The law temporarily expands the tax deduction for charitable giving, including $300 for non-itemizing taxpayers, but makes clear that gifts to DAFs aren’t eligible for the extra incentives. That sends a “signal” that Congress has concerns about DAFs, Colinvaux said.
DAF providers said the measure discriminates against them. “It’s a concern when a public charity like a DAF is treated differently from another public charity,” Vanguard’s Greenfield said.
But Boston College law professor Ray Madoff said the tax code should make even clearer distinctions.
“A contribution to a DAF is treated identically as a contribution to a food bank,” she said. “We shouldn’t be treating them identically.”
‘Great Tool’
DAF providers warn that reform could discourage giving.
“It’s a great tool that’s not broken, so don’t mess with it,” Schwab’s Laughton said. Setting a required payout rate could mean donors merely give at that rate, rather than the higher rates at which they’re donating now.
If DAFs continue to pay out more in response to Covid-19, they could have more ammunition against critics. If the donation surge is only temporary, lawmakers would have more reason to crack down. The threat to DAFs’ unregulated status doesn’t just come from Congress. State lawmakers are also taking a look.
Buffy Wicks, a Democratic member of the California State Assembly, said she’s watching closely to see if stricter rules on DAFs might be necessary given what they cost in lost tax revenue.
“Now is when donors need to be emptying out their accounts,” Wicks said. “These nonprofits have real needs. People who were living on the brink before are going to be slipping into homelessness and poverty. If you’ve been waiting for an emergency, the emergency is now.”
--With assistance from Laura Davison and Amanda Gordon.