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Pingree, Reed Sponsor Bipartisan Bill to Ensure Charitable Donations Reach Working Charities

The bicameral, bipartisan Accelerating Charitable Efforts (ACE) Act would reform tax laws that cover charitable donations, so philanthropic funds are made available to working charities within a reasonable time period

Congresswoman Chellie Pingree (D-Maine) and Congressman Tom Reed (R-N.Y.) introduced the bipartisan, bicameral Accelerating Charitable Efforts (ACE) Act with Congressman Ro Khanna (D-Calif.) and Congresswoman Katie Porter (D-Calif.) to reform federal law to ensure funds donated to donor-advised funds (DAFs) are made available to working charities within a reasonable period of time and provide incentives to speed up donation timelines. The bicameral legislation, introduced in the Senate by Angus King (I-Maine) and Chuck Grassley (R-Iowa), would also update regulations for private foundations to fulfill their intended purpose of ensuring a regular flow of dollars to working charities.

“The coronavirus pandemic highlighted just how important working charities are to our communities. For countless Mainers and people across the country, charitable organizations are life-changing and lifesaving. Yet, $1 out of every $8 donated to U.S. charities goes to donor-advised funds, giving the wealthy generous tax breaks for their charitable contributions but not ensuring those funds help anyone in need. Our half-century old philanthropy laws must be reformed to correct this fundamental flaw in our current system,” said Congresswoman Pingree. “I’m proud to sponsor this bipartisan legislation with Representative Reed as a companion to Senators King and Grassley’s bill to ensure charitable donations effectively and efficiently do what they are intended to: help those in our communities who need it most.”

“We will always stand with charitable organizations to make sure they have the resources that they need to better serve our communities. So many people depend on our charities and the help and care they provide that we want to make sure that they have the support that they need,” said Congressman Reed. “We were glad to join in this bipartisan effort to help charities receive the funds that they so rightfully deserve. The reforms from this bill will make sure that charities will quickly receive contributions that will go to better the organization and those in the community they are dedicated to serving.”

Donor-advised funds (DAFs) currently have more than $140 billion set aside for future charitable gifts – but under current tax laws, the funds have no requirement to ever distribute these resources to working charities. Accordingly, DAFs can accept and hold charitable donations that have generated a federal income tax deduction, but never devote the resources to charitable work. The ACE Act will address this problem and speed the provision of money to working charities by reforming existing DAF rules with two new types of DAFs:

  • 15-year DAFs: The bill will create a new form of DAF under which a donor would get upfront tax benefits (as under current law), but only if DAF funds are distributed (or advisory privileges are released) within 15 years of the donation. To avoid overvaluations, the income tax deduction for complex assets – such as closely-held or restricted stock – would be the amount of cash made available in DAF accounts as a result of the sale of the asset (instead of the appraised value). 
  • 50-Year DAFs: As an alternative, donors who want more than 15 years to distribute their DAF funds will be allowed to elect an “aligned benefit rule.” Under this rule, a DAF donor would continue to receive capital gains and estate tax benefits upon donation, but would not receive the income tax deduction until the donated funds are distributed to the charitable recipient. All funds would be required to be distributed outright to charities no later than 50 years after their donation.

America’s community foundations will receive certain exemptions under this bill to support their place-based, mission-driven work; specifically, the ACE Act will allow any donor to hold up to $1 million in DAF funds at any community foundation without being subject to payout rules. For amounts over $1 million, a donor still can receive up-front tax benefits if the DAF requires a five percent annual payout or if donations must be distributed within 15 years of contribution. The legislation will also reform existing rules governing private foundations, ensuring that these entities cannot meet payout obligations through salaries or travel expenses to a donor’s family members, or through distributions to DAFs.

“Charities play an essential role in society and have been a lifeline for many people struggling during the pandemic. However, loopholes in our current laws allow the ultra-wealthy to make contributions and receive immediate tax benefits without any distribution requirements. The result is that money promised to charity can sit unused for years,” said Congressman Khanna. “This bill would reform our tax laws to make sure donations are quickly given out to charities, so that more Americans receive the services and support they need.”

"The pandemic has been a powerful reminder of how important charities are to our communities," said Congresswoman Porter. "The tax code incentivizes charitable giving, but a loophole allows donor-advised funds to hold onto donors' dollars, granting donors a tax break without actually distributing funds to charities that do the work of helping families. I'm proud to join my colleagues in introducing this bipartisan legislation that will increase accountability and help get charities the resources they need to serve our communities."

“America’s philanthropic sector is an unquestioned force for good across the globe, investing critically-needed resources in charities working to improve life for those in need,” said Senator King. “These benefits are why the federal government offers tax incentives to Americans who give back – but in order to ensure that these funds are doing the most possible good, we must reform the rules that govern some charitable donations. Under current rules, donor-advised funds and private foundations allow some to receive tax breaks for donations that never actually reach working charities. I’m grateful that Representatives Pingree and Reed are leading the bipartisan fight in the House to clear up those gray areas, and ensure that charitable contributions will swiftly reach the worthy organizations doing good in our communities.”

“Working charities do so much good in our country and abroad, and they operate on the good will and donations of those who can give. That’s why our tax code encourages giving to charity,” said Sen. Grassley. “But charitable dollars ought to be doing the good they were intended for, not sitting stagnant to provide tax advantages for some and management fees for others. The reform measures we are putting forward will ensure that the incentives for charitable giving actually result in money going to charities. I appreciate Rep. Pingree’s leadership on this effort in the House, and I hope more of our colleagues, from both sides of the aisle, will continue to join us.”

“Over the past two years of this pandemic, charities in Maine and across the country have stepped up in numerous ways to fill critical gaps in services and support their communities. And yet, while these organizations impact so many lives, thousands are at risk of closing. In the nearly 50 years since our opening, we’ve seen the impact that every donation can make on a person in need,” Mark Swann, Executive Director of Preble Street. “Establishing charitable giving laws that prioritize giving in a timely manner means more resources and help for Americans in need. We are grateful to Congresswoman Chellie Pingree and her cosponsors for their leadership in introducing legislation that strengthens and invests in America’s charitable organizations. I urge Congress to swiftly pass the Accelerating Charitable Efforts (ACE) Act.”

“RTA helps people in prison develop critical life skills through the arts. When released, less than 5% of RTA participants return to prison compared to the national recidivism rate of 60%. Having received the majority of its funding from private foundations and individuals, RTA supports the ACE Act that allows money to move out of the foundations and donor-advised funds faster. We thank Representatives Chellie Pingree and Tom Reed for their leadership, and hope these reforms will support RTA and non-profits like us to address the urgency of reducing mass incarceration and create lasting change within our communities,” said Katherine Vockins, Founder and Executive Director of Rehabilitation Through the Arts.

The full legislative text for the ACE Act can be read here.

Click here to watch a video explaining the benefits of the ACE Act. 



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