Congress has long been concerned with ensuring that contributions for which tax deductions are claimed directly benefit charitable activities. Grants are paid out of earnings on donated assets held by the foundation. DAFs have become increasingly popular in recent years, partly due to commercial fund sponsors (e.g., Fidelity and Vanguard) with limited traditional charitable interests. 109-280 ). The Treasury Department's study was released in 2011. The Treasury Report was criticized by Senator Chuck Grassley, chairman of the Senate Finance Committee in 2006, as being "disappointing and nonresponsive." There are no minimum payout requirements (which could require a certain percentage of assets be paid out in grants each year) or excise taxes. 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 Pension Protection Act of 2006 ( P.L. 4. 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) where Fidelity Charitable provides a substantial portion of the organization's public support; and (vi) for other reasons in accordance with Fidelity Charitable policies. 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. Private foundations are typically established to exist in perpetuity and to make grants out of their earnings. 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. In 2008, there were roughly 1,818 organizations maintaining at least one DAF account. More than 121,000 of all DAF accounts (or two-thirds of all DAF accounts) are maintained by institutions that have 500 or more individual 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. DAF Payout Rate

Since data on DAFs are reported at the sponsoring organization level, data on individual account payouts are not available. 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. The Treasury Report found that the average payout rate across DAF sponsoring organizations was 9.3% in 2006. 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%. 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%. This compares to an average payout rate of 13.1% across all DAF 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. For sponsoring organizations maintaining a single DAF account, the average payout rate was 10.6% (twice that required of private foundations). 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. 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.
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.