June 09, 2021
WASHINGTON, D.C. – U.S. Senators Angus King (I-Maine) and Chuck Grassley (R-Iowa) are introducing bipartisan legislation to reform tax laws that cover charitable donations, so that philanthropic funds are made available to working charities within a reasonable time period. The Accelerating Charitable Efforts (ACE) Act would establish a timeline for donations to working charities from donor-advised funds (DAFs), which currently have more than $140 billion set aside for future charitable gifts, but no requirement to distribute these funds. Senators King and Grassley’s legislation would reform the rules surrounding DAFs, ensuring that these assets would be distributed within reasonable timeframes and providing incentives to speed up donation timelines. The legislation would also reform regulations for private foundations, ensuring that they cannot meet existing payout requirements through payment of administrative expenses for a donor’s family or through donations to DAFs.
“America’s philanthropic sector is an unquestioned force for good across the globe, investing critically-needed resources in charities working to improve life for those in need,” said Senator King. “These benefits are why the federal government offers tax incentives to Americans who give back – but in order to ensure that these funds are doing the most possible good, we must reform the rules that govern some charitable donations. Under current rules, donor-advised funds and private foundations allow some to receive tax breaks for donations that never actually reach working charities. The ACE Act will clear up those gray areas, and ensure that charitable contributions will swiftly reach the worthy organizations doing good in communities throughout the country and all over the world.”
“Working charities do so much good in our country and abroad, and they operate on the good will and donations of those who can give. That’s why our tax code encourages giving to charity,” said Senator Grassley. “But charitable dollars ought to be doing the good they were intended for, not sitting stagnant to provide tax advantages for some and management fees for others. The reform measures we are putting forward will ensure that the incentives for charitable giving actually result in money going to charities. I appreciate Senator King’s leadership in this effort and hope more of our colleagues, from both sides of the aisle, will join us.”
“The critical role that charities play in Maine and communities across the country has never been more evident than in the past year,” said Mark Swann, Executive Director of Preble Street. “And yet, while these organizations change and save lives, thousands are at risk of closing. Now more than ever, Congress must restore the connection between charitable tax benefits and benefits to charities. Getting more money to our nation’s charities faster means more resources and help for Mainers and Americans in need. We are grateful to Senator Angus King and Senator Chuck Grassley for their leadership in introducing legislation that strengthens and invests in America’s charitable organizations. I urge Congress to swiftly pass the Accelerating Charitable Efforts (ACE) Act.”
Donor-advised funds currently have more than $140 billion set aside for future charitable gifts – but under current tax laws, the funds have no requirement to ever distribute these resources to working charities. Accordingly, DAFs can accept and hold charitable donations that have generated a federal income tax deduction, but never devote the resources to charitable work. The ACE Act will address this problem and speed the provision of money to working charities by replacing existing DAF rules with two new types of DAFs:
· 15-year DAFs: The bill will create a new form of DAF under which a donor would get upfront tax benefits (as under current law), but only if DAF funds are distributed (or advisory privileges are released) within 15 years of the donation. To avoid overvaluations, the income tax deduction for complex assets – such as closely-held or restricted stock – would be the amount of cash made available in DAF accounts as a result of the sale of the asset (instead of the appraised value).
· 50-Year DAFs: As an alternative, donors who want more than 15 years to distribute their DAF funds will be allowed to elect an “aligned benefit rule.” Under this rule, a DAF donor would continue to receive capital gains and estate tax benefits upon donation, but would not receive the income tax deduction until the donated funds are distributed to the charitable recipient. All funds would be required to be distributed outright to charities no later than 50 years after their donation.
America’s community foundations will receive certain exemptions under this bill to support their place-based, mission-driven work; specifically, the ACE Act will allow any donor to hold up to $1 million in DAF funds at any community foundation without being subject to payout rules. For amounts over $1 million, a donor still can receive up-front tax benefits if the DAF requires a five percent annual payout or if donations must be distributed within 15 years of contribution. The legislation will also reform existing rules governing private foundations, ensuring that these entities cannot meet payout obligations through salaries or travel expenses to a donor’s family members, or through distributions to DAFs.
The full legislative text for the ACE Act can be read HERE.