Bill Overview
Title: ACE Act
Description: This bill modifies tax rules relating to donor advised funds (DAFs) (separately identified funds maintained and operated by a tax-exempt charitable organization for which a donor retains advisory privileges with respect to the distribution of funds and the investment of assets). Specifically, the bill places certain restrictions on charitable contribution deductions for gifts made to a nonqualified DAF. It also sets forth rules for the treatment of private foundation administrative expenses paid to disqualified persons and for the treatment of distributions to DAFs from private foundations. The bill imposes a 50% penalty on contributions held in a DAF that are not timely distributed. The bill also sets forth special rules for the treatment of contributions from DAFs for purposes of meeting the public support test (the requirement that charitable organizations receive a certain percentage of their support from public sources). The bill exempts from the tax on the investment income of a private foundation (1) distributions to a DAF of not less than 7% of the foundation's assets, and (2) for foundations that have a duration, specified in their governing documents, of not more than 25 years.
Sponsors: Rep. Pingree, Chellie [D-ME-1]
Target Audience
Population: Individuals and entities involved with donor advised funds and private foundations
Estimated Size: 1200000
- The bill impacts donor advised funds (DAFs), affecting donors who have set up these funds and organizations managing them.
- Tax-exempt charitable organizations maintaining DAFs are directly involved because the bill imposes new rules on their operations.
- Private foundations could be impacted by rules regarding administrative expenses and distributions to DAFs.
- Charities dependent on contributions from DAFs might see changes in their funding as the bill might incentivize or penalize certain fund distributions.
- The philanthropic community, including both donors and charities, will need to adjust their strategies due to potential changes in tax benefits and penalties.
- Overall, the bill affects wealthy individuals and entities who plan their charitable giving through DAFs and private foundations.
Reasoning
- The Accelerating Charitable Efforts Act primarily impacts those involved with donor advised funds and private foundations. Hence, it targets a more affluent section of the population involved in philanthropy and their associated organizations.
- Occupational diversity among the sample population includes both direct stakeholders (such as donors and foundation managers) and indirect stakeholders (like employees of recipient charities), considering the ripple effects of funding changes.
- The budget and policy limitations were used to identify realistic implementation reach and assess impact concerning existing philanthropic practices.
Simulated Interviews
Philanthropist (New York, NY)
Age: 45 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 15.0 years
Commonness: 3/20
Statement of Opinion:
- I believe this policy will make the philanthropic process more transparent and efficient.
- The penalties for not distributing funds timely will urge more proactive planning.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 9 | 8 |
| Year 10 | 9 | 8 |
| Year 20 | 9 | 8 |
Foundation Manager (San Francisco, CA)
Age: 60 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 20.0 years
Commonness: 2/20
Statement of Opinion:
- Managing foundation expenses will be challenging under the new rules.
- Balancing generosity and compliance with the 7% rule is crucial.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 7 | 7 |
| Year 3 | 6 | 7 |
| Year 5 | 6 | 7 |
| Year 10 | 5 | 7 |
| Year 20 | 4 | 6 |
Charity Program Director (Austin, TX)
Age: 38 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 10.0 years
Commonness: 6/20
Statement of Opinion:
- I worry about fluctuations in DAF contributions disrupting ongoing programs.
- The policy may reduce immediate funds, affecting project planning timelines.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 7 | 6 |
| Year 20 | 8 | 6 |
Tax Advisor (Chicago, IL)
Age: 50 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 10.0 years
Commonness: 7/20
Statement of Opinion:
- The policy increases complexity for tax planning for my clients.
- Advisors must anticipate changes to better serve philanthropic strategies.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 6 | 7 |
| Year 3 | 6 | 7 |
| Year 5 | 6 | 7 |
| Year 10 | 6 | 7 |
| Year 20 | 6 | 7 |
Retired with active philanthropic interests (Boston, MA)
Age: 65 | Gender: female
Wellbeing Before Policy: 9
Duration of Impact: 5.0 years
Commonness: 4/20
Statement of Opinion:
- I think the intent of the policy is good, but it might complicate personal giving.
- Less flexibility might deter some from using DAFs.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 9 |
| Year 2 | 8 | 9 |
| Year 3 | 8 | 9 |
| Year 5 | 8 | 9 |
| Year 10 | 8 | 9 |
| Year 20 | 8 | 9 |
Corporate Executive (Miami, FL)
Age: 42 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 5.0 years
Commonness: 5/20
Statement of Opinion:
- The policy could disrupt planned contributions to community programs.
- We need to reassess how employee donations are matched and distributed.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 7 | 8 |
| Year 10 | 7 | 8 |
| Year 20 | 7 | 8 |
Young Entrepreneur (Los Angeles, CA)
Age: 30 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 8.0 years
Commonness: 6/20
Statement of Opinion:
- The policy is daunting because we're just getting started with our foundation.
- The rules about the foundations' lifespan feel restrictive.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 7 |
| Year 2 | 6 | 7 |
| Year 3 | 6 | 7 |
| Year 5 | 6 | 7 |
| Year 10 | 5 | 7 |
| Year 20 | 5 | 7 |
Nonprofit Board Member (Dallas, TX)
Age: 55 | Gender: female
Wellbeing Before Policy: 8
Duration of Impact: 10.0 years
Commonness: 4/20
Statement of Opinion:
- This policy will push nonprofits to seek diverse funding sources.
- Reliance on DAFs might become a riskier strategy for many charities.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 8 |
| Year 2 | 7 | 8 |
| Year 3 | 7 | 8 |
| Year 5 | 7 | 8 |
| Year 10 | 7 | 8 |
| Year 20 | 8 | 8 |
Financial Planner (Philadelphia, PA)
Age: 40 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 5.0 years
Commonness: 5/20
Statement of Opinion:
- New compliance requirements might dissuade clients from complex giving plans.
- Education on the policy's impact is necessary to mitigate concerns.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 7 |
| Year 2 | 6 | 7 |
| Year 3 | 6 | 7 |
| Year 5 | 6 | 7 |
| Year 10 | 6 | 7 |
| Year 20 | 6 | 7 |
Charity Administrator (Seattle, WA)
Age: 47 | Gender: other
Wellbeing Before Policy: 6
Duration of Impact: 15.0 years
Commonness: 6/20
Statement of Opinion:
- Adjusting to this policy will take effort, but it could increase transparency.
- We're examining how these changes align with our organizational goals.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 8 | 6 |
| Year 20 | 8 | 6 |
Cost Estimates
Year 1: $30000000 (Low: $20000000, High: $40000000)
Year 2: $25000000 (Low: $15000000, High: $35000000)
Year 3: $25000000 (Low: $15000000, High: $35000000)
Year 5: $20000000 (Low: $10000000, High: $30000000)
Year 10: $15000000 (Low: $5000000, High: $25000000)
Year 100: $10000000 (Low: $5000000, High: $20000000)
Key Considerations
- The policy's impact on charitable behavior remains uncertain; it depends on how donors and organizations adjust strategies.
- Regulatory burdens for compliance and enforcement may require additional resources for oversight agencies.
- Changes could see shifts in funding sources among different charitable recipients.