By Robert Ford

The days of semi-regulated donor advised funds (DAF) might be numbered as the U.S. Senate Finance Committee looks to clamp down on a sector that has had abuse allegations.

Yet, among the largest DAFs, there already appears to be acceptance of some of the committee’s propositions. “Reforming donor advised funds is a large philanthropic issue,” said Benjamin Pierce, executive director of the Malvern, Pa.-based Vanguard Charitable Endowment Fund. With DAFs becoming so successful and with little regulation, it is an area ripe for abuse.

Some regulations on DAFs might come as soon as this fall, with more sweeping change likely in 2005, according to Jill Gerber, spokeswoman for the Senate Finance Committee.

J.J. MacNab, owner/analyst with the Bethesda, Md.-based Insurance Barometer, LLC, testified before the committee during a June public hearing that in some cases, in addition to the tax deduction permitted by law, donors and the operators of some funds were manipulating them in such a way that would pay for “family vacations, school tuition and Olympic-size swimming pools.”

Based on the hearing and its own research, the finance committee’s staff has recommended to senators that changes need to be made. Those recommendations include:

• Any contributions to DAFs other than cash or securities, such as land, be sold within a year and that when donated there be a plan in place to sell it;

• DAFs not be permitted to make grants to individuals or non-public foundations;

• Include an “acknowledgement” from the donor that any grant will not have a private benefit for the donor;

• DAFs would be required to pay out at least 5 percent of assets each year or face a tax similar to that of a private foundation;

• DAFs could only make grants to foreign organizations if those organizations appeared on an IRS list of approved foreign organizations;

• Grants would be permitted to fulfill a donor’s charitable pledge;

• Investment managers would be hired via “arm’s length” principles;

• In most cases, a DAF could not spend money for a donor’s site visits;

• Fees for referrals or transfers of funds to a DAF would be limited.

Gerber said the Senate Finance Committee hoped to include some of the reforms in bills this fall. “Other parts we’ll look to advance early in the next Congress,” she said.

While there are some areas Vanguard officials would like to see left alone, such as grants to non-public foundations, for the most part they have no problem with the proposed changes, Pierce said. “We think we are as transparent as possible,” he said, “and are already doing much of what the proposed changes would have us do.”

Susan Heldman, vice president, and controller of the Schwab Fund for Charitable Giving in San Francisco, said Schwab supports the proposed regulations. They “are just mirroring what the for-profit world is already doing,” Heldman said. If the new regulations are enacted, they will not be burdensome on groups that are already acting responsibly, she added.

© 2006 The NonProfit Times Privacy Policy