Community Foundation Leaders: Proposed IRS Regulations Would Stifle Giving and Hurt Communities

Tonia Wellons from Greater Washington Community Foundation during her testimony.

Leaders from 16 U.S. community foundations were among more than 40 speakers who testified at a hearing hosted this week by the Internal Revenue Service to gather public input on proposed regulations to donor-advised funds.

Their message was clear — the IRS needs to go back to the drawing board.

The proposed rules, which were announced last fall, are designed to tighten governance of donor-advised funds to ensure that their activities benefit nonprofits rather than individual donors and investment managers.

But community foundation leaders said the regulations would have the opposite effect — putting unnecessary burdens on community foundations and their donors and discouraging the type of donor engagement that helps support informed giving.

“This may end up having a dampening effect on charitable giving, not just in our region, but across the country,” said president and CEO of the Greater Cincinnati Foundation Matthew Randazzo, one of the community foundation leaders who testified this week.

“The proposed regulations would silo philanthropic dollars into smaller private foundations, which will undoubtedly lead to reduced philanthropic collaboration, disparate focus areas, and less grant making directed towards solving the complex issues that our communities face today.”

Community foundation leaders expressed concerns about language in the proposed rules that would effectively bar community foundations from working with donors who want to manage investments in their funds through personal advisors — as well as stipulations that would reclassify funds that are not currently considered DAFs as DAFs.

Taken together, these proposed rules would drive donors away from giving through community foundations — and limit giving to community-based nonprofits.

“This policy shift would have a chilling effect on donors, with the net impact of donors shifting their accounts to other charitable vehicles with lower annual payouts,” said Tonia Wellons, president and CEO of the Greater Washington Community Foundation.

Key Quotes from the Hearing

“It [would] change the spirit of our work. The joy and encouragement we share with donors around their giving — that's all going to flip in an instant. It's now going to be suspicion and fear.”

Debbie Wilkerson, President and CEO, Greater Kansas City Community Foundation

“How would the proposed regulations affect our work? Put simply, they would turn certain funds into DAFs that are not currently DAFs, and other funds would be at risk of becoming a DAF based on future facts and circumstances.

“Because donor-advised funds are disfavored under the tax code relative to other funds that we administer, affecting both the types and contributions they can accept and grant-making from the fund, anything that causes a category fund to turn into a DAF makes it more complicated to administer, less attractive to our donors, and ultimately less effective.

Amy Freitag, President, The New York Community Trust

“I speak for all of my peers here when I say warehousing money is not what it's all about. If we wanted to sit in the pile of money, it would be in a different line of business.

“Donor-advised funds are a critical tool in our toolbox, and investment advisors are key partners helping us to grow assets for our community. They introduce us to their clients, then help charitable dollars benefit from investment performance and the magic of compound interest, which Einstein called the eighth wonder of the world.”

Rose Bradshaw, President and CEO, North Texas Community Foundation
 

Related News Coverage

IRS Considers Changes to Donor-Advised Fund Proposed Regulations – Bloomberg Tax (paywall)

Flexible Emergency Funds at Risk Under IRS Plan, Charities Say — Bloomberg Tax (paywall)

The $230 Billion Donor-Advised Fund Industry Gets an IRS Hearing — The Chronicle of Philanthropy (paywall)

Charities Make Pitch to Narrow IRS Donor-Advised Fund Proposals — Bloomberg Law (paywall)

Charities Ask for Rare Do-Over on IRS Donor-Advised Fund Rules — Bloomberg Law (paywall)