Recently, 14 state attorneys general wrote to congressional leaders opposing the Accelerating Charitable Efforts (ACE) Act, federal legislation that would alter payout rules for donor-advised funds (DAFs) and private foundations. While other critics across party lines have argued that the bill’s proposed changes are unmerited and likely damaging complications for a successful giving tool, these state officials — all Republicans — zeroed in on donor privacy concerns.

DAFs allow donors to receive an immediate tax deduction for irrevocably given funds that may be invested, grown, and later distributed to charities. Despite evidence of their growing popularity and significant payout rates that send tens of billions of dollars to charities, DAFs have attracted powerful critics who believe they are unfair tax shelters for the wealthy.

In attempt to open up what they perceive to be financial warehouses, Sen. Angus King (I-Maine), Sen. Chuck Grassley (R-Iowa), and Rep. Chellie Pingree (D-Maine) crafted the ACE Act to 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. Among its other provisions, the ACE Act also does not allow DAF donations to count toward a charity’s public support percentage unless certain donor disclosure requirements are met.

This latter provision — as well as new disclosure mandates for private foundations supporting DAFs — attracted the particular ire of the state attorneys general. In a letter to the top Democrat and Republican leaders in the U.S. House and U.S. Senate, Mississippi Attorney General Lynn Fitch and 13 of her colleagues signaled “grave concerns” that the ACE Act “will chill donations.” They note that a donor may wish to remain anonymous for numerous reasons, including religious convictions, modesty, or potential controversy.

“The Act’s disclosure requirements would cause donors who might otherwise anonymously contribute to a preferred charity through a DAF to not donate at all. This harms not just the donor but the charity itself,” they wrote.

The attorneys general contended that the bill’s new mandates not only would dampen giving, but also serve no public good. Contrary to claims that the new rules might prevent abuses, the coalition highlighted that DAFs are open to donors of all beliefs and support only 501(c)(3) groups, which are not permitted to participate significantly in political activities.

The signers of this letter — officials from Arizona, Arkansas, Georgia, Indiana, Kentucky, Mississippi, Missouri, Nebraska, Ohio, Oklahoma, South Carolina, Texas, Utah, and West Virginia — concluded, “As Attorneys General, we take seriously our duty to protect the privacy of our citizens and their right to give to charitable causes anonymously."

ECFA will continue to monitor this legislation closely as deliberations continue in Congress.