Zelinsky Argues Private Foundation Rules Should Apply to DAFs

In a recent Tax Notes piece, Professor Edward Zelinsky of Cardozo Law argues Congress should extend private foundation rules to the operation of donor advised funds.

From the piece:

“In his recent tax proposal to Congress,¹ President Biden urged two changes to the Internal Revenue Code provisions governing private foundations’ required annual distributions. First, the president suggested that private foundations’ salary payments not satisfy the code’s annual payout requirement if they are made to “disqualified persons” — insiders positioned to exercise direct or indirect influence over the foundation’s affairs.² Second, Biden proposed that distributions by a private foundation to a donor-advised fund also not satisfy the foundation’s yearly distribution requirement unless the DAF in turn contributes this amount to charity by the end of the following year.³

These are modest and sensible proposals that Congress should adopt. But they do not go far enough. DAFs should be subject to all the same provisions of the Internal Revenue Code as apply to private foundations. DAFs, effectively controlled by the donors who establish them, are substantively indistinguishable from private foundations, typically controlled by the founders and their families. Congress should amend the code to apply to DAFs all provisions pertaining to private foundations, in particular, the requirements regarding minimum annual distributions⁴ and yearly tax payments to the federal treasury.^5″

^{Philip Hackney}