Foundations Giving to Donor-Advised Funds, Study Finds

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At least six U.S. foundations are directing almost all of their grant dollars to one or more national donor-advised funds (DAFs), the Chronicle of Philanthropy reports.

Based on Internal Revenue Service data from electronically filed 990-PFs, the Chronicle found that during the FY2014 to FY2016 period, the five largest national donor-advised fund sponsors received more than $737 million in foundation distributions, while 557 foundations made at least one grant to a DAF.

According to the Chronicle, each of the five largest foundations that distributed money to a DAF sponsor during FY2014-16 directed more than 60 percent of their grant dollars to the sponsor, while three — the Zoom Foundation, which gave $100.21 million (99.9 percent) to Fidelity Charitable; the 136 Fund ($99.55 million, 100 percent); and the Quetzal Trust ($41 million, 99.9 percent) – distributed more than 95 percent of their grant dollars.

While grant dollars awarded to DAFs represent a tiny fraction of annual foundation funding — the $166 million in distributions to DAFs in FY2014 accounted for just 0.4 percent of the $41 billion in total foundation grantmaking that year — critics argue that federal law should be changed to forbid such distributions. Moreover, while distributions to a DAF count toward the 5 percent annual payout requirement on foundation assets, DAFs themselves are not subject to federal payout requirements, allowing funds in some cases to sit idle for years. It’s also impossible to track the flow of money from foundations to DAFs to the ultimate recipients of those dollars, critics told the Chronicle, as distributions from donor-advised fund accounts remain secret unless the original donors choose to disclose their identity.

Daniel Borochoff, president of CharityWatch, a watchdog that monitors nonprofits, said the general idea of foundations directing most of their grants to donor-advised funds "makes a mockery of the reporting mechanisms" for foundations.

However, supporters of DAFs argue that giving to a donor-advised fund helps to make giving more efficient while sheltering controversial nonprofits and donors from scrutiny that could jeopardize their missions. David Denmark, executive director of the Maclellan Foundation, which directed the majority of its giving between 2011 and 2016 through the National Christian Foundation, a donor-advised fund sponsor, said much of his organization’s grants "are made in foreign countries, where our work has sometimes been the target of extremely violent, indigenous elements." The arrangement with NCF keeps the name of the foundation "out of the direct flow of information in those countries," added Denmark, who noted that NCF also offered back-office support for complex gifts and due diligence of potential grantees.

Sean Parnell, vice president for public policy at the Philanthropy Roundtable, a longtime advocate for donor privacy, submitted comments on behalf of his organization opposing tighter regulations in response to a 2017 IRS notice seeking comments on the treatment of foundation transfers to donor-advised funds. "Philanthropists opt for privacy for a variety of reasons," Parnell told the Chronicle, "and absent well-grounded concerns and examples of abuse, policy should be to respect that privacy while also keeping an eye out for instances that might truly warrant concern."

Peter Olsen-Phillips. “Foundations Move $737 Million to Donor-Advised Funds, Chronicle Study Shows.” Chronicle of Philanthropy 05/14/2018.
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