The Initiative to Accelerate Charitable Giving (IACG) is a campaign to create a set of government regulations on donor-advised funds (DAF). The initiative is a project of Arnold Ventures, a left-of-center grantmaking fund run by billionaires John and Laura Arnold.
The IACG’s proposals are based on the work of Ray Madoff, a Boston College Law School Professor and outspoken critic of modern philanthropic law. Madoff supports increasing regulations on charities, especially DAFs, to force nonprofits to disburse more of the estimated $1 trillion currently held in their accounts. Madoff also supports reorganizing the tax code to encourage more philanthropic giving.
Madoff is a staunch critic of donor-advised funds (DAFs), which include some of the largest charitable funds in the United States, such as Fidelity Charitable, Schwab Charitable, and the Silicon Valley Community Foundation (SCVF).
Madoff has accused DAFs of facilitating tax avoidance for wealthy Americans, particularly within Silicon Valley. Individuals can donate to a DAF to take an immediate charitable tax deduction on the donation and bypass capital gains taxes if the donation is made in the form of assets. Unlike traditional charitable funds, the donors retain control of the donations once they have been given to the DAF facilitator through private charitable accounts. Donors are legally obligated to use these funds for charitable purposes, but there is no legal requirement dictating when the funds must be disbursed.
Madoff alleges that many donors use DAFs to gain an immediate tax break and then indefinitely retain their funds. In doing so, Madoff claims that wealthy Americans gain the tax benefits associated with charitable donations without producing the intended philanthropic benefits for society.
Madoff also criticizes DAFs for their lack of transparency. Unlike traditional private foundations, individual DAF accounts are not obligated to publicly disclose their ownership or individual grantmaking, allowing donors to give to controversial organizations without having to report donation recipients.
Though Madoff acknowledges that DAFs tend to have their own rules requiring the disbursement of funds, she criticizes these privately established rules for being too lenient, instead advocating for public regulation of the funds.
The Initiative to Accelerate Charitable Giving’s most fundamental proposed regulation is the reorganization of all donor-advised funds as “15-year DAFs,” which would be legally obligated to disburse all funds for charitable causes 15 years after being given. Additionally, assets donated to these investment vehicles would result in tax credits based on the value of the asset at the time of sale by the DAF rather than donation to the DAF, thereby preventing tax credit “overvaluations” if the value of the asset falls after being donated.
DAFs which fail to abide by the new regulations would lose their nonprofit status.
Donors could opt out of the 15-year DAF regulations if they choose the “aligned benefit rule,” which removes the 15 year donation requirement, but prohibits the donor from collecting charitable tax benefits until the funds given to the DAF are donated. Even under the aligned benefit rule, DAFs are required to disburse all account funds within ten years of the death of a donor.
Most DAFs currently have annual or semi-annual payout obligations. However, according to the IACG, many DAFs fulfill their obligations through non-charitable means such as paying salaries to employees, paying travel expenses for account owners, or by directing funds to other DAFs. The IACG supports stricter regulations to ensure that payout requirements are met by genuine philanthropic donations.
The IACG supports eliminating alleged loopholes which allow de facto nonprofit foundations to evade ordinary nonprofit regulations by receiving funds solely from DAFs.
To encourage DAFs to disburse their funds, the IACG supports eliminating the 1.39% private foundation excise tax (which functions as a capital gains tax on investments for nonprofits) for DAFs which disburse 7% or more of their funds per year, or for newly created DAFs which limit their existence to 25 years.
The Initiative to Accelerate Charitable Giving endorsed the charitable tax provisions included in the CARES Act, which was a financial relief bill passed to counteract the economic effects of the COVID-19 pandemic. The CARES Act also permitted individuals to take a charitable tax deduction of up to $300 even if they use the standardized deduction and raised the limit on charitable tax deductions from 50% to 100% of an individual’s salary.
The IACG supports adding a new statute to the CARES Act provision to create a “giving floor” of 1-2% of an individual’s income if he chooses to take charitable deductions. The organization also supports expanding the IRS’s scope and power to enforce CARES Act provisions.
Elise Westhoff of the Wall Street Journal has criticized the Initiative to Accelerate Charitable Giving proposals for benefiting large charitable donors at the expense of small donors. According to Westhoff, DAFs are a popular means for low- and middle-income Americans to make charitable contributions while gaining optimal tax benefits, and the IACG’s regulations will strangle the funds which provide this service. Meanwhile, traditional nonprofit foundations which hold most charitable funds would face no additional regulations. Westhoff points out that the combined assets of the nonprofit funds supporting the IACG are $38 billion, while the size of the average DAF is $166,000.
Philanthropists Chuck Collins and Alan Davis have criticized the IACG’s plan for being too weak to force funds out of DAFs and restructure the philanthropic landscape. Collins and Davis argue that the IACG’s proposed tax eliminations are pointless since most large foundations use other deductions to eliminate their excise taxes almost entirely. More significantly, Collins and Davis suggest that the IACG’s reforms will only entrench larger DAFs by enacting regulatory burdens which may cripple smaller DAFs. Collins and Davis suggest amending the IACG’s proposals with a shorter mandatory donation time frame and a progressive excise tax system based on the size of the fund.
The IACG consists of a coalition of major non-profits, many of which donate to left-of-center causes. The coalition members are:
- William and Flora Hewlett Foundation
- Kresge Foundation
- Arnold Ventures
- Tomkat Foundation
- Ford Foundation
- K. Kellogg Foundation
- MGR Foundation
- North Star Fund
- High Tide Foundation
- Global Citizen
- Wallace Global Fund