Council Summary: Congressional Research Service Report on Donor-Advised Funds

The Congressional Research Service issued a 2012 report on charitable giving and donor-advised funds. Using data from Form 990, the report updates to 2008 some of the statistical information about donor-advised funds that was included in the 2011 Treasury report on donor-advised funds. However, the CRS report takes strong issue with several of the findings of the Treasury report.

According to CRS, about 1,800 organizations in 2008 reported having donor-advised funds. Collectively, these organizations held about 181,000 funds with total assets of about $29.5 billion. Donors contributed about $7.1 billion to DAFs, and grants from DAFs were approximately $7 billion for an average payout of 13.1 percent. This average payout is significantly greater than the 9.6 percent average for 2006 that was reported in the Treasury study. CRS notes that this may be in part because the recession, that began in late 2007, caused a decrease in the value of assets held in DAFs.

Payout

The report’s most notable findings are that, in 2008, “a substantial share” of DAF sponsoring organizations paid out less than 5 percent in grants from advised funds and its contention that aggregate average payout figures, while high, are insufficient because they may mask a significant number of individual funds that made no distributions.

On the first conclusion, although about 450 sponsoring organizations with DAFs reported no grants, these organizations held only a tiny portion of DAF assets -- $280 million. Most of the organizations in this group had only one advised fund. There may be many reasons why these organizations made no grants, including that the fund was only established at the end of 2008, or that the organizations in question were mistaken in reporting that they had a donor-advised fund, but there is no way to tell this from the Form 990. The more important point is that it is relatively unimportant that there were a large number of organizations with no reported grants if they controlled few assets.

The second conclusion, that large payouts from some DAFs hide limited or no payouts from others, is based on an extrapolation from the data from sponsoring organizations that reported having only one advised fund. Because a large number of these organizations reported no grants in 2008, the report concludes that “it is likely” that there are “many” individual DAFs maintained by sponsoring organizations with multiple DAFs that made no grants in 2008. This methodology seems questionable at best. To support their conclusion, the authors also constructed a hypothetical in which 20 percent of DAFs paid out an average of 80% of their assets, while the remaining 80% paid nothing. They argue that on these facts (which also assume that the DAFs are identical in size), the sponsoring organization would still have a 16% payout rate.
Besides the support this report provides to those who would like to enact a fund-by-fund distribution requirement for DAFs, there are also some recommendations of additional information that the IRS could collect. This includes the share of DAFs that made no distributions, the share that distributed less than 5 percent, or “a general distribution of accounts across different payout intervals.” Also mentioned were information about investment fees and administrative costs of managing DAFs.

While the report notes a few obvious differences between the private foundation payout rules and the simple calculation of dividing assets by grants, there is no discussion of many important aspects of those rules that would need to be addressed if Congress were to mandate a fund-by-fund payout requirement. Private foundations, for example, are permitted to carry forward excess distributions for up to five years and have until the end of the year following the year for which a return is filed to make up any deficiency. This means that a private foundation could make no grants in a particular year, but still be fully compliant with its legal obligation.

Donor Control

The report concludes that donors have effective control over grantmaking from advised funds. This is in contrast to the Treasury study that focused on the legal control vested in the sponsoring organization’s board of directors. In support of this conclusion, they cite language from a number of sponsoring organization websites that describe circumstances in which grant requests may be denied and policies with respect to inactive funds. This section of the report includes quotations from the website of Fidelity Charitable and the Alaska Community Foundation. Although the authors plainly found little evidence of donor control of investments, they point to websites of the American Endowment Foundation and The Renaissance Charitable Gift Fund as evidence of donor control and reach the otherwise unsupported conclusion that “in many cases they [donors] have effective investment control.”

Other Issues

The report briefly discussed the other issues that Congress directed initially to Treasury. These include whether gifts to DAFs are completed gifts and whether DAFs should be subject to all of the private foundation rules. However, the report mostly just summarizes the comments that Treasury received on these points.