Senators call for Donor-Advised Funds reform

March 18, 2022

During the Senate Finance Committee’s March 17th hearing on the charitable sector, lawmakers from both political parties called to reform Donor-Advised Funds so that the donation’s tax deduction and charitable benefit are better synchronized.

“You have the predicament that the donor gets the deduction now, but the charitable benefit may not happen for years,” said Senator Sheldon Whitehouse (D-RI), adding, “there's an estimated $140 billion set aside for future gifts in donor advised funds with no requirements for the funds to actually be distributed to charities.”

The Senator added: “One study taking a look at Donor-Advised Funds found that 35% of them didn't make a single distribution in 2020, which was kind of a, you know, high need year for charitable giving.”

Senator Chuck Grassley (R-Iowa), a senior member on the tax-writing committee and a long-time advocate for clamping down on charities, said there should be a timeline for when donations are made available to charities that come from Donor-Advised Funds. He too noted that more than $140 billion is currently set aside for future charitable gifts, but no requirement to distribute those funds.

“Charitable support is needed. Now. Not tucked away for some hypothetical future,” he said.

Grassley has introduced legislation with Senator Angus King (I-Maine) that would require assets be distributed within a reasonable timeframe.

Susannah Morgan, the Chief Executive Officer of Oregon Food Bank, testified before the panel and agreed that action should be taken on this issue.

“When I hear of wealthy folks tucking food money away in hopes that they will make the future better, my response is make the future better right now for my neighbors who are struggling to put food on the table,” she said.

Senator Whitehouse noted that he has received pushback from charities and lawmakers on reforming this type of fund. The complaint is that activity within the fund would increase and accounting for it could be problematic.

“One of the pieces of pushback that we have gotten is that it creates a very significant administrative burden for the donor advised fund… You get into a very complicated piece of logistical tracking to try to identify when each dollar came in. So you can find out when it went out and whether it met the distribution requirements,” Whitehouse said.

Morgan didn’t buy the complaint.

“From where I sit on the ground, we track our inventory like that. We get a donation of a truckload of oranges. We have to know when they show up and when they go out and who they go to. So, I am not particularly sympathetic to complex tracking requirements because I live with them every day,” she said.  

Despite the bipartisan support shown in the hearing to reform these funds, it is not clear if it will occur.

Employee Retention Tax Credit:

During the hearing, Senate Finance Chairman Ron Wyden (D-Ore.) proposed that some of the recently enacted funds for the IRS should be used to ensure taxpayers receive their money from the Employee Retention Tax Credit.

“I would be very interested in…trying to make sure that some of that extra money that was just signed into law last week was for small business focused efforts,” he said to committee member Senator Ben Cardin (D-Md.).

Cardin has been a huge advocate for small businesses and accepted Wyden’s offer.

“I can tell you having as my partner, the chairman of the Senate Finance Committee, will give me a much better opportunity to get some results for the IRS,” Cardin told Wyden.

Recently enacted legislation provides $12.6 billion for the IRS, which is an increase of $675 million above last year’s level and the largest increase since President George W. Bush’s first year in office.

The House Ways and Means Oversight Subcommittee held a March 17th hearing on the IRS where lawmakers called for the agency to address ERTC problems.  

During the Senate Finance hearing, Daniel Cardinali, President and CEO of Independent Sector, said that getting ERTC payments out would also benefit non-profits that are also waiting on payments.

“Anybody who's run a nonprofit knows that you have to plan very carefully on cash flows. And you rely on both public and private sources And when you get a massive disruption, it not only throws off the individual employees that you may not be able to pay, but your operations and destabilizes your culture internally,” Cardinali said. “So I would just encourage this committee to double down on reinstating the ERTC and ensuring that the IRS is able to have the resources necessary to be able to get those reimbursements in a timely manner.”

The Wyden-Cardin partnership will likely try to address this type of issue.

Revive the Above-the-Line Donation Deduction:

Finance Committee Senators on both sides of the aisle voiced support for renewing the above-the-line deduction for charitable contributions, which expired last year.

“I believe there is going to be bipartisan interest in reviving it,” Wyden said.

Senator James Lankford (R-Okla.) said the deduction spurs giving and should be renewed.

“Go to any nonprofit in America. Pick any one of them and ask what their highest month of giving is. And they will always smile at you and say December. That is not because of the Christmas spirit. It is because that's the end of the tax year and they know if they're going to get the deduction, they have to do it right now,” he said.

Ticket to Ride:

All provisions become law by being in legislation that gets enacted. Currently, it is not clear if the above-the-line donation deduction will make on a bill. The main reason is the Child Tax Credit. Several Democratic lawmakers refuse to extend any tax relief unless the expanded version of the Child Tax Credit that recently expired is renewed. There is currently no clear path for expanding the CTC since Senator Joe Manchin (D-W.Va.) opposed it late last year.

Expand Full Article

We're Here to Help

We are here to help
From business growth to compliance and digital optimization, Eide Bailly is here to help you thrive and embrace opportunity.
Speak to our specialists