Donor-Advised Funds Take Advantage of Tax Loopholes

by Vins

Donor-advised funds (DAFs) are a form of philanthropy intended to reduce a donor’s tax bill while cultivating their relationship with a charity through donations. However, DAFs have increasingly become a vehicle for wealthy donors to exploit, leaving little room for small donor participation. Extremely wealthy donors game the system by exploiting loopholes such as the lack of a payout requirement in order to evade tax payments that save them millions of dollars. The lack of payout requirements allows for donors using DAFs to receive immediate deductions to their taxes so that a large chunk of their capital remains untaxed.

As reported by National Philanthropic Trust in a 2021 study, donor-advised funds grew massively between 2019 to 2020, with charitable assets increasing from $145 billion to nearly $160 billion.

Although the perpetuation of inequality by DAFs is an ongoing issue, establishment news media have largely ignored the story, with coverage limited to outlets focused on finance and business such as Forbes and the Wall Street Journal, which published articles that explained how DAFs work and why investors might want to utilize them. A notable exception to this coverage was CNBC which published an article that  featured billionaire philanthropist John Arnold. In CNBC’s report, Arnold criticized other billionaires for abusing DAFs as “wealth-warehousing vehicles.”

Sources:

Alan Davis “Charitable Tax Reform: Why Half Measures Won’t Curb Plutocracy,” Nonprofit Quarterly, February 8, 2022.

Chuck Collins, Helen Flannery “Time to Move the Money: Independent Research on Donor-Advised Funds,” Inequality.org (Institute for Policy Studies), March 24, 2022.

Student Researcher: Cem Ismail Addemir (Illinois State University)

Faculty Evaluator: Steve Macek (North Central College)

Review Article with Credder

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