Buchanan, colleagues urge caution on finalization of proposed regs for donor-advised funds

Proposed federal regulations could have the unintended consequence of impeding charitable giving in America’s communities, particularly at local community foundations, say U.S. Rep. Vern Buchanan (R-FL) and 32 of his fellow U.S. House Ways and Means Committee colleagues.

Specifically, the Internal Revenue Service’s recent Notice of Proposed Rulemaking pertaining to definitions and rules related to donor-advised funds (DAFs) could have a “chilling effect” on charitable giving, according to an April 19 bipartisan letter the lawmakers sent to U.S. Treasury Secretary Janet Yellen.

“I am extremely concerned that these new regulations could significantly discourage charitable giving across the country,” Rep. Buchanan said. “I look forward to the Biden administration’s timely response to our letter given the strong bipartisan support on this issue.”

In their letter, the lawmakers noted that the rising popularity of DAFs makes them concerned that the regulations could limit the appeal of DAFs and potentially undermine charitable giving for several reasons, including that the regulations are overly broad, the definition of a DAF is too wide-reaching, and the general definition of the term “taxable distribution” could infringe on a DAF’s charitable operations and objectives.

Currently, DAFs are a key tool utilized by community foundations, national sponsors, faith-based and single-issue charities, and other nonprofits to help donors maximize the impact of their charitable giving. Grants from DAFs to charities increased to $52.2 billion in 2022, more than doubling in the past five years, and DAFs have an annual distribution rate regularly exceeding 20 percent, according to the members’ letter.

Rep. Buchanan and his colleagues pointed out that the charitable sector plays a crucial role in their districts.

“DAFs are critical to those efforts during good economic times and bad,” they wrote. “When the economy is good, donors can make substantial gifts to charity, both in cash and stock, and essentially “pre-fund” years of charitable giving,” they wrote. “During challenging economic times, the data show DAFs make grants at record levels and ensure local charities have the requisite resources to maintain their level of services. 

“We have seen DAFs be especially effective during times of crisis and immediate need, like the COVID-19 pandemic, natural disasters, social unrest, and economic downturns,” says the letter, which was also signed by members including U.S. Reps. Carol Miller (R-WV), Mike Kelly (R-PA), Brad Wenstrup (R-OH), Ron Estes (R-KS), Brian Fitzpatrick (R-PA), Adrian Smith (R-NE), Mike Carey (R-OH), Lloyd Smucker (R-PA), Darin LaHood (R-IL), and Jimmy Panetta (D-CA).

The lawmakers also noted that In February, many community foundations, national DAF sponsors, and other charitable groups submitted comments to the Treasury Department laying out their objections to the proposed regulations.

“We urge your full and fair consideration of their concerns, consistent with applicable statutes and regulations, before issuing final regulations that could undermine the charitable giving that so many of our communities depend upon,” wrote Rep. Buchanan and his colleagues.

The letter is supported by the National Philanthropic Trust, the American Endowment Foundation, the Manatee Community Foundation, the Community Foundation of Sarasota County, the Miami Foundation, the Philanthropy Roundtable, and the Renaissance Charitable Foundation.