The federal government is stepping up its inquiry into the abuse of donor-advised funds, the Wall Street Journal reports.

Popular among the wealthy, donor-advised funds allow individuals to donate money for an immediate tax deduction and then dole it out over time to designated charities. The fund legally controls the money, but the donor suggests which causes get the money and when. In existence since the 1920s, the funds typically require a minimum initial gift of between $10,000 and $25,000 and charge administration fees of roughly 1 percent. The advantages of a donor-advised fund over a private foundation include the absence of start-up costs and much less oversight and regulation with respect to how much of the fund's assets must be distributed annually in the form of donations or grants. "The donor-advised fund model is just a cheaper and more efficient way of running a foundation," said Kenny Emson, who manages a donor-advised fund established by Laura Bush to raise $20 million for U.S. libraries.

On Capitol Hill, lawmakers in both parties question whether such funds — which aren't mentioned in the tax code, and have operated largely free of the sorts of regulations that govern private charitable foundations — have been used to benefit donors rather than for legitimate charitable purposes. Later this summer, Senate Finance Committee chairman Charles Grassley (R-IA) will unveil legislation that, if passed, will require greater disclosure from the tens of thousands of Americans who use donor-advised funds; ensure that the funds donate a certain percentage of their assets to charity each year; and prohibits individuals from using such funds to cover personal expenses.

Last summer, the Internal Revenue Service warned that gifts to certain donor-advised funds might not be deductible if donors have too much control over the money, and further suggested that the funds must have "ultimate authority over how the assets in each account are invested and distributed." The agency's investigation, which began with an audit of three charitable organizations that run donor-advised funds, has expanded to include audits of fifteen such organizations.