Senators Angus King (I-ME) and Chuck Grassley (R-IA) have introduced bipartisan legislation aimed at ensuring that charitable dollars held in donor-advised funds (DAFs) are disbursed to working charities more quickly.

Under current law, DAF account holders receive full tax benefits for their donations upfront but are not subject to annual payout rate requirements as foundations are; more than $140 billion in funds designated for charitable causes are being held in DAFs. As proposed, the Accelerating Charitable Efforts (ACE) Act would reform tax laws to require DAFs to disburse those funds to nonprofits within a "reasonable" timeframe and encourage account holders to accelerate their giving. To that end, the bill would establish two types of DAFs: a fifteen-year DAF, under which the donor would receive upfront tax benefits only if the funds are distributed (or advisory privileges are released) within fifteen years of the donation; and a fifty-year DAF, under which the donor would receive capital gains and estate tax benefits upon donation but would not receive the income tax deduction until the funds are distributed — all within fifty years.

DAF accounts at community foundations, however, would not be subject to payout rules up to $1 million, and those with over $1 million would receive upfront tax benefits if the DAF has a 5 percent annual payout rule or requires that donations be distributed within fifteen years. The ACE Act also includes reforms to rules governing private foundations, such as prohibiting them from meeting their 5 percent payout obligation by including salaries or travel expenses for a donor's family members or distributions to DAFs with no payout requirement.

The legislation is being introduced after coalitions of philanthropic and nonprofit leaders and academics — including those led by the Institute for Policy Studies, Patriotic Millionaires, Arnold Ventures, Global Citizen, the North Star Fund, the Wallace Global Fund, and the Ford, Hewlett, High Tide, Kresge, MRG, TomKat, and W.K. Kellogg foundations — called for tax reforms to unlock hundreds of billions of charitable dollars held in DAFs and foundation endowments.

The Initiative to Accelerate Charitable Giving, which last December called for closing loopholes for foundations and setting a timeframe for DAF disbursements, said in a statement Wednesday that the ACE Act "reflects the policy ideas outlined in the Initiative to Accelerate Charitable Giving's statement of principles and puts them into action in a pragmatic and thoughtful way that will produce a result all [m]embers of Congress can agree with: getting more money to our nation's charities faster."

The Council on Foundations stated that it opposes the legislation because the new requirements for DAFs and private foundations "would negatively impact the philanthropic sector." If the bill were to advance to a committee or Senate floor vote, COF chief executive Kathleen Enright told the Chronicle of Philanthropy, "we expect a big, pitched battle over it."

The Community Foundation Public Awareness Initiative, which also opposes the bill, pointed out that the payout rates for community foundation DAFs are routinely three to four times higher than those for private foundations. "We are pleased that some of the critics of DAFs, including those behind the Initiative to Accelerate Charitable Giving, as well as Sens. King and Grassley, have come to recognize the unique value and status of community foundations," CFPAI said in a statement. "Accordingly, they have proposed special rules for some community foundation DAFs that, on the surface, appear to make sense. However, community foundations didn't ask the Initiative to include a carve-out and we worry it could negatively impact our valuable partnerships with local charities and other philanthropies. Like many of the other provisions in the proposal, we fear the unintended consequences of a carve-out would outweigh any potential benefits."