Tax Rules, Investment Houses, and Donor-Advised Funds: What’s at Stake?

In November 2023, the IRS published a set of proposed regulations that would apply to donor-advised funds (DAFs), with the aim of clarifying technical tax rules governing these giving vehicles. They skirt around more contentious issues like the lack of a minimum DAF payout and limited transparency requirements. But even these mild proposals are generating a lot of heat — particularly one that would tax the fees paid from DAFs to their donors’ personal investment advisors.

This exposes one of the most dangerous aspects of DAFs. As our economy becomes more unequal, DAFs have been growing like gangbusters, with the percentage of individual giving going to DAFs rising from 4 percent in 2008 to 27 percent in 2022. And DAF administrators and asset managers have been using them to apply the machinery of the for-profit wealth defense industry to philanthropy.

There is widespread support for proposals to rein in the DAF industry. DAF donors can also help by moving money out at a rapid clip to operating nonprofits, instead of paying them out as legal and investment fees. As DAFs become an ever-larger portion of the nonprofit funding system, both sponsors and donors must be held to a higher standard.

Read their full article on Nonprofit Quarterly

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