The Accelerating Charitable Efforts (ACE) Act now has champions in the U.S. House of Representatives. Reps. Chellie Pingree (D-Maine) and Tom Reed (R-N.Y.) last week announced their sponsorship of the bill, which aims to revamp payout rules for donor advised funds (DAFs) and private foundations. Originally introduced last summer in the U.S Senate by Sens. Angus King (I-Maine) and Chuck Grassley (R-Iowa), the ACE Act has become controversial in the charitable sector.
Under current law, DAFs allow donors to receive an immediate tax deduction for irrevocably given funds that may be invested, grown, and later distributed to charities. The National Philanthropic Trust’s latest DAF report reveals a surge of interest in these giving vehicles, which held nearly $160 billion in assets in 2020. That report also highlights $34.67 billion distributed by DAFs in 2020—a payout rate of 23.8 percent.
Despite their growing popularity, DAFs have attracted powerful critics like Rep. Pingree, who contends they are “giving the wealthy generous tax breaks for their charitable contributions but not ensuring those funds help anyone in need.” “Our half-century old philanthropy laws must be reformed to correct this fundamental flaw in our current system,” she said.
To that end, the ACE Act would replace current DAFs with a choice: (1) a new DAF allowing donors an immediate income tax deduction provided funds are released within 15 years to charities, or (2) a 50-year payout DAF that allows an income tax deduction when funds are distributed. The bill requires complex assets to be valued based on immediate cash (rather than appraised) value, and it prohibits private foundations’ expenditures on family salary or travel expenses (or contributions to DAFs) to count toward their payout obligations.
A derivative of ideas promoted by the Initiative to Accelerate Charitable Giving, the ACE Act has created division within the charitable community.
The Council on Foundations issued a release opposing the new ACE Act, particularly citing “the potential for unintended negative consequences” and pointing to its brief explaining the bill’s costs and complications for giving. The Philanthropy Roundtable makes similar arguments in its own explainer and specifically highlights how the ACE Act will make it more difficult for nonprofits to meet the IRS’ public support requirements by disallowing DAF donations to count toward that threshold unless certain donor disclosure requirements are met.
Responding to the House bill, Elizabeth McGuigan, director of policy at Philanthropy Roundtable, said, “When people have the flexibility to give how, when and where they choose, it spurs even more generosity and uplifts those who we all wish to help. A bill that disincentivizes giving is tone deaf at best and at worst hurts communities around the country who rely upon their fellow Americans’ generosity.”
ECFA will continue to monitor this legislation closely and provide updates as deliberations continue in Congress.