Let’s Help Charities Grow in the New Economy—Make DAF’s Easier to Create and Manage
[The following is a response to the comments printed in Exempt Organization Tax Journal on June 21, 2021]
Paul, I have to object to your coverage of DAFs and its insistence that DAF’s are flawed and require urgent attention. I find it especially interesting that in yesterday’s diatribe, you complain about lawyers who charge substantial sums to explain overly complex and unnecessary tax regulations to their clients on the one hand, yet you then call for imposing a whole new layer of overly complex and unnecessary DAF regulations onto charities. Working charities, no less—the ones that are struggling to do more with less. Are the regulations that govern their activities not complex enough already?
Many of us have concluded the proposed DAF rules, while mostly unobjectionable, won’t do anything to address the professed concerns of their proponents, nor will they do anything to push more money to “working” charities, any more than the 5% minimum payout rule for private foundations. The proposed rules won’t address the issue of endowments, where much larger sums of donated wealth are “parked” indefinitely. They won’t address the problem of the cost and complexity of creating and running a private foundation, making that option unrealistic and unattractive for all but the wealthiest donors. They also don’t address fiscal sponsorships.
On behalf of EO practitioners, I suppose we should be grateful for this effort since the new rules will generate lots of work for us. But I still can’t help feeling that adding more regulation onto the sector right now – especially in the absence of any evidence that a real problem exists -- is a bad idea. If we really want to help charities grow in the new economy, let’s make DAF’s easier to create and manage, not harder.
The original item in the EOTJ’s newsletter:
Today I’m featuring groups who oppose the new bill seeking to get DAFs to spend their money in a timely manner, rather than warehousing or parking it in a brokerage account. I have no problem with the DAF industry and its supporters fighting legislative efforts. That’s their right. I’m always amused by the role accountants and attorneys play in thwarting legislation. First, on behalf of their clients, they fight it tooth and nail, earning substantial fees. Then, if the legislation passes, they earn substantial fees explaining the new legislation to clients. And later, if their clients get caught up in the legislation, they earn substantial fees defending their clients. So legislation can be a win, win, win for accountants and attorneys, and that’s perfectly proper.
What I object to are groups that do not faithfully represent their membership. I have had a longtime contentious relationship with Independent Sector. When I was with Tax Analysts circa 1990 I wrote a mildly critical article of Independent Sector. The next day one very prominent board member telephoned me and spent 10 minutes calling me every name in the book. (Such is the life of a critic!) Now I see Independent Sector is against requiring more timely distributions of DAFs. My understanding has always been that Independent Sector exists primarily to benefit donee organizations (working charities) yet their focus seems to be on representing the interests of donors. Working charities seem to have become an afterthought in the nonprofit sector.
The EOTJ Newsletter continues, citing the following articles and organizations in opposition—visit EOTJ for the full story.