Act, a Michigan DAFs Study, and DAF-Critical Media Pieces

The past month has seen a number of significant developments relating to donor advised funds, including the introduction of the Accelerating Charitable Efforts Act ("ACE Act") in Congress, a study of Michigan community foundation DAFs, and media criticism of various uses of DAFs.

Senators Angus King (I-Maine) and Chuck Grassley (R-Iowa) announced the introduction of the ACE Act in early June. The legislation aligned with the priorities and some of the proposals by the Initiative to Accelerate Charitable Giving. Some organizations quickly expressed strong opposition, including the Council on Foundations and the Philanthropy Roundtable. Others reserved judgment, awaiting further study and input from their members, including Independent Sector and the United Philanthropy Forum, although they joined a letter from some critics expressing concerns about the Act. Coverage: Devex; MarketWatch.

Also last month, the Council of Michigan Foundations released a study titled "Analysis of Donor Advised Funds from a Community Foundation Perspective." Here are its Key Findings:

• DAFs compose a considerably smaller percentage of endowments of Michigan community foundations compared to community foundations nationwide. The median community foundation in the United States holds roughly one in four dollars of its endowment on behalf of a DAF — compared to one in ten for Michigan’s community foundations.

• The median Michigan DAF experienced investment returns consistent with the median Michigan community foundation. DAF gains were slightly higher, and losses slightly greater, than the median community foundation’s results — suggesting that the median DAF accepts more risk with the opportunity for higher return.

• The median payout rate of all Michigan DAFs during 2017–2020 is 2% lower than the median Michigan private or community foundation. However, when only including DAFs that made a payout during a given year, the median DAF payout rate moves to 2% or more higher than the median private or community foundation payout rate.

• In any given year included in this study (2017–2020): 
  • One in ten Michigan DAFs received inbound contributions but made no outbound distributions (grants).
  • More Michigan DAFs made a distribution (more than 60%) than received an inbound contribution (roughly 40%).
  • Although an average of one in four Michigan DAFs was quiet (inactive) in any single year, across the four study years less than 10% of all Michigan DAFs were quiet in every year. These quiet DAFs hold less than 5% of total DAF assets in the state.
  • DAFs that were active in every year 2017 through 2020 — with a contribution, distribution, or both — comprised the majority of Michigan’s DAFs (59%), received nearly all of the contributions (96%), made nearly all of the distributions (88%), and held nearly all of the assets (82%).

• In 2020 (the most recent year available), just under half (43%) of Michigan’s DAFs paid out 5% or more of their balance, and almost a third (32%) paid out 9% or more.

• Looking at the type of DAF:
  • Michigan’s DAFs are nearly evenly divided in both number and total assets between endowed and spendable DAFs, with endowed DAFs holding just over 50% of all assets. However, spendable DAFs comprise nearly three-quarters of all contributions and distributions.
  • One-quarter of Michigan’s spendable DAFs distribute nearly half of their balance in any given year, and one in every ten spendable DAFs distributes almost all of the available balance (80% or more) in any given year. 

• Out of the approximately 2,600 DAFs housed at Michigan’s community foundations, only 2% were established by a private foundation. Balances, contributions, and distributions were also all in single digit percentages. Therefore, private foundation-established DAFs are rare within Michigan’s DAF universe.

• There is evidence that DAFs responded to the crises in 2020.
  • Two-thirds of all DAFs made distributions in both 2019 and 2020, with just over one-third (35%) increasing both the dollars distributed and the payout rate in 2020 compared to 2019.
  • Nearly one in five distributed dollars in 2020 came from DAFs that made no distributions during 2019.
  • The median distribution from a Michigan DAF rose from $8,500 in 2019 to $9,750 in 2020.

Finally, there have been several news stories and opinion pieces including criticism of DAFs. These included a N.Y. Times story "How Long Should It Take to Give Away Millions?",  an L.A. Times  editorial "Charitable donations are a form of influence-peddling. And they should be stopped" (use of DAFs to avoid California's legally required public disclosure of the sources for donations requested by politicians), and  a Daily Beast story "Christian Billionaires Are Funding a Push to Kill the Equality Act" (focusing on donations from the DAF sponsor National Christian Charitable Foundation).

Lloyd Mayer

New IRS Exempt Organizations Data for 2020

The IRS recently released two sets of statistical information about exempt organizations, in the most recent edition of the IRS Data Book and in spreadsheets from the Statistics of of Income program.

The recently released 2020 IRS Data Book (for the fiscal year ending 9/30/20) contains the usual high-level statistics for exempt organizations, including:

• Number of tax-exempt organizations and certain trusts (1,907,711) (Table 14), with most (1,753,824) tax-exempt organizations under section 501(c), including 1,404,170 under section 501(c)(3).

• Applications for tax-exempt status closed (95,864) (Table 12), with 85,509 approved, 94 disapproved, and 10,261 resolved in other ways (withdrawn, lacked required information, otherwise incomplete applications, etc.). Most (89,477) of the applications were under section 501(c)(3).

• Notices of intent to operate under section 501(c)(4) (3,219) (Table 13), with 2,796 acknowledged and 423 rejected (because, for example, not required as the organization filed a Form 990 series return before 7/8/16, already exempt under another IRC provision, or the IRS was unable to confirm the submitted employer identification number).

• Number of returns and other forms filed by tax-exempt organizations (1,360,719) (Table 2), down from fiscal year 2019 as were returns and other forms filed by most other types of entities, which likely reflects delayed processing of returns and other forms caused by the pandemic. Of the returns and other forms filed by tax-exempt organizations, 1,138,931 were filed electronically (Table 4).

• Examinations of tax-exempt organizations (Table 21), including
  • 1,417 Forms 990, 990-EZ, and 990-N;
  • 178 Forms 990-PF, 1041-A, 1120-POL, and 5227;
  • 427 Forms 990-T; and
  • 356 Forms 4720.

In addition, the Statistics of Income program recently released its Annual Extract of Tax-Exempt Organization Data for calendar year 2020, drawn from Form 990, Form 990-EZ, and Form 990-PF. It provides granular data from these returns; for example, the Form 990 extract has 273,972 rows (one for each employer identification number) and 220 columns.

Lloyd 

Private Schools, P.P.P. Loans, and Racial Discrimination

Historically, since private schools have not received federal funds, they have not been subject to civil rights laws, including Title VI of the Civil Rights Act of 1964 (“Title VI”), which prohibits discrimination on the basis of race, color, or national origin.  However, loans associated with the Paycheck Protection Program (“P.P.P. loans”) have changed this landscape.  The $659 billion program was intended to help, among others, nonprofits who needed assistance with making payroll by using loans backed by the Small Business Administration.  Perhaps surprisingly, in the words of The New York Times, it was private schools who “cashed in” on the P.P.P. loans.  See Private Schools Cashed in on P.P.P. Funding.

While public schools were ineligible for P.P.P. loans, private and charter schools could and did apply for loans, despite their multi-million dollar endowments.  When P.P.P. funding dissipated quickly, the Small Business Administration revised its guidelines to clarify that those with other financing options should stop submitting applications.  Yet, in order to stem the tide, additional rule tightening was required.  Minority focused lenders and watchdog organizations raised concerns about equity and loopholes in terms of the loans. 

Nevertheless, there may be a silver lining to private schools’ cashing in on P.P.P. loans.  Perhaps unknowingly, the private schools have made themselves subject to Title VI requirements by virtue of receiving federal funds.  The P.P.P. loan application specifically states that borrowers must comply with several civil rights laws, such as Title VI.  As noted above, Title VI prohibits discrimination on the basis of race, color, or national origin.  This means that private schools cannot engage in racial discrimination against employees, students, parents, or other participants.  This includes in terms of employment, admissions, enrollment, and other treatment. 

An interesting question is whether Title VI imposes prohibitions against racial discrimination not covered by section 501(c)(3).  One definite difference is that private schools who have accepted P.P.P. loans now may have to pay compensatory damages to individuals who prove intentional discrimination in lawsuits against the schools.  In addition, injunctive relief may be awarded to such individuals.  At the very least, due to the receipt of P.P.P. loans, some private schools now are subject to causes of action from individuals and families who have faced racial discrimination at their hands.  Over the years, organizations such as the ACLU have despaired that no such actions were possible, but that has now changed.

 

Khrista McCarden

Hoffman Fuller Associate Professor of Tax Law

Tulane Law School

DAFs and Redirected Giving Report; The Role of State AGs in Regulating DAFs

Last week the Boston College Law School Forum on Philanthropy and the Public Good released a report by James Andreoni (U.C. San Diego) and Ray Madoff (Boston College ) titled Impact of the Rise of Commercial Donor-Advised Funds on the Charitable Landscape 1991-2019. Here is the conclusion:

This report has examined existing data about changes in the charitable landscape since the creation of the first commercial donor-advised fund. The following are the key findings of this analysis:

• There is no evidence that the proliferation of donor advised funds has resulted in an increase in individual charitable giving as individual giving has remained largely constant as a percentage of disposable income, and is currently at the low-end of the range.

• While individual giving has remained largely constant, there has been a substantial shift in this giving toward donations to private foundations and donor-advised funds and away from direct giving to charities. Combined giving to donor-advised funds and private foundations has increased from 5% in 1991 to 28% in 2019, an increase of 460%.

• The value of assets in donor advised funds and private foundations have increased
  significantly over the past thirty years.

• Though more funds are flowing into, and growing in, private foundations and donor advised funds, there is no evidence that charities have benefitted from this trend.

• In the five-year period prior to 1991, charities received on average 94.1% of all
  individual giving. By contrast in the years 2014-2018 (the most recent years for which data is available), total donations received by charities (including grants from private foundations and donor-advised funds as well as direct giving) equaled between 71-75% of total individual giving.

• If charities had received donations at the rate of 94.1% of individual giving (the average rate that they received in the 5-year period before commercial donor-advised funds), they would have received an additional $300 billion over those 5 years.

Coverage: Chronicle of Philanthropy. 

The Minnesota Council of Nonprofits also recently posted a paper presented at a conference a year ago titled Private Foundation Grants to DAFs: Attorney General Charitable Trust Oversight Calls for Disclosure of Use of Funds. Here is the abstract:

$3 billion was transferred from over 2,200 U.S. private foundations to five donor advised fund (DAF) sponsors between 2010 and 2018. Within this universe, a growing number of private foundations have made a single grant during a reporting year to a commercial DAF. Looking just at transfers to the top five commercial DAF sponsors, 35 foundations transferred the entirety of their annual grantmaking to DAFs between 2010 and 2018.

These transactions offered no tax benefit, but in effect excused private foundations from two legal requirements for U.S.-based private foundations derived from the Tax Reform Act of 1969: reporting grant recipients1 and the 5 percent annual payout requirement.2 Such grantmaking, while facially charitable and in-line with the requirements put forth in the 1969 legislation, not only risks breaches of restrictions established by the foundations’ founding documents but also obscures all aspects of the recipients of private foundation funding by providing no context for when or where the charitable dollars will be used.

Private foundation-to-DAF transfers frustrate state attorneys general’s ability to fulfill their supervisory duties to monitor and ensure that charitable dollars held by charitable trusts are used for their intended purpose.

This paper examines the governing authority and practices of state attorneys general offices as relating to a special problem of charitable trust enforcement: private foundation grantmaking to commercial DAFs. The authors examine the regulatory challenges based on interviews with both current and former attorneys from nine attorney general offices, as well as interviews with commercial DAF sponsors. Charities regulators’ ability to fulfill their supervisory duties related to private foundation-to-DAF grantmaking is blocked by the lack of transparency on the use of funds transferred to DAFs. Thus, charities regulators cannot ensure that private foundations’ grantmaking fulfills restrictions on their charitable giving, and the public is unable to see charitable activity ordinarily subject to public inspection.

In order to equip charity regulators to effectively enforce state charitable trust requirements, the paper concludes with two recommendations:

1. Charitable trusts should be required to report to state attorneys general all grants made or approved for future payment from DAF accounts to which they have transferred funds, subject to public inspection, and

2. Attorney General’s offices should respond to the growth of charitable funds held in trust by devoting increased resources to monitoring charitable trusts and donor advised funds.

Lloyd Mayer

CRS Reports on Temporary Nonitemizer Deduction & Increased Contribution Limits

As part of a report on Temporary Individual Tax Provisions ("Tax Extenders") released a couple of weeks ago, the Congressional Research Service discussed the temporary nonitemizer charitable contribution deduction and temporary increased limits for charitable contributions. In that discussion, CRS made two interesting points.

With respect to the nonitemizer deduction, CRS noted (page 5):

The $300 nonitemizer deduction is likely to have a limited effect on charitable contributions because of its relatively small cap. One study estimated that the induced charitable giving from the nonitemizer deduction would be $100 million, a relatively negligible effect, because most taxpayers who donate are already contributing amounts in excess of $300. [citing “New Charitable Deduction in the CARES Act, Budgetary and Distributional Analysis,” blog post, Tax Policy Center, Penn-Wharton Budget Model, March 27, 2020, https://budgetmodel.wharton.upenn.edu/issues/2020/3/27/charitable-deduction-the-cares-act.]

With respect to the increased contribution limits, CRS noted (page 6; citations omitted):

Lifting caps on the deductions for both individuals and businesses can provide an incentive for additional charitable giving. Evidence on the response of charitable giving by individuals has been widely studied with mixed results. A review of this evidence suggests that an enhanced charitable deduction is likely to increase charitable giving by less than the associated revenue loss. Lifting the limits affects a relatively small share of charitable giving, and the revenue pattern suggests that much of the initial revenue loss (77%) can be attributed to an accelerated realization of carryovers.21 With charitable giving estimated at $427.4 billion in 2018, if all of the permanent revenue loss led to an increase in charitable giving by the same amount (i.e., approximately $1 billion), additional giving would be 0.3% of expected giving prior to the current economic slowdown.

Lloyd Mayer

TIGTA: FY2019 Statistical Trends Review of the TEGE Division

The Treasury Inspector General for Tax Administration published earlier this month Fiscal Year 2019 Statistical Trends Review of the Tax Exempt and Government Entities Division. The report confirms that the Division has experienced both budget and staff reductions in recent years, although that trend started to reverse in fiscal year 2019. Here is the summary:

What TIGTA Found

The TE/GE Division is comprised of seven distinct functions: Employee Plans; Shared Services; Compliance Planning and Classification; and Exempt Organizations/Government Entities, which is comprised of the Exempt Organizations, Indian Tribal Governments, Tax-Exempt Bonds, and Federal, State, and Local (Governments)/Employment Tax functions. According to the IRS, the entities that the TE/GE Division serves employ almost 25 percent of the American workforce.

In May 2017, the TE/GE Division realigned the issue identification, planning, classification, and case delivery processes that were previously embedded within five functions into the consolidated Compliance Planning and Classification function. The reorganization has affected these five functions’ examinations units’ staffing, budget, and processes. In addition, in October 2018, the TE/GE Division established five new compliance groups, referred to as the TE/GE Compliance Unit, which in FY 2019 completed 4,863 compliance checks for three of the functions resulting in a 72 percent change rate.

New legislation often affects IRS operations and may require significant operational changes to implement it. Two new laws significantly affected the TE/GE Division’s operations during the years 2015 to 2019: the Tax Cuts and Jobs Act of 2017, and the Taxpayer First Act of 2019. In addition to legislative changes, the Federal Government had a lapse in appropriations from December 22, 2018, to January 25, 2019, that shut down most IRS operations for 35 days. As a result, the TE/GE Division experienced inventory backlogs in processing applications for tax-exempt status and timely completing compliance cases. However, IRS management stated that mitigation actions taken, such as allowing temporary overtime and detailing examination agents from one unit to another, addressed the backlogs of applications.

Over the FYs 2015 to 2019, the TE/GE Division’s budget decreased by more than $22.5 million (9 percent), although the FY 2019 budget increased by approximately $7.7 million (4 percent) over FY 2018’s appropriations. Along with the decrease in the budget, the TE/GE Division’s staffing level also decreased by 12 percent from FY 2015 to FY 2019, although hiring efforts in FY 2019 have started improving staffing levels. At the end of FY 2019, the TE/GE Division had approximately 1,500 employees, which was 2 percent of the IRS’s total staffing level of just over 78,000 employees.

What TIGTA Recommended

TIGTA made no recommendations in this report. IRS officials were provided an opportunity to review the draft report and did not provide a formal response

Lloyd Mayer

April 8th: Charitable Crowdfunding: Who Give, to What, and Why? (Lilly Family School of Philanthropy)

I am very much looking forward to participating in a presentation with Amy Sample Ward and Una Osili on new research from the Lilly Family School of Philanthropy about charitable crowdfunding. Free registration is available. Here are the details:

Charitable Crowdfunding: Who Gives, to What, and Why?

Thursday, April 8, 2021
2:00-3:15 p.m. ET
Cost: Free

Featuring:

• Amy Sample Ward, CEO, NTEN
• Lloyd Hitoshi Mayer, J.D., Associate Professor of Law, Notre Dame
• Una Osili, Ph.D., Associate Dean for Research and International Programs, IU Lilly Family School of Philanthropy

During these unprecedented times, crowdfunding has taken on a significant role in philanthropic giving and fundraising. 

New research from the Indiana University Lilly Family School of Philanthropy reveals perceptions of crowdfunding, how awareness of crowdfunding compares with giving via crowdfunding projects, what motivates donors who give this way, what they support, how they differ from other donors, and where crowdfunding fits in the philanthropic landscape.

Join the Lilly Family School of Philanthropy and NTEN for a webinar that blends research and practitioner perspectives on this timely topic. We will present research highlights, discuss trends and implications for crowdfunding for nonprofits, and field questions from participants. This opportunity was made possible with funding from Facebook.

Lloyd Mayer

DAF Debate Heats Up, New Data Emerges

Recent weeks have seen a flurry of pieces relating to changing the legal rules for donor advised funds or DAFs. Notable contributions include:

• Craig Kennedy and William Schambra published Conservatives Should Applaud — Not Fight — Efforts to Change Philanthropic Giving Rules in The Chronicle of Philanthropy, criticizing opposition to the Initiative to Accelerate Charitable Giving's proposed reforms.

• Dan Petegorsky published DAF Numbers Obscure Who’s Giving and How Much in InsidePhilanthropy, also criticizing opposition to the proposed reforms.

• Edward Zelinsky (Cardozo) published A Response to the Initiative to Accelerate Charitable Giving in Tax Notes, "agreeing with much (but not all) of its perspective and arguing that the rules applied to private foundations should also govern donor-advised funds."

At the same time, data about DAF contributions and donations continues to emerge (some from sources with a stake in the reform debate), including:

• AEI and The Philanthropy Roundtable released a new paper titled Appreciation in Donor-Advised Funds: An Analysis of Major Sponsors, describing how DAFs "have become the fastest-growing vehicle for charitable giving in recent years."

• The Community Foundation Public Awareness Initiative reported that For Every Dollar Contributed to Community Foundation DAFs in 2019, Donors Granted $1.08 in 2020, with the $6.7 billion donated by community foundation DAFs to nonprofits in 2020 representing an increase of 41 percent over 2019 donations.

• The National Philanthropic Trust published its 14th annual Donor-Advised Fund Report, reporting continued rapid growth of contributions to DAFs and donations from DAFs to charities through 2019.

• The Nonprofit Quarterly published COVID-19 and Donor-Advised Funds in 2020: What Do the Numbers Tell Us?, reporting data regarding disbursements by DAFs in 2019 and 2020.

• The Nonprofit Times reported that the largest DAF sponsor organizations reported significant increases in distributions from DAFs to charities in 2020, including a 24% increase at Fidelity Charitable, a 171% increase at the National Philanthropic Trust, and a 35% increase at Schwab Charitable.

Despite this debate and new information, it is unclear at this point whether there is any interest in Congress for changing the rules for DAFs. And the IRS is still considering comments it received in response to Notice 2017-73 relating to various issues involving DAFs.

Lloyd Mayer

Int'l Developments: Ten Cases That Shaped Charity Law in 2020, European Legal Philanthropy Environment, Global Philanthropy, and Tax Incentives for Cross-Border Giving

There have been several recent publications and reports of note from outside of the United States:

• Ten Cases that Shaped Charity and Nonprofit Law in 2020 And Ten Trends to Consider by Myles McGregor-Lowndes and Frances Hannah (both Queensland University of Technology): Based on a review of over 200 cases.

• Legal Environment for Philanthropy in Europe (2020) by Philanthropy Advocacy, a joint project of the Donors and Foundations Network in Europe (DAFNE) and the European Foundation Centre (EFC).

• Global Philanthropy: Does Institutional Context Matter for Charitable Giving? (Nonprofit and Voluntary Sector Quarterly) by Pamela Wiepking (Lilly Family School of Philanthropy), Femida Handy (University of Pennsylvania), Sohyun Park (Yonsei University), and others. Here is the abstract:

In this article, we examine whether and how the institutional context matters when understanding individuals’ giving to philanthropic organizations. We posit that both the individuals’ propensity to give and the amounts given are higher in countries with a stronger institutional context for philanthropy. We examine key factors of formal and informal institutional contexts for philanthropy at both the organizational and societal levels, including regulatory and legislative frameworks, professional standards, and social practices. Our results show that while aggregate levels of giving are higher in countries with stronger institutionalization, multilevel analyses of 118,788 individuals in 19 countries show limited support for the hypothesized relationships between institutional context and philanthropy. The findings suggest the need for better comparative data to understand the complex and dynamic influences of institutional contexts on charitable giving. This, in turn, would support the development of evidence-based practices and policies in the field of global philanthropy.

• Tax Incentives for Cross-Border Giving in an Era of Philanthropic Globalization: A Comparative Perspective (Canadian Journal of Comparative and Contemporary Law) by Natalie Silver (University of Sydney) and Renate Buijze (Erasmus University Rotterdam). Here is the abstract:

The 21st century has ushered in an era of philanthropic globalization marked by a significant rise in international charitable giving. At the same time, cross-border philanthropy has raised legitimate fiscal and regulatory concerns for government. To understand how donor countries have responded to this changed global philanthropic landscape, we use comparative tax methodology to develop a spectrum of approaches to the tax treatment of cross-border giving and apply tax policy criteria to critically evaluate the divergent approaches of Australia and the Netherlands, located at opposing ends of the spectrum. Findings from the comparative analysis reveal that in the current global environment for philanthropy there is a strong case to be made for allowing tax deductible donations to cross borders.

Lloyd Mayer