IRS Holds Hearing on $230 Billion Donor-Advised Fund Industry

The debate over donor-advised funds (DAFs) is heating up in Washington, with Congress and the Biden administration considering tighter restrictions on these popular charitable giving vehicles. DAFs allow donors to set aside money for charitable causes, but questions have arisen about whether the ultrawealthy are abusing the immediate tax deductions they receive by stashing money in these funds.

The Internal Revenue Service (IRS) recently held a public hearing to discuss proposed regulations on DAFs. The proposals include expanding the definition of donor advisers, imposing new penalties on abusers, and imposing a 20% excise tax on donations that provide significant benefits to donors. The IRS is concerned about potential abuses and money going where it shouldn’t.

Supporters of DAFs argue that they provide an easy and no-frills way of giving that appeals to both wealthy and average donors. However, critics are concerned about the growing amount of money piling up in DAFs, which now hold nearly $230 billion in assets.

The debate has attracted high-profile philanthropists like MacKenzie Scott and Reed Hastings, who have used DAFs to distribute billions of dollars to nonprofits. However, some are worried that new restrictions could deter charitable giving at a time when it is already on the decline.

As the IRS considers these regulations, stakeholders from community foundations, fundraisers, and public accountants are voicing their concerns about the potential impact on charitable giving. The outcome of this debate could have far-reaching implications for the future of philanthropy in the United States.