An Analysis of Charitable Giving and Donor Advised Funds
Congressional research reportJul 11, 2012
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An Analysis of Charitable Giving and Donor
Advised Funds
(name redacted)
Specialist in Public Finance
(name redacted)
Senior Specialist in Economic Policy
July 11, 2012
Congressional Research Service
7-....
www.crs.gov
R42595
CRS Report for Congress
Prepared for Members and Committees of Congress
An Analysis of Charitable Giving and Donor Advised Funds
Summary
Congress has long been concerned with ensuring that contributions for which tax deductions are
claimed directly benefit charitable activities. Private foundations, a traditional arrangement that
allows donations to non-active charitable entities, typically pay grants out of earnings on donated
assets. Another arrangement that is growing rapidly is the donor advised fund (DAF). A taxpayer
contributes to a DAF, taking a tax deduction. The fund sponsor makes grants to active charities,
advised by the donor. Unlike private foundations, DAFs are not required to pay out a certain
proportion of assets as grants each year. DAFs have become increasingly popular in recent years,
partly due to commercial funds (e.g., Fidelity) with limited traditional charitable interests.
Provisions enacted in the Pension Protection Act of 2006 (P.L. 109-280) required DAF sponsors
to report data on grants. The data are reported at the sponsoring organization level, where
sponsoring organizations may maintain multiple individual DAF accounts. The 2006 act also
directed the Treasury Department to study DAFs, with Congress expressing particular interest in
issues relating to potential restrictions on deductions and minimum payout requirements. The
Treasury study was released in 2011. Senator Chuck Grassley, Senate Finance chairman at the
time of the 2006 legislation, has criticized the study as being “disappointing and nonresponsive.”
The Treasury did not recommend restrictions on deductions (such as those that apply to private
foundations where grants are typically made out of earnings), appealing to the lack of legal
control by the donor. However, evidence from public comments in the report and sponsor
websites indicate that sponsoring organizations typically follow the donor’s advice, thus
suggesting that donors have effective control over donations and, in some cases, investments.
Private foundations have a 5% minimum payout rate (and actual payouts are only slightly above
that amount). The Treasury also did not recommend a minimum payout for DAFs, indicating that
more years of data are needed. The Treasury also appealed to the higher estimated average payout
rate of DAF sponsoring organizations (9.3% in 2006) as compared to foundations.
This report uses 2008 data to examine the minimum payout requirement, finding results similar to
those found by Treasury. The average payout rate was 13.1%. More than 181,000 individual DAF
accounts were maintained by roughly 1,800 DAF sponsoring organizations. Most individual
accounts were maintained by institutions with a large number of accounts (two-thirds of all DAF
accounts were held by sponsoring organizations that maintained at least 500 accounts; nearly half
of all DAF accounts were held by commercial DAF institutions). Assets in DAF accounts were
$29.5 billion, contributions were $7.1 billion, and DAF accounts paid out $7.0 billion in grants.
Because DAF accounts have heterogeneous objectives, in some cases to manage giving with high
payout rates and in others to establish an asset base, a DAF sponsor can have a high average
payout rate although many accounts have little or no payout. In both 2006 and 2008, a substantial
share of DAF sponsoring organizations paid out less than 5% of assets each year. To provide
some insight into the payout behavior of individual DAF accounts, sponsoring organizations that
reportedly maintained only one DAF account in 2008 are analyzed separately. Although the
average payout rate was over 10%, more than 70% of DAF sponsoring organizations with a
single DAF account paid out less than 5%, and 53% had no grants. In contrast, less than 4% of
sponsors with 100 or more accounts, accounting for 87% of DAF accounts, have a payout rate of
less than 5%. This suggests that a minimum payout rate for sponsors would not be effective; an
effective minimum payout requirement would need to be applied to individual DAF accounts.
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An Analysis of Charitable Giving and Donor Advised Funds
Contents
Recent Developments in the Tax Treatment of Donor Advised Funds (DAFs) ............................... 2
DAFs Versus Foundations ......................................................................................................... 3
Questions Addressed in the 2011 Treasury Report .......................................................................... 5
Should DAF Contribution Rules Be More Restrictive? ............................................................ 5
Should DAFs Be Subject to a Minimum Distribution Requirement? ....................................... 8
Completed Gifts......................................................................................................................... 9
Analysis of 2008 Donor Advised Fund Data ................................................................................... 9
Number of Accounts at DAF Sponsoring Organizations......................................................... 10
DAF Assets .............................................................................................................................. 11
Contributions To and Grants From DAF Accounts ................................................................. 12
DAFs that Do Not Pay Out Grants .................................................................................... 14
DAF Payout Rate .............................................................................................................. 15
Commercial DAFs ................................................................................................................... 18
Policy Considerations .................................................................................................................... 20
Minimum Distribution Requirements...................................................................................... 20
Imposing Tighter Rules that Apply to Foundations on DAFs ................................................. 22
Completed Gifts....................................................................................................................... 22
Tighter Restrictions on Commercial DAFs or National DAFs................................................ 23
Limit the Duration of Advisor Rights, Or Limit the Life of a DAF Account .......................... 23
Limits on Maintenance Fees .................................................................................................... 23
Improvements in Reporting ..................................................................................................... 23
Conclusion ............................................................................................................................... 24
Figures
Figure 1. Distribution of Payout Rate Across DAF Sponsoring Organizations............................. 16
Figure 2. Payout Rate for Sponsoring Organizations Maintaining One DAF Account ................. 17
Figure 3. Payout Rate for Sponsoring Organizations Maintaining One Hundred or More
DAF Accounts ............................................................................................................................ 18
Figure 4. Payout Rate for Commercial DAFs................................................................................ 20
Figure A-1. Form 990 Schedule D: Donor Advised Fund Questions ............................................ 25
Tables
Table 1. Comparison of Features of DAFs and Private Foundations............................................... 4
Table 2. Number of Individual DAF Accounts Held by DAF Sponsoring Organizations ............ 11
Table 3. Average Assets per DAF Account .................................................................................... 12
Table 4. Average Contributions and Grants per DAF Account ...................................................... 14
Table 5. Comparing All DAF Sponsoring Organizations to Commercial DAFs ........................... 19
Table B-1. DAF Data as Reported on Form 990: Summary Statistics........................................... 27
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Appendixes
Appendix A. Description of Data .................................................................................................. 25
Appendix B. Data Summary Statistics........................................................................................... 27
Contacts
Author Contact Information........................................................................................................... 28
Congressional Research Service
An Analysis of Charitable Giving and Donor Advised Funds
A
s Congress continues to examine various aspects of the tax code in the context of
potential tax reform, the tax deduction for charitable contributions may come under
scrutiny. Congress has long been concerned with ensuring that contributions for which
tax deductions are claimed directly benefit charitable activities. Certain organizations that support
charitable activities, however, may receive tax deductible charitable contributions today, but may
not be required to use those funds for charitable purposes within any specific time frame. Thus,
taxpayers may be claiming tax deductions for donated funds that are not immediately serving
charitable purposes.
Certain types of organizations are given preferred tax status for supporting charitable activities,
even if the organization is not directly involved in providing charitable goods or services. Private
foundations, for example, make grants to charities but generally do not directly provide charitable
goods and services. Grants are paid out of earnings on donated assets held by the foundation.
Donor advised funds (DAFs) are another type of organization that serves to facilitate charitable
giving, but are not directly involved in the provision of charitable goods and services. Like
foundations, charitable contributions made directly to DAFs are tax deductible. Unlike
foundations, DAFs are not subject to minimum payout requirements. DAFs have become
increasingly popular in recent years, partly due to commercial fund sponsors (e.g., Fidelity and
Vanguard) with limited traditional charitable interests.
Foundations, DAFs, and other organizations that invest contributed funds confer an additional tax
benefit in the form of a tax exemption. This tax exemption allows organizations to accumulate
assets without paying tax on earnings. During normal years (before the asset collapse during the
recession) estimates suggested that the revenue loss from this tax benefit was even larger than
that associated with charitable contributions deductions.1 If charitable contributions were spent
quickly, this benefit would be minimal. If contributions are held as assets and invested, the tax
exemption may confer significant financial benefits.
Congress moved to impose greater restrictions on organizations that support, but are not directly
involved in providing, charitable goods and services in the Pension Protection Act of 2006 (PPA;
P.L. 109-280). Notably, certain types of supporting organizations were subject to a minimum
payout ratio of 5% of assets under provisions enacted as part of the PPA. DAFs, however, were
not subject to payout requirements. The PPA did impose additional reporting requirements on
DAFs, and requested a Treasury Department study of DAFs along with supporting organizations.
The Treasury Department’s study was released in 2011.2 The Treasury Report was criticized by
Senator Chuck Grassley, chairman of the Senate Finance Committee in 2006, as being
“disappointing and nonresponsive.”3 This report reviews the findings of the Treasury study with
respect to DAFs and provides additional analysis of payout behavior of DAFs (one of Congress’s
primary concerns when requesting the study) using data from the 2008 Internal Revenue Service
(IRS) Statistics of Income (SOI) public use file for tax-exempt organizations.
1
See CRS Report RL34608, Tax Issues Relating to Charitable Contributions and Organizations, by (name redacted)
and (name redacted).
2
U.S. Department of the Treasury, Report to Congress on Supporting Organizations and Donor Advised Funds
December 2011, http://www.treasury.gov/resource-center/tax-policy/documents/supporting-organizations-and-donoradvised-funds-12-5-11.pdf. Referenced as “Treasury Report” below.
3
See “Grassley: Treasury Misses the Mark on Chance to Shut Down Charitable Loopholes,”
http://www.grassley.senate.gov/news/Article.cfm?customel_dataPageID_1502=38154.
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An Analysis of Charitable Giving and Donor Advised Funds
Recent Developments in the Tax Treatment of
Donor Advised Funds (DAFs)
Donor advised funds allow individuals to make a gift to a fund in a sponsoring organization.
Sponsoring organizations are charities that are allowed to receive tax-deductible donations. The
gift is irrevocable, as in the case of a gift to a foundation or any other charity. The donor does not
legally oversee the payment of grants to charities from the fund, which is determined by the
sponsoring organizations. Donors make recommendations for grants (hence donor advised), and
there is general agreement that these recommendations determine, with few exceptions, the
contributions. For example, the Treasury Report indicated that all respondents providing public
comments reported no conflicts with their donor’s advice and agreed that the donor’s
recommendations are generally followed.4
DAFs first appeared in the 1930s, largely sponsored by community foundations and involving
relatively large contributions. Over time, these DAFs continued to be largely sponsored by
community foundations, and, to a lesser extent, religious organizations. However, in the early
1990s, investment firms began to set up charitable organizations to sponsor DAFs. Fidelity
established a DAF sponsoring organization in 1992, and other financial institutions quickly
followed.5
Currently, numerous commercial DAF sponsors operate, with Fidelity, Schwab, and Vanguard
being the largest in terms of asset size. The rapid growth in DAFs is associated with the
appearance of commercial DAF sponsors which now control roughly one-third of DAF assets.
Community foundations account for 43% of DAF assets and religious organizations 15%.6
Commercial DAFs tend to allow relatively small contributions and do not have a direct charitable
interest, as is the case for the other DAF sponsors, such as community foundations, religious
organizations, education, health, or other charitable organizations.
DAFs may be used to hold funds temporarily, which may be useful for year end planning, and
distributions out of the contributions may be made quickly.7 They also may be used in the same
way as private foundations: with a large contribution to the fund, which is then used to generate
income and make grants largely out of income. In cases where DAFs’ advisor status can be
inherited, such funds can exist in perpetuity, just as most foundations do.
Not only can this treatment, compared to ordinary charitable giving, confer additional tax benefits
by allowing fund earnings to accumulate tax free, it can facilitate the contributions of appreciated
4
See Treasury Report p. 69: “No respondent reported ongoing disagreements with donors over the appropriateness of
potential grants, and all respondents said that, in general, donor advice was followed.”
5
For a discussion of the differences between the early DAFs and the more recent commercial DAFs, see Ellie
Winninghoff, Impact Investing Through DAFs, November 2, 2011, http://www.fa-mag.com/green/news/9044-impactinvesting-through-dafs.html.
6
See Treasury Report, p. 48. These figures are based on 2006 data. Other national DAF sponsors and education
sponsored DAFs accounted for most of the remainder (5% and 4% respectively). Treasury also reviews the growth in
DAFs in recent years.
7
A recent news article discussed the use of DAF accounts to accelerate contributions, given the possibility of
restrictions on charitable contributions in dealing with the budget deficit. See “Invasion of the Charity Snatchers!” Wall
Street Journal, June 8, 2012, http://online.wsj.com/article/SB10001424052702303296604577450451929765874.html?
mod=ITP_businessandfinance_4. A version appeared in the print edition on July 9, p. B7.
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property. A DAF can permit the contribution of a large indivisible appreciated property such as
real estate. When property is not divisible, the contribution cannot be spread across many
charitable donors or donated over time. Contributions of property can be made to a DAF, sold
without tax consequences, and the proceeds used to make smaller subsequent contributions to
multiple recipients or donations over time. Donors receive another tax benefit when they donate
appreciated property, because they do not have to pay capital gains tax on the appreciation, while
at the same time deducting the charitable gift at market value in most cases.
DAFs Versus Foundations
As shown in Table 1, DAFs, as ordinary charities, have more generous treatment than private
foundations in several respects.8 Only publicly traded property such as corporate stock is eligible
for a deduction for the full fair market value when donated to a private foundation. Property such
as real estate is allowed a deduction for fair market value when contributed to a public charity
including a DAF, but is limited to cost basis when contributed to a private foundation. The limits
on the share of income that can be donated in any one year to charities, which contributions to
DAFs fall under (50% for cash contributions and 30% for gifts of appreciated property) are more
generous than for contributions to foundations (30% for cash and 20% for gifts of appreciated
property). There are no minimum payout requirements (which could require a certain percentage
of assets be paid out in grants each year) or excise taxes. Prior to the 2006 act, DAFs had the
same rules on self dealing as public charities, although they are now subject to many private
foundation rules (such as disallowing transactions with the donor, such as loans). DAFs may also
have some advantages outside of tax benefits. The cost of setting up and administering a DAF is
smaller than in the case of a foundation, which can be important for smaller contributions. Where
privacy in making contributions is desired, DAFs can be superior since individual DAF grants are
not public.
Private foundations have more favorable treatment than DAFs in two respects. Donors who
establish foundations (or their heirs) may continue to control the foundation by being a director or
trustee and can receive a salary for services, while donors to DAFs do not have legal control over
investment or grant choices. Wealthy individuals, for example, may leave large shares of their
estate to a foundation, and their children may be involved in its operation, conferring social status
as well as possible employment. Evidence suggests, however, that donors to DAFs have effective
control over grants, and to some extent investments, because sponsoring organizations typically
follow the donor’s advice. The second benefit for foundations is greater freedom in grant making:
they can make grants to individuals and to non-profit organizations for charitable purposes, if
certain requirements are met.
8
See also Ruth Masterson, The Best of Both Worlds: Using Private Foundations and Donor Advised Funds: A Guide
for Professional Advisors, Association of Small Foundations, http://www.fidelitycharitable.org/docs/Using-PrivateFoundations-and-Donor-Advised-Funds.pdf. For a brief guide to these difference, see National Philanthropic Trust,
Donor-Advised Funds vs. Private Foundations, http://www.nptrust.org/donor-advised-funds/daf_vs_foundation/.
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Table 1. Comparison of Features of DAFs and Private Foundations
DAFs
Foundations
Fair Market Value
Fair Market Value for Publicly
Traded Stocks; Cost Basis
Otherwise
Income Limits for Cash Gifts
50%
30%
Income Limits for Property Gifts
30%
20%
Minimum Pay Out Requirements
None
5%
Excise Taxes
None
1-2% of Investment Income
Start Up Costs
None
Typically Substantial Legal and Other
Fees
Start Up Time
Immediate
Can Take Weeks or Months
Usually Less than 0.85% plus
Investment Management Fees
2.5% to 4% of Assets
Donor’s Name Can be Confidential
Public Filings Report Grants,
Trustees, etc.
Control
Donors Advise on Grants, and In
Some Cases Investments, but have
No Legal Control
Donors and Designates Can Control
Investments and Grants, Receive
Salary
Freedom in Grant Making
Limited to Charitable Organizations
Can Make Grants to Individuals and
Non-Profits Under Certain
Circumstances
Features Beneficial to DAFs
Deduction for Gifts of Appreciated
Property
Administrative Costs
Privacy
Features Beneficial To
Foundations
Source: Data on the administrative costs and information on start up times are from National Philanthropic
Trust, Donor-Advised Funds vs. Private Foundations, http://www.nptrust.org/donor-advised-funds/
daf_vs_foundation.
These parallels to foundations, along with the rapid growth of DAFs including commercial DAFs,
coupled with some reports of abuse, caused much of the legislative attention to DAFs (as well as
supporting organizations) leading up to the 2006 legislation. Following some initial studies by
staff of the Senate Finance Committee, hearings were held in 2005 that addressed DAFs as well
as supporting organizations, gifts of appreciated property, and other charitable issues.9 In 2006, a
GAO study recommended additional reporting of information on DAFs.10
The Pension Protection Act of 2006 (P.L. 109-280) made two changes with respect to DAFs: it
required reporting of the aggregate assets, grants, and contributions for sponsoring organizations
9
See hearing on Charities and Charitable Giving: Proposals for Reform, Senate Finance Committee, April 2005,
http://finance.senate.gov/hearings/hearing/?id=489a7e96-d336-be14-8262-f27b2f90024e See particularly testimony by
Mark Everson, Commissioner of Internal Revenue, http://finance.senate.gov/imo/media/doc/metest040505.pdf and of
(name redacted), Congressional Research Service, http://finance.senate.gov/imo/media/doc/jgtest040505.pdf for
discussions on donor-advised funds.
10
Tax Exempt Organizations: Collecting More Data on Donor-Advised Funds and Supporting Organizations Could
Help Address Compliance Challenges, GAO-06-799, July 2006, http://www.gao.gov/new.items/d06799.pdf.
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and provided for penalty taxes and restrictions on grants that did not meet required standards or
that benefited the donor or the donor’s family. It did not impose minimum payout requirements
on DAFs (only on certain supporting organizations) and did not alter the income limits for
contributions. Rather, it mandated a study of these issues by Treasury.
Questions Addressed in the 2011 Treasury Report
In mandating the study of DAFs and supporting organizations, Congress specifically asked four
questions of the Treasury Department:
1. Are existing charitable deductions (which have more generous limits and
deduction amounts than those for private foundations) appropriate considering
the use of contributions (type, extent, and timing) or the use for the benefit of the
donor?
2. Should DAFs be subject to a payout ratio?
3. Is an advisory role in the investment or distribution of donated funds consistent
with a completed gift?11
4. Do these issues apply to other charitable gifts?
The remaining sections examine the first three questions as they relate to DAFs, how Treasury
answered them, and what further policy options might be considered.
Should DAF Contribution Rules Be More Restrictive?
The 2011 Treasury Report made comments regarding restrictions on giving as a percentage of
income and on the treatment of gifts of appreciated property. As noted above, individuals can
contribute up to half of their income in cash contributions to charities but only 30% to private
foundations. For gifts of appreciated property, 30% of income can be donated to charities but only
20% to private foundations. For gifts of appreciated property, deductions for fair market value
cannot be taken for other than publicly traded assets in the case of gifts to foundations.
Treasury took the position that these rules should not be changed based on the legal right of DAF
sponsors to make grants and investment allocations, and the inability of the donor to control the
sponsoring organization, which they contrasted with the right of the donor to a private foundation
to retain control of the foundation. As stated in the Treasury Report: “Because donors to DAFs ...
are like donors to other public charities, giving up both control of the contributed assets and the
ability to control the donee organization, the deduction rules seem appropriate.”12
This position can be questioned. First, it is the DAF account, not the sponsoring organization, in
which the donor presumably has an interest. Donors would not reasonably expect to control
Fidelity Charity, which has more than 50,000 individual DAF accounts. The question is how
much actual control donors have over their individual account. This individual account is
11
12
Currently a charitable donation is not complete if the donor maintains control over the gift, its sale, or further use.
Treasury Report, p. 80.
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frequently referred to in discussions, including in the Treasury Report, as a substitute for setting
up a private foundation.
With respect to recommending grants there is fairly compelling evidence that although donors
legally only recommend grants, in practice they determine when and how the funds are
distributed because sponsoring organizations typically follow their advice. In the public
comments summarized in the Treasury Report,
No respondent reported ongoing disagreements with donors over the appropriateness of
potential grants, and all respondents said that, in general, donor advice was followed.
However, one respondent was critical of the relationship between the donor and the
sponsoring organization of the DAF. The respondent expressed concern that many such
arrangements ‘appear to give DAF donors de facto control over investment and distribution
decisions.’13
A review of relevant websites supports this notion. Consider an example from the Alaska
Community Foundation, in answer to the question, “Are Grant Requests Ever Denied?”:
Sometimes. We have a legal obligation not to approve grants that don't meet criteria
established by law. This includes a grant request that is not charitable in nature, provides a
direct benefit to the donor advisor or a related party, or is directed to an individual. We will
always work closely with you to find alternatives that help you meet your grant-making
goals.14
As to the question of whether grants have to be made every year, the Alaska Community
Foundation website states the following:
No. Grants do not have to be made every year. However, if no grants have been made from a
fund for two years, we will attempt to contact the fund advisors. After several years of
inactivity and if we are unable to contact you, a fund may be turned into a designated,
unrestricted or field of interest fund as near as possible to your original intent.
In other words, this sponsoring organization advertises that it will typically follow the donors’
requests and work closely with the donor to find alternatives if the request has to be denied, and
that the sponsoring organization will generally not make other grants from the donor-advisors’
account unless there are years of inactivity and an inability to contact the advisor.
This website is not atypical. For example, the largest commercial DAF organization, Fidelity,
states the following:
Fidelity Charitable only approves grants that are used exclusively in furtherance of charitable
purposes. In accordance with that policy, Fidelity Charitable reserves the right to perform
additional due diligence and to decline to make a recommended grant to a charitable
organization, including, without limitation, (i) where the grant will confer a more than
incidental benefit on an Account Holder, other person with grant recommendation privileges,
or other third party; (ii) where the grant will be used for lobbying, for political contributions,
or to support political campaign activities; (iii) where the grant will be used for improper
purposes; (iv) where the Account Holder and related persons control the organization; (v)
13
14
Treasury Report, p. 69.
See http://www.alaskacf.org/givingopportunities/typesoffunds/donoradvisedfunds/tabid/205/default.aspx.
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where Fidelity Charitable provides a substantial portion of the organization’s public support;
and (vi) for other reasons in accordance with Fidelity Charitable policies. Remedial actions
may include but are not limited to requiring that the grant be returned or that the Account
Holder make an additional nondeductible contribution.15
Fidelity does have a policy of an overall distribution for the organization (not each account) of at
least 5%. Were Fidelity to need to make additional grants, Fidelity indicates they would request
grants be made from the accounts with no payouts. However, Fidelity would still consult with the
account holder for recommendations. Apparently, this need is never necessary in any case as they
typically make grants of 20% of net assets.16
Investment policies appear to be more variable, although in many cases the donors are probably
less interested in the investment allocations than in the recipients of grants. Fidelity offers donors
choices of investment allocations out of their basic funds, and for large donations, the ability to
recommend a financial advisor. The Alaskan foundation mentioned earlier manages the funds
without direction from the donor. The American Endowment Foundation and The Renaissance
Charitable Gift Fund allow investment control of each account.17
Essentially in each of the other issues the Treasury addressed for this question, including whether
there should be restrictions on the donation of appreciated property and on the timing of
deductions (allow deductions without ensuring that the money will be spent in a reasonable
period for a charitable purpose) the Treasury Report reverts to this same argument: that
contributions to DAFs are no different from contributions to other charities (as opposed to private
foundations) because the donor does not retain legal control over the donation.
Another point that appears in public comments is that commercial DAFs, in particular, may have
no incentive to pay out funds or encourage donors to do so. The public comments noted one
respondent as pointing to “an inherent tension between the incentives of NDAF financial advisors
and charitable purposes.”18 (NDAFs refer to national DAF sponsors and are primarily composed
of commercial DAFs.) Even Fidelity’s stated commitment to at least a 5% payout rate is
apparently a non-binding constraint because a sufficient portion of their accounts are held by
donors who make significant donations.
As Congress evaluates the position of the Treasury Department on whether DAFs should be
treated as private foundations or as public charities, an important issue is whether, for policymaking purposes, the restricted legal rights of the donors or the de facto practices should rule. It
is relatively clear from the evidence, including in the Treasury Report, that the donor-advisors
effectively determine the grants made from DAFs and in some cases also have control over how
investments are made. In these respects, they may be more similar to contributions to foundations
15
See http://www.fidelitycharitable.org/docs/Gift-Fund-Policy-Guidelines.pdf.
Ibid, “Historically, Fidelity Charitable has made grants of more than 20% of average net total assets to charities each
year. The formal grant making policy requires that minimum annual grants, on an overall basis, be greater than 5% of
average net assets on a fiscal five-year rolling basis. If this requirement is not met in a fiscal year, Fidelity Charitable
will ask for grant recommendations from Giving Accounts that have not had grant activity of at least 5% of the Giving
Account’s average net assets over the same five-year period. If Account Holders on these Giving Accounts do not
make grant recommendations within 60 days, Fidelity Charitable will transfer the required amounts to the Trustees’
Philanthropy Fund (described on page 28), from which the Trustees will make grants at their sole discretion.”
17
http://www.aefonline.org/investments.htm; http://www.rcgf.org/docs/DAF-Circular.pdf.
18
Treasury Report, p. 68.
16
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than to contributions to public charities. Contributions to private foundations are subject to
greater restrictions on the share of income that can be donated, more reporting requirements and
restrictions, and minimum distributions.
Should DAFs Be Subject to a Minimum Distribution Requirement?
The Treasury Report’s information related to this issue included solicitation of comments and an
analysis of the data on DAFs reported on IRS Form 990 informational returns of tax-exempt
organizations for 2006.
Comments, primarily from community foundations and national DAFs (NDAFs), opposed payout
ratios on the grounds that aggregate distributions exceed the payout ratio for private foundations.
Some comments described rules and restrictions being voluntarily applied by certain sponsoring
organizations that addressed payout requirements. For example, comments noted that
organizations may choose to force grants if no grants are made over several years. In general,
some thought a 5% minimum distribution requirement was acceptable if applied to the overall
sponsoring organization and not to each individual DAF account. They also argued that
monitoring accounts would be costly and that donors may take a 5% rate as a guideline. Some
respondents, however, expressed the view that the accumulation of assets for undefined charitable
purposes supported minimum payouts for individual DAF accounts.
Using the 990 data, the Treasury Report examined the size distribution, allocation across types,
and payout ratios. They found some over-reporting of payout rates in the 990 sample. The overall
average payout rate across all DAF sponsors was 9.3%. However, the payout rates varied
substantially. Arranged by payout rate, at the 25th percentile, the payout rate was zero, meaning
that at least 25% of sponsoring organizations did not pay out grants. At the median, the payout
rate was 0.6%, while it was 10.5% at the 75th percentile. DAF accounts and assets are heavily
concentrated in the larger DAF sponsors and, with multiple accounts, one is unlikely to observe
zero payout rates among these groups. Because of the greater concentration of assets in larger
DAF sponsors, the dollar weighted payout rate is higher, 15.4%.
The Treasury Report generally concludes that it would be premature to make a recommendation
regarding a minimum payout based on 2006 data (2006 was the first year that DAF data was
reported on the Form 990 informational return). In discussing this issue, the report notes that the
aggregate payout rate of 9.3% (across organizations) is higher than that of foundations, which
hover slightly above the required payout of 5%. This payout ratio is an average of payout ratios
across the organizations; the dollar weighted payout ratio is 15.4%, indicating that sponsoring
organizations with larger amounts of assets have higher payout rates. The Treasury Report notes
that payout ratios are only available for the sponsoring organization and not for the individual
DAF account.
The higher pay-out rate for DAFs, as compared to foundations, could be interpreted as indicating
no need for a minimum payout. However, there is reason to question this interpretation. Private
foundations are typically established to exist in perpetuity and to make grants out of their
earnings. DAF contributors are more heterogeneous. Funds may be set up as an endowment type,
similar to private foundations, or for annual giving where most funds are paid out. For example,
Schwab Charitable, in listing advantages of a DAF, begins with separating year-end tax planning
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An Analysis of Charitable Giving and Donor Advised Funds
from charitable giving decisions, followed by simplifying tax preparation by having only one
charitable deduction, and benefits associated with an account used for charitable contribution
management and tax planning.19 The co-existence of these types of accounts within one DAF
sponsor mean that a high payout rate, by comparison with foundation standards, could conceal a
significant share of accounts with a payout rate of less than 5%. For example, if 20% of accounts
paid out an average of 80%, then 80% of accounts could have no payouts but the payout ratio
overall would be 16%.
This report analyzes the 2008 DAF sample, examining not only the payout rates of the sponsoring
organizations, but also the rates for those organizations with only one DAF account, which might
provide some insight into the characteristics of individual DAF accounts that cannot be observed.
As shown below, over 70% of DAF accounts in these organizations paid less than 5% in grants,
and 54% made no payments at all.
Completed Gifts
The third question asked of the Treasury was whether a contribution to a DAF should be
considered a completed gift. Completed gifts require that the donor no longer have control over
donations. Treasury considered these contributions completed gifts based on legal ownership and
control. This question is basically a legal question, rather than one reflecting policy choices.
Nevertheless, some of the received comments questioned whether certain types of gifts were in
fact completed gifts. Questions were raised with respect to gifts of appreciated property to donor
advised funds that involved first rights of refusal on sale to the donor, calls (charity must offer to
sell to the donor at a set price), or puts (donor must purchase from the charity at a set price).
Analysis of 2008 Donor Advised Fund Data
The analysis presented below uses data from the 2008 Internal Revenue Service (IRS) Statistics
of Income (SOI) Form 990 public use file (see Appendix A for more information). This dataset
contains information as reported by a sample of tax-exempt organizations on the Form 990,
which is an informational return. The 2008 return asks organizations to provide information on
donor advised funds, including the number of funds maintained, contributions to and grants from
DAFs, and the total value of DAF assets.20
Since 2005, the IRS has been gathering information on DAFs on the Form 990 informational
returns filed by tax-exempt entities. Prior to 2005, the primary resource for information on DAFs
was an annual survey of DAF sponsoring organizations conducted by the Chronicle of
Philanthropy. The data reported on the IRS Form 990 is an improvement over the surveygenerated data that was previously available. Nonetheless, the Form 990 data has limitations.
One of the primary limitations of the IRS Form 990 data is its aggregate nature. Data on DAFs is
reported at the sponsoring organization level, and not at the individual DAF account level. Thus,
19
Posted at http://www.schwabcharitable.org/public/charitable/how_the_program_works/key_advantages.
Beginning in 2008, this information can be found in Schedule D of the Form 990. Similar information was also
requested on 2006 and 2007 forms. However, the Form 990 was redesigned in 2008, at which point the information
was requested on Schedule D.
20
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for organizations that sponsor more than one DAF, information on contributions, grants, and
payout rates per individual DAF are not available.
The 2011 Treasury Report was the first comprehensive report on sponsoring organizations and
DAFs that used data as reported on the IRS Form 990. The Treasury Report used data from the
2006 Form 990 informational returns. The analysis below uses information as reported on 2008
Form 990s. In a number of instances, the results presented below are compared to the results as
reported in the 2011 Treasury Report.
Comparisons between the Treasury Report and the analysis below should be viewed with caution
for a number of reasons. First, the IRS Form 990 was redesigned in both 2006 and 2008. Given
that these forms were unfamiliar to filers, there is greater risk that the reported information may
contain errors. Second, while on the 2008 Form 990 DAF-related information is reported in a
separate section, this was not the case in 2006. Finally, the analysis here is based on a sample of
returns as reported in the public use file. Thus, all reported statistics are estimated population
totals based on this sample. The more observations with reporting errors, particularly those with
high sampling weights, the less accurate the population estimates.
Number of Accounts at DAF Sponsoring Organizations
Analysis of the IRS SOI data indicates that, in 2008, more than 181,000 individual DAF fund
accounts were maintained (see Table 2). In 2008, there were roughly 1,818 organizations
maintaining at least one DAF account.21 Most charitable organizations that sponsor DAFs
maintain very few accounts. Roughly one-third of all organizations claiming to have DAFs
reported that only one fund was maintained.22 Roughly half of all DAF sponsoring organizations
reported that five or less DAF funds were held. On average, DAF sponsoring organizations had
100 accounts.23
A small percentage of DAF sponsoring organizations held a large number of DAF accounts.
Fifty-one organizations (or roughly 3% of all DAF sponsoring organizations) reported having 500
or more individual DAF accounts (see Table 2). More than 121,000 of all DAF accounts (or twothirds of all DAF accounts) are maintained by institutions that have 500 or more individual
accounts. The fact that a large proportion of individual DAF accounts are maintained by a small
number of DAF sponsoring organizations explains why the number of DAF accounts per
organization is highly skewed.
21
Several other organizations either indicated that they maintained DAFs, or reported a positive value for aggregate
DAF assets.
22
This number could be overstated if organizations filing the Form 990 reported only one DAF and aggregate
contributions, grants, and DAF values, which may have been spread across multiple DAF accounts.
23
This average is for DAF sponsoring organizations that reported maintaining at least one DAF.
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Table 2. Number of Individual DAF Accounts Held
by DAF Sponsoring Organizations
2008
Number of
DAFs
Maintained
Number of
Sponsoring
Organizations
Share of DAF
Sponsoring
Organizations
Number of
Individual DAF
Accounts
Share of
Individual DAF
Accounts
1
626
34.4%
626
0.3%
2 – 19
566
31.1%
3,289
1.8%
20 – 99
403
22.2%
18,535
10.2%
100 – 499
171
9.4%
37,915
20.9%
500+
51
2.8%
121,064
66.7%
Totals
1,818
100%
181,429
100%
Source: CRS analysis of 2008 IRS SOI Form 990 data.
Notes: This information is based on a sample of sponsoring organizations, weighted to reflect the population.
Columns may not sum due to rounding. The number of organizations sponsoring DAFs and the number of
individual DAF accounts are estimated population totals based on the 2008 IRS SOI Form 990 sample. See the
appendixes for more information.
The 2011 Treasury Report on DAFs reported similar statistics. Using 2006 data, the Treasury
Report estimated that more than 160,000 individual DAF accounts were maintained by 2,398 taxexempt organizations. On average, DAF sponsoring organizations maintained 85 accounts in
2006, while the median organization maintained 4 accounts.24
Data on contributions, grants paid, and DAF asset values are only available at the DAF
sponsoring-organization level. Since most DAF accounts are held by organizations maintaining
multiple DAF accounts, little is known about the characteristics of the majority of individual
DAF accounts.
DAF Assets
In 2008, DAF sponsoring organizations reported a total of $29.5 billion in DAF assets on their
Form 990s. On average, assets per DAF account in 2008 were roughly $162,000 (see Table 3).25
Sponsoring organizations maintaining a larger number of DAFs tended to have fewer assets per
DAF account than organizations that reported only one or fewer than 20 DAF accounts. The
majority of DAF assets are held by organizations that sponsor a large number of DAFs—87% of
all DAF assets are held by sponsoring organizations that maintain 100 or more individual DAF
accounts.
24
Treasury Report, pp. 45-46 and p. 56.
This figure is equal to the total DAF assets in 2008 divided by the total number of DAF accounts reportedly
maintained in 2008. The Treasury 2011 study on DAFs, using 2006 data, reported a distribution of average assets per
DAF account. In the Treasury 2011 study, average assets per account were calculated for each sponsoring organization
individually. Average assets per DAF was reported as the mean of each organization’s average assets per account.
Using this methodology, average assets per DAF are $369,455. For additional information on the distribution of
average assets per DAF across sponsoring organizations, see Appendix B.
25
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There is substantial variation in average assets per DAF account across sponsoring organizations.
A few large organizations have high average assets per DAF, causing these averages to be skewed
upwards. At the DAF sponsoring organization level, the median sponsoring organization has an
average asset value per DAF of $55,178 (see Appendix B for more information on the
distribution of the average asset value per DAF across DAF sponsoring organizations).
Table 3. Average Assets per DAF Account
2008
Number of DAFs Maintained
Average Assets per
DAF Account
Share of Total DAF
Assets
1
$646,795
1.4%
2 – 19
$207,211
2.3%
20 – 99
$153,791
9.7%
100 – 499
$186,503
24.0%
500+
$152,323
62.6%
Total
$162,360
100%
Source: CRS analysis of 2008 IRS SOI Form 990 data.
Notes: This information is based on a sample of sponsoring organizations, weighted to reflect the population.
Average assets per DAF account for each group are the sum of total DAF assets within that group, divided by
the number of individual DAF accounts, within that group. Columns may not sum due to rounding. The number
of organizations sponsoring DAFs and the number of individual DAF accounts are estimated population totals
based on the 2008 IRS SOI Form 990 sample. See the appendixes for more information.
The 2011 Treasury Report on DAFs reported that in 2006, DAF assets were $31.1 billion. The
National Philanthropic Trust’s 2011 report indicated DAF assets of $30.2 billion in 2008.26 The
National Philanthropic Trust’s 2010 and 2011 reports show that DAF assets declined as a result of
the recession that began in December 2007.27 However, when looking only at data from the
National Philanthropic Trust, DAF assets in 2008 appear higher than what was reported in 2006.
This difference may reflect possible reporting errors in the data or different samples, and
underscores the importance of using caution when comparing DAF data as collected from
different sources.
Contributions To and Grants From DAF Accounts
In 2008, total contributions to DAF accounts were reported to be $7.1 billion. Total charitable
giving by individuals in 2008 was roughly $214 billion.28 Thus, contributions to DAFs
represented roughly 3.3% of total individual charitable giving in 2008. On average, DAF
26
National Philanthropic Trust, 2011 Donor-Advised Fund Report, http://www.nptrust.org/images/uploads/
2011%20Donor-Advised-Fund-Report(1).pdf.
27
2010 Report at http://www.nptrust.org/images/uploads/DAF-Report-2010.pdf.
28
Giving USA. Giving USA figures were used here rather than contributions reported on the Form 990 since Form 990
data excludes contributions made to small organizations and organizations exempt from filing informational returns.
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sponsoring organizations received $3.9 million in contributions in 2008.29 The average
contribution per DAF account, in 2008, was roughly $39,103.30
The average contribution per DAF account is substantially higher for sponsoring organizations
that reportedly maintain only one DAF account (see Table 4). This figure is driven by the fact
that a few organizations received very large contributions. Approximately one-third of DAF
sponsoring organizations reportedly maintaining only one DAF reported having received positive
contributions in 2008. Among the organizations reporting positive contributions, the average
contribution was $1.3 million. Thus, there is substantial variation in contribution levels to
individual DAF accounts for sponsoring organizations with only one DAF. This variation is likely
masked by the aggregate nature of the data for organizations maintaining more than one DAF. It
is also possible that some organizations that report maintaining only one DAF account have
misreported this information, stating that only one DAF is sponsored when the organization
actually maintains multiple accounts.31
The 2011 Treasury Report on DAFs found that, in 2006, total contributions to DAFs was $9.0
billion. The lower contributions reported in 2008 could reflect reduced giving during the
recession or reporting errors in the Form 990 data.32 The National Philanthropic Trust’s 2011
DAF study notes that contributions to DAFs declined from 2007 through 2009, before increasing
again in 2010.33 However, the National Philanthropic Trust’s 2010 report found that total
contributions in 2008 were higher than those in 2006.34 Total charitable giving also declined
between 2007 through 2009, before increasing again in 2010.35
In 2008, DAF sponsoring organizations reported paying out $7.0 billion in grants to charitable
organizations. On average, $38,641 in grants were paid per DAF account (see Table 4). As was
the case with contributions, DAF sponsoring organizations that reportedly maintained only one
DAF paid out average grants per DAF that were substantially higher than the average grant per
DAF paid out by organizations maintaining more than one DAF. As was noted above, this statistic
might be the result of DAF sponsoring organizations reporting the maintenance of a single DAF
account, when the organization actually maintains multiple accounts.
29
The median value was $29,898, suggesting that the typical organization sponsoring DAFs receives less in
contributions than is received on average. If organizations reporting that they received no contributions are excluded,
the median value is $308,102 and the average value $6.0 million. The sample suggests more than 650 DAF sponsoring
organizations reportedly received no contributions to DAFs in 2008.
30
This average is calculated at the total value of DAF contributions divided by the total number of individual DAF
accounts maintained.
31
Inspections of 2007 and 2009 Form 990s for some of the largest organizations reporting very large contributions to a
single DAF account did not turn up any immediately transparent errors.
32
There may also be reporting errors in the data. Thus, comparisons in contributions across years should be made with
caution.
33
National Philanthropic Trust, 2011 Donor-Advised Fund Report, http://www.nptrust.org/images/uploads/
2011%20Donor-Advised-Fund-Report(1).pdf.
34
National Philanthropic Trust, 2010 Donor-Advised Fund Report, http://www.nptrust.org/images/uploads/DAFReport-2010.pdf.
35
Giving USA Foundation, Giving USA 2011: The Annual Report on Philanthropy for the Year 2010, 2011, p. 53.
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Table 4. Average Contributions and Grants per DAF Account
2008
Number of DAFs
Maintained
Average Contribution
per DAF Account
Average Grant Paid
per DAF Account
1
$430,178a
$409,489b
2 – 19
$48,233
$46,858
20 – 99
$37,984
$29,643
100 – 499
$40.290
$39,334
500+
$36,662
$37,660
All
$39,103
$38,641
Source: CRS analysis of 2008 IRS SOI Form 990 data.
Notes: This information is based on a sample of sponsoring organizations, weighted to reflect the population.
Average contributions and average grants for each group are calculated as total contributions (grants) reported
by sponsoring organizations within the group divided by total DAFs maintained by sponsoring organizations
within the group. For DAF sponsoring organizations with only one reported DAF account, it is possible that
there are reporting errors in the data, with DAF sponsoring organizations reporting only one account when
multiple accounts were maintained.
a.
There are a number of organizations that reportedly maintained only one DAF account reportedly received
very large (multi-million dollar) contributions. These few organizations drove this average up. Further,
roughly two-thirds of all DAF sponsoring organizations reporting only to have maintained one DAF also
reported zero contributions during 2008. Thus, the average contribution received by those that received
positive contributions and only sponsored one DAF account was substantially higher, at $1.3 million.
b.
An estimated 292 DAF sponsoring organizations that maintained only one DAF account paid out grants.
Among those that did pay out grants, the average grant paid was $876,984.
DAFs that Do Not Pay Out Grants
A number of DAF sponsoring organizations did not pay out any grants during 2008. Out of the
1,828 DAF sponsoring organizations included in the sample, an estimated 453 did not pay out
any grants.36 The organizations that sponsored DAFs but did not pay grants held a total of $280.4
million in assets in 2008. It is not known how much in additional DAF assets is held in individual
accounts that do not pay grants, since grant data are reported on aggregate at the sponsoring
organization level.
Most of the DAF sponsoring organizations that did not pay out any grants sponsored only one or
very few DAFs (334 of the 453 DAF sponsoring organizations that did not report paying out any
grants maintained a single DAF account).37 Since grants paid are only reported in aggregate, at
the DAF sponsoring organization level, information on individual DAFs that do not pay out each
year is not available. It is likely that there are many individual DAF accounts maintained by
sponsoring organizations with multiple accounts that did not pay out any grants in 2008. Roughly
36
The 1,828 DAF sponsoring organizations were represented by 541 observations in the IRS SOI sample. Of the 541
observations sampled, 83 did not report making any grants in 2008. Based on the sampling weights given in the IRS
SOI file, these 83 observations represent 453 DAF sponsoring organizations. All of these organizations reported
positive DAF assets.
37
Forty-seven sample observations reported to have maintained a single DAF account and not to have paid out any
grants in 2008. Using the given sampling weights, these organizations represented 334 DAF sponsoring organizations.
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half of the DAF sponsoring organizations that reportedly maintained only one DAF account did
not pay out any grants in 2008.38
DAF Payout Rate
Since data on DAFs are reported at the sponsoring organization level, data on individual account
payouts are not available. Nonetheless, evaluating payout rates at the sponsoring organization
level may provide some insight into the proportion of funds that are being distributed for
charitable purposes.
The payout rates for DAF sponsoring organizations calculated here are not directly comparable to
the payout rates for private foundations. For private foundations, certain taxes and administrative
expenses can be counted toward meeting the five percent payout requirement.
DAF sponsoring organizations paid out $7.0 billion in grants from DAF accounts in 2008. Total
DAF assets were $29.5 billion at the end of 2008. Approximately 19.2% of total assets available
for distribution were paid out, where total assets available for distribution is the sum of end-ofyear assets and grants paid from DAFs.39 Using 2006 data, the Treasury Report found that 15.4%
of assets available for distribution were paid out.40
Aggregate DAF payout rates at the sponsoring organization level were constructed to examine
sponsoring organization payout behavior. For each organization, the payout rate was calculated as
total grants paid from DAFs divided by total assets available for grant-making (or end-of-year
DAF assets plus grants paid from DAFs during the year).41 An average payout rate can then be
calculated as the arithmetic mean of the individual DAF sponsoring organizations’ payout rates.
In 2008, the average payout rate across DAF sponsoring organizations was 13.1%. However,
there was substantial variation in payout rates across sponsoring organizations (see Figure 1).
The median payout rate was 6.1%, and the average is skewed by the payout rates of organizations
with unusually large payouts. In 2008, 43% of DAF sponsoring organizations had an average
payout of less than 5%; 26% did not report a payout.42 The payout at the 25th percentile was 0.0%
in 2008, while the payout at the 75th percentile was 19.5% (see Table B-1).
38
In total, there were 626 DAF sponsoring organizations in 2008 that reportedly maintained only one DAF account
(see Table 1). There were 334 DAF sponsoring organizations that reportedly maintained only one account that reported
zero grants paid out in 2008.
39
This follows the definition provided in the 2011 Treasury Report. The Treasury Report notes that total assets
available for grant-making is the sum of DAF assets at the start of the year, contributions to DAFs during the year, and
investment income earned by DAFs. This sum is equal to the sum of the year-end value of DAF assets and grants made
from DAFs during the year.
40
Treasury Report, p. 49.
41
In computing this payout rate, only DAF sponsoring organizations that reported maintaining at least one DAF and
organizations that reported positive asset values for 2008 were included. The population of DAF sponsoring
organizations of 1,738 is represented by a sample of 530 observations.
42
A total of 774 organizations represented by a sample of 156 observations reported a payout rate of less than 5%.
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Figure 1. Distribution of Payout Rate Across DAF Sponsoring Organizations
2008
Source: CRS analysis of 2008 IRS SOI Form 990 data.
Notes: The solid vertical line represents a payout rate of 5% (the payout rate required of private foundations).
This information is based on a sample of sponsoring organizations, weighted to reflect the full population of DAF
sponsors. The apparent large number of organizations with a payout of 31.3% is actually one observation with a
high sample weight. This underscores the limitations of using the IRS SOI sample data for analysis of donor
advised fund behavior.
The Treasury Report found that the average payout rate across DAF sponsoring organizations was
9.3% in 2006.43 The Treasury Report also found substantial variation in payout rates across DAF
sponsoring organizations. In 2006, payouts were 0.0% at the 25th percentile, 0.6% at the 50th
percentile (the median), and 10.5% at the 75th percentile. While the Treasury did not report the
share with no payout or with less than 5%, more than 25% had no payout and more than 50% had
a payout rate of less than 5%. Whether these measures differ from the 2008 estimates due to
actual changes or sampling error is unclear, although the decline in asset values in 2008 might
have increased the average payout rate.
The National Philanthropic Trust (NPT) also provides dollar weighted payout rates as part of its
annual Donor Advised Fund Report. Payout ratios were 16.5% in 2007, rising to 17.6% in 2008,
18.6% in 2009, and falling to 17.1% in 2010.44 Their payout rate of 17.6% for 2008 was
somewhat lower than the estimates from the 990 sample. The Treasury Report’s estimates were
very close to the NPT’s as calculated from the basic data in the 2011 NPT report, but the Treasury
made adjustments for over-reporting. If the 2008 sample also had over reporting, the 19.2% share
43
Treasury Report, p. 56.
National Philanthropic Trust 2011 Report. We were unable to replicate their payout rates from the basic data in the
earlier 2010 reports, but based on their reported assets and grants, the rate was 15.7% in 2006.
44
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from the 2008 file, as well as the average rate of 13% could be too high and the share with low
payout ratios too low. The trend of rising payout ratios as seen from 2007 through 2009 in the
NPT data appeared to reflect the fall in assets and contributions, probably due to the financial
crisis.
Organizations with low payout rates tend to be those that maintain a small number of individual
accounts. For organizations that reported to have maintained one DAF account in 2008, the
average mean payout was 10.6%. More than half (53%) of DAF sponsoring organizations that
maintained a single account did not report having paid out any grants in 2008 (see Figure 2) and
over 70% paid less than 5% (see Figure 2). If individual DAF account payout rates mirror payout
rates as reported by sponsoring organizations that maintain a single account, it is likely that a
large share individual DAF accounts do not pay out grants in any given year and that most of
them pay less than 5%.
Figure 2. Payout Rate for Sponsoring Organizations Maintaining One DAF Account
2008
Source: CRS analysis of 2008 IRS SOI Form 990 data.
Notes: The solid vertical line represents a payout rate of 5% (the payout rate required of private foundations).
This information is based on a sample of sponsoring organizations, weighted to reflect the full population of DAF
sponsors. The apparent large number of organizations with a payout of 31.3% is actually one observation with a
high sample weight. This underscores the limitations of using the IRS SOI sample data for analysis of donor
advised fund behavior.
Most DAF accounts are maintained by organizations with a large number of DAF accounts. As
illustrated in Table 2, nearly 87% of all DAF accounts are held by organizations that maintain at
least 100 individual accounts. The average payout rate for sponsoring organizations with at least
100 individual accounts is 16.1%. Amongst sponsoring organizations that maintain at least 100
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individual accounts, 3.6% have a payout rate of less than 5% (see Figure 3).45 While the payout
rates at the sponsoring organization level tend to exceed 5%, data on payouts from individual
DAF accounts maintained within these organizations is not available.
Figure 3. Payout Rate for Sponsoring Organizations Maintaining
One Hundred or More DAF Accounts
2008
Source: CRS analysis of 2008 IRS SOI Form 990 data.
Notes: The solid vertical line represents a payout rate of 5% (the payout rate required of private foundations).
This information is based on a sample of sponsoring organizations, weighted to reflect the full population of DAF
sponsors.
Commercial DAFs
A number of commercial financial institutions maintain charitable affiliates through which they
maintain individual DAF accounts on behalf of clients. In this study, a total of 21 organizations in
the sample, representing 33 DAF sponsoring organizations in the population, that maintained
individual DAF accounts on behalf of clients were identified. Statistics related to these
organizations are analyzed separately from the entire DAF sponsoring organization population
below because these organizations have been a specific focus of concern. These organizations
may include some non-commercial national DAFs.
45
Eight sampled organizations reported a payout rate of less than 5% in 2008. Each of these observations had a
sampling weight of 1. Thus, it is estimated that eight out of the 222 DAF sponsoring organizations that maintain at least
100 individual accounts paid out less than 5% in 2008.
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In 2008, 46.7% of individual DAF accounts were held in commercial DAFs (see Table 5). Thus,
a very few DAF sponsoring organizations are responsible for a relatively large share of DAF
accounts, as well as DAF assets, contributions, and grants.46 In 2008, 34.3% of DAF assets,
39.2% of DAF contributions, and 39.7% of DAF grants were from sponsoring organizations
identified as being commercial DAFs (see Table 5).
Table 5. Comparing All DAF Sponsoring Organizations to Commercial DAFs
2008
All DAF Sponsoring
Organizations
Commercial DAF
Sponsoring
Organizations
Share in
Commercial DAFs
Number of DAFs Held
181,429
84,665
46.7%
DAF Assets
29,456.7
10,112.6
34.3%
DAF Contributions
7,094.3
2,783.5
39.2%
DAF Grants
7,101.5
2,781.6
39.7%
Source: CRS analysis of 2008 IRS SOI Form 990 data.
Notes: Dollar values in millions. For additional data and summary statistics, see Appendix B. Thirty-one out of
1,828 DAF sponsoring organizations were commercial DAFs.
The average payout rate for commercial DAFs was 26.5% in 2008. There is less variation in
average payout rates across sponsoring organizations that are commercial DAFs, as compared to
all DAF sponsoring organizations (see Figure 4 for an illustration of this distribution). Since
commercial DAFs tend to sponsor a large number of individual accounts (2,720 on average), it is
possible that there is substantial variation in payout rates across individual accounts that is
masked by the aggregate nature of available payout data. For commercial DAFs, the 25th
percentile of the payout rate is 17.7%, and the 75th percentile 38.8% (see Table B-1). This
compares to an average payout rate of 13.1% across all DAF sponsoring organizations. The 25th
percentile and 75th percentile payout rates across all DAF sponsoring organizations were 0.0%
and 19.5%, respectively, in 2008.
Using 2006 data, the 2011 Treasury Report found that commercial DAFs had a payout rate of
14.2%, while other DAFs with a national reach not affiliated with a financial institution had a
payout rate of 28.7%.47 This was higher than the overall payout rate found in 2006, of 9.3%.
Similar to the 2008 results, there was less variation in the payout rates among commercial and
national DAFs than across all DAF sponsoring organizations.
46
47
Thirty-one out of 1,828 DAF sponsoring organizations were commercial DAFs.
Treasury Report, p. 56.
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Figure 4. Payout Rate for Commercial DAFs
2008
Source: CRS analysis of 2008 IRS SOI Form 990 data.
Notes: This information is based on a sample of sponsoring organizations, weighted to reflect the full population
of DAF sponsors.
Policy Considerations
Perhaps the most important policy issues are those initially posed by Congress to the Treasury
Department, including whether minimum distribution requirements should be imposed, whether
rules restricting charitable contributions that apply to foundations should be imposed on DAFs,
and whether contributions made to DAFs should be treated as completed gifts. In addition, a
number of proposals were made in invited comments, including stricter treatment of commercial
DAFs or national DAFs, limits on the duration of advisory rights or the lifetime of the DAF,
prohibitions on retention of options or other rights, delays in deducting appreciated property until
that property is sold, and limits on management fees. In addition, policies relating to additional
reporting might be considered.
Minimum Distribution Requirements
The Treasury Report’s position on minimum distribution requirements was that it was premature
to make a recommendation based on only one year of data. The analysis of 2008 data presented in
this report, however, shows results that are generally similar to those found by Treasury in their
analysis of the 2006 data. In sum, both 2006 and 2008 data indicate a payout ratio in the
aggregate that was higher than that of foundations, but a great deal of variability in payout ratios
across sponsoring organizations. Further, a substantial fraction of sponsoring organizations made
no payouts or payouts less than the foundation minimum of 5% in both 2006 and 2008. The
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An Analysis of Charitable Giving and Donor Advised Funds
13.1% overall payout ratio found in the 2008 data was somewhat higher than the 9.3% rate
Treasury found. This higher rate might reflect some overstatement of payouts in the data, as
Treasury found for the 2006 sample, or it may have reflected the decline in asset values in 2008.
Dollar weighted payout ratios prepared by the National Philanthropic Trust show a slight rise in
payout rates in the years after 2006, but a decline between 2009 and 2010.
The Treasury Report stated that “Compared to private foundations, the mean payout rates for
Aggregate DAFs in tax year 2006 appear to be high for most categories of DAF sponsoring
organizations.”48 This statement seems to imply that observing an overall payout rate higher than
that for foundations is a rationale for not imposing a minimum payout requirement. However, as
noted earlier, there is ample reason to reject the notion that an aggregate payout ratio higher than
that of private foundations provides a good rationale for not imposing such requirements on a per
account basis. This point is clearly illustrated by the distribution of DAF sponsoring organizations
with only one sponsor. For sponsoring organizations maintaining a single DAF account, the
average payout rate was 10.6% (twice that required of private foundations). However, amongst
sponsoring organizations that maintained a single DAF account, over half made no distribution
and over 70% made a distribution of less than 5%.
Can characteristics of sponsoring organizations with only one DAF be generalized to larger DAF
sponsoring organizations maintaining multiple accounts? Larger DAF sponsoring organizations
tend to have somewhat higher aggregate payout rates (the payout rate in 2008 for sponsoring
organizations with only one account was 10.6% in 2008, compared to 16.0% for organizations
with 100 or more individual accounts). However, the different objectives of DAF accounts (year
to year tax planning versus accumulating assets in the nature of a private foundation) that likely
gave rise to the differential payout rates amongst DAF sponsoring organizations maintaining a
single account also occur within sponsoring organizations with multiple accounts. Thus, there is
likely to be substantial variation in payout rates at the individual account level across all
sponsoring organizations.
Some additional aspects about payout ratios arise from the data analysis. Some of the public
comments indicated that a 5% payout requirement would be acceptable if imposed on the overall
sponsor rather than the individual account. The analysis of the 2008 data indicates that a
minimum payout imposed on a per sponsor basis would be relatively meaningless. Out of the
DAF sponsors with 100 or more accounts, covering 87% of accounts, only 3.6% fell below a 5%
pay out rate. This approach would leave the vast majority of DAF accounts with no effective
restrictions, while imposing requirements on the relatively few in DAF sponsors with a small
number of DAFs. It would also create an incentive for donors who wished to accumulate funds
and maintain endowments while paying little or nothing in grants to move to the larger DAF
sponsors, including commercial DAFs.
Finally, although sponsors claimed that ensuring payout rates of their DAF accounts would be
costly, their own comments indicated that they monitored their accounts for inactivity in many
cases. The most straightforward approach would be to shift DAF account funds into a general
fund that immediately made charitable distributions for accounts that did not meet the minimum
requirements as the year end approaches. This approach is, as noted above, already used by the
community foundation whose website was quoted above, although measures were only taken
after long periods of inactivity.
48
Treasury Report, p. 7.
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An Analysis of Charitable Giving and Donor Advised Funds
Note also that a variation would be to impose the minimum distribution over a period of time, for
example, equivalent to an annual percentage distribution over the past five years. This approach
would allow some accumulation if desired to make a large gift, or to adjust for economic cycles
(for example, smaller payouts when the economy is performing at full employment and larger
ones during downturns when needs may be greater).
As noted below, some comments suggested applying minimum distributions only to commercial
DAF sponsors or national DAFs in general, applying higher distribution requirements to them, or
exempting traditional DAF sponsors (such as community foundations) from distribution
requirements.
Some comments suggested that a minimum distribution amount might be perceived as a guideline
and would lower overall distributions, given that private foundations tend to grant around 5%.
However, since some DAF individual account objectives include short term charitable giving
management, a comparison with private foundations may be inappropriate.
Imposing Tighter Rules that Apply to Foundations on DAFs
The Treasury Report rejected stricter rules that apply to foundations for DAFs on the grounds that
the legal control of the fund is in the hands of the sponsoring organizations, a public charity.
Donors do not legally control contributions from these accounts or the investment. These benefits
include the ability to donate larger shares of income in cash gifts and gifts of appreciated
property, the ability to deduct the fair market value of non-traded appreciated assets, and
exemption from excise taxes on investment income.
As discussed previously, donors appear to have actual control of grant making because
sponsoring organizations typically follow their advice, as indicated in web sites of sponsoring
organizations and reinforced by the commentary received and reported in the Treasury Report. In
many cases they effectively have investment control as well. In that sense, donors, who are
presumably concerned about the use of their own accounts and not about the sponsoring
organization, have the same control, in effect, of the most important aspect, the recipient of
charitable gifts. In considering this issue, one question is whether the restricted legal rights of the
donor or actual practice should determine the appropriate treatment.
Completed Gifts
Although the Treasury Report also concluded that donations to DAF accounts were completed
gifts, just as a gift to a foundation is, commentators questioned whether the gift was complete if
there were options (options to buy or sell the gifted property at a future date) related to the use of
gifts of property.
Some comments suggested that puts or calls, or other option retentions with respect to property be
explicitly disallowed. Suggestions were also made that deductions for a gift of appreciated
property not be allowed until the property is sold.
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An Analysis of Charitable Giving and Donor Advised Funds
Tighter Restrictions on Commercial DAFs or National DAFs
Comments expressing concern about the lack of a charitable purpose for commercial DAFs or
even for national DAFs, as compared to community foundations, and DAF sponsors with
religious, educational, and other charitable purposes led to some suggestions for tighter
regulations and greater restrictions for these DAF sponsors. Some noted a tension, especially with
the commercial DAF, between the needs of charitable organizations to restrict contributions and
the incentive to maintain large investment accounts.49 These proposals could include only
applying minimum distributions requirements to these DAFs, applying higher distribution
requirement, or exempting traditional sponsors.
Limit the Duration of Advisor Rights, Or Limit the Life of a DAF
Account
Some comments proposed that the duration of DAF accounts be restricted either by limiting the
period of years advisory rights would be effective, or limiting the life of a DAF account (for
example, by not allowing future generations to inherit the advisory role). Presumably if such
limits were imposed the DAF sponsor would be required to pay out the entire amount in the
account over a specified period. This approach would be an alternative or perhaps addition to a
payout requirement to insure that the amounts in DAF accounts are used for charitable purposes
in some reasonable time period.
Objections to these restrictions might come from donors who wish to establish the tradition of
philanthropy in their families; some donors purposefully include their children as advisors.
Limits on Maintenance Fees
Some comments also suggested that limits be imposed on charges related to DAF account
maintenance and investments. Program expenses for some DAF sponsors were high but may have
included direct charitable activities. In general, relatively little is known about the costs of
maintaining and investing DAF funds.
Improvements in Reporting
One obvious constraint in analyzing issues associated with DAFs is that all reporting is done at
the aggregate DAF sponsor level, which means there is information only by inference concerning
the shares of accounts that have low or no payout ratios. Requiring reporting on individual DAF
accounts is an option that could improve understanding of how DAFs operate and provide better
oversight.
Consolidated reporting may mean there are fewer organizations for the IRS to monitor and fewer
forms to process. Others disagreed. To quote the Treasury Report: “One claimed that under
current law, DAFs are ‘virtually invisible to tax authorities and nonprofit regulators’ and
expressed concern that the PPA had done nothing to alleviate this ‘problem.’ Another respondent
49
See Treasury Report, p. 77.
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An Analysis of Charitable Giving and Donor Advised Funds
described DAFs as ‘a world of hidden philanthropy that merits significantly updated disclosure’
and stressed that ‘without individual level reporting, there will be no adequate way for the IRS to
determine’ if a charitable purpose is being pursued and if the DAFs’ managers are complying with
the law.”50
Several pieces of information would be helpful in providing a better understanding of DAF
payout information. Useful information that could be provided by DAF sponsors could include
the share of their DAF accounts that made no distributions, the share that made distributions of
less than 5%, or a general distribution of accounts across different payout intervals. Information
on investment fees and administrative costs of managing the DAFs, separated from other costs,
could also be useful. Additional information could help policymakers evaluate whether giving
through DAFs is achieving charitable giving policy goals.
Conclusion
In some ways, the fundamental policy issue about how freely to allow donors to make
contributions that are not immediately used for charitable purposes is whether such arrangements
increase charitable giving per dollar of cost or decrease it.51 Allowing for contributions to
accumulate and earn a tax free return increases the benefit to the donor and thus may increase
contributions to funds or foundations, albeit at an additional cost. Such arrangements can also
reduce current charitable giving by encouraging fund accumulation, a concern that presumably
motivated the minimum distribution rules for private foundations. DAFs differ from foundations
in some ways, including the legal technicalities, but in practice, are very similar. One concern that
remains for both foundations and DAFs is how soon donations are put to charitable use.
50
Treasury Report, pp. 67-68.
Such issues were addressed in the 2005 hearing, Charities and Charitable Giving: Proposals for Reform, Senate
Finance Committee, April 2005. See testimony by (name redacted), Congressional Research Service,
http://finance.senate.gov/imo/media/doc/jgtest040505.pdf for discussions on donor-advised funds.
51
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An Analysis of Charitable Giving and Donor Advised Funds
Appendix A. Description of Data
The data used in this report come from the 2008 Internal Revenue Service (IRS) Statistics of
Income (SOI) Form 990 public use file.52 The IRS SOI exempt organization file contains
information on 501(c)(3) through (c)(9) organizations that filed the Form 990 informational
return.53 The dataset is based on a stratified random sample. For larger organizations, the
sampling rate is 100%. Thus, all large tax-exempt organizations filing the Form 990 are included
in the sample. Sampling weights are used to adjust for sampling rates of smaller organizations.
Tax-exempt organizations are asked on the 2008 Form 990 informational return if they
maintained any donor advised funds (DAFs).54 If an organization indicates that DAFs were
maintained, they are advised to complete Schedule D, Part 1 (see Figure A-1). On Schedule D,
DAF sponsoring organizations are asked to provide information on the total number of DAFs
held, contributions to and grants from DAFs during the year, and the aggregate value of DAF
assets at the end of the year.
Figure A-1. Form 990 Schedule D: Donor Advised Fund Questions
Source: IRS Form 990, Schedule D.
In the 2008 IRS SOI Form 990 public use file, 599 sampled organizations either 1) answered
“yes” to the questions asking if the organization maintained any DAFs, or 2) reported that at least
one DAF was held on Schedule D. This sample of 599 organizations represents a population of
2,158 DAF sponsoring organization.
Before further evaluating the data, the data were further cleaned to eliminate observations with
clear reporting errors. Five observations were dropped for having reported nonsensical values for
52
This data and data documentation is available through the IRS SOI website: http://www.irs.gov/taxstats/
charitablestats/article/0,,id=97176,00.html.
53
There is a separate data file for organizations that file the Form 990EZ. Since organizations maintaining DAFs are
required to file the Form 990, and cannot file the Form 990EZ, data on organizations filing the Form 990EZ was not
included in the analysis.
54
See question #6, in part 4, the Checklist of Required Schedules, of the 2008 Form 990. Available at
http://www.irs.gov/pub/irs-prior/f990—2008.pdf.
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An Analysis of Charitable Giving and Donor Advised Funds
the total number of DAFs held. Another fifty-one observations were dropped that indicated DAFs
were maintained, but then reported having zero DAFs and zero DAF assets at the end of the year.
Another two observations were dropped that reportedly maintained DAF accounts, but did not
report any DAF contributions, grants, or DAF assets.
After dropping observations with clear reporting errors, the sample contained 541 observations
representing a population of 1,828 DAF sponsoring organizations. Other adjustments were made
to collect for clear reporting errors.55 The resulting sample is the basis for the summary statistics
presented in this report. Summary statistics are presented in Appendix B.
A separate examination of commercial DAFs is also provided. A total of 21 commercial funds
were identified in the sample. (Some of these may be national DAFs that are not commercial.)
Several of these funds had a weight that was greater than one. Thus, these 21 observations
represent a total population of 31 sponsoring organizations.56 Summary statistics for commercial
DAFs, based on the information as reported on the 2008 IRS Form 990s of these 21
organizations, are reported in Appendix B.
55
For example, in 2008, one of the largest commercial DAFs, Fidelity Investment Charitable Gift Fund, reported that
they only maintained one DAF account. On their 2007 and 2009 Form 990s, Fidelity Investment Charitable Gift fund
reported to have maintained 47,918 and 52,466 DAF accounts, respectively. To correct for this reporting error, we
assumed that Fidelity Investment Charitable Gift Fund maintained 50,182 DAFs in 2008.
56
The 21 organizations in the sample identified as maintaining DAF accounts on behalf of their clients were: The
American Endowment Fund; T. Rowe Price Program for Charitable Giving, Inc.; The U.S. Charitable Gift Trust;
Goldman Sachs Philanthropy Fund; Renaissance Charitable Foundation, Inc.; Oppenheimer Funds Legacy Program;
Donors Capital Fund, Inc.; Vanguard Charitable Endowment Program; LM Charitable Gift Trust; Ayco Charitable
Foundation; Morgan Stanley Smith Barney Global IM; Fidelity Investments Charitable Gift Fund; FJC Foundation of
Philanthropic Gifts; Schwab Charitable Fund; Goldman Sachs Charitable Gift Fund; Harris MyCFO Foundation; East
Bay Community Foundation; National Philanthropic Trust; Raymond James Charitable Endowment Fund; RSF Global
Community Fund, Inc.; and Ernst & Young Foundation.
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An Analysis of Charitable Giving and Donor Advised Funds
Appendix B. Data Summary Statistics
Summary statistics for information on DAFs reported on 2008 IRS Form 990s are provided in
Table B-1. A description of the data can be found in Appendix A. Further discussion and
interpretation of these summary statistics is provided in the main body of this report.
Table B-1. DAF Data as Reported on Form 990: Summary Statistics
2008
All DAF Sponsoring
Organizations
Commercial DAF Sponsoring
Organizations
Mean
99
2,720
Median
5
358
25th Percentile
1
49
75th Percentile
32
1,439
Total
181,429
84,665
# of Observations
1,828
31
Mean
$16,114,172
$321,647,168
Median
$432,585
$61,512,653
25th Percentile
$47,685
$10,186,159
75th Percentile
$3,266,999
$202,316,978
$29,456,705,536
$10,112,586,752
1,828
31
Mean
$369,455
$426,724
Median
$55,178
$154,849
25th Percentile
$20,789
$95,738
75th Percentile
$184,929
$902,231
—
—
1,818a
31
Mean
$3,880,602
$88,532,666
Median
$29,898
$12,851,414
25th Percentile
$0
$2,432,869
75th Percentile
$711,340
$41,649,571
$7,094,332,176
$2,783,467,008
1,828
31
Variable
Number of DAFs Held
DAF Assets
Total
# of Observations
Average Assets per DAF
Total
# of Observations
DAF Contributions
Total
# of Observations
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An Analysis of Charitable Giving and Donor Advised Funds
All DAF Sponsoring
Organizations
Commercial DAF Sponsoring
Organizations
Mean
$3,973,658
$78,931,932
Median
Variable
DAF Grants
$25,000
$9,999,612
25th Percentile
$0
$4,150,126
75th Percentile
$421,614
$40,583,487
$7,010,526,208
$2,781,619,968
1,828
31
Mean
13.1%
26.5%
Median
6.1%
22.0%
25th Percentile
0.0%
17.7%
75th Percentile
19.5%
38.8%
—
—
1,738b
31
Total
# of Observations
Payout Rate (%)
Total
# of Observations
Source: CRS analysis of 2008 IRS SOI Form 990 Data.
Notes: Figures are based on a sample of 2008 Form 990s weighted to reflect estimated population totals.
a.
Organizations that reported maintaining DAFs, but then reported “0” as the number of DAFs held, are
excluded, reducing the number of observations.
b.
In computing this payout rate, only DAF sponsoring organizations that reported maintaining at least one
DAF and organizations that reported positive asset values for 2008 were included. Four observations
representing 10 organizations were excluded when the sample was restricted to organizations that
reportedly held at least one DAF. An additional six observations, representing 79 organizations, were
excluded for having zero reported DAF assets.
Author Contact Information
(name redacted)
Specialist in Public Finance
#redacted#@crs.loc.gov, 7-....
Congressional Research Service
(name redacted)
Senior Specialist in Economic Policy
#redacted#@crs.loc.gov, 7-....
28
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