Fidelity Charitable’s Anonymous DAF Donation to Another DAF Raises Doctrinal Questions

May 31, 2024

Giving Green, a San Francisco (c)(3) fighting climate change received a $10 million-dollar anonymous donation from a Fidelity Charitable donor advised fund. Giving Green is also a donor advised fund, sponsored by IDinsight, an exempt organization fighting climate change. Fidelity Charitable and IDinsight are both tax exempt DAF sponsors. They are both exempt under IRC 501(c)(3). But the contrast between Idinsight and Fidelity Charity could not be sharper. Why should the law treat these two disparate organizations as tax exempt under the same statute?

Fidelity Charitable’s DAF gift went to the Giving Green’s fund, which is “incubated” [i.e., sponsored] by IDinsight an exempt organization inspired by effective altruism to tackle climate change. So one anonymous donor used a donor advised fund to make a gift to another donor advised fund. The simple, yet remarkable, context demonstrates many of the issues nonprofit and tax-exempt stakeholders think about every day. Donor anonymity and payouts, initially, but most importantly exemption for commercial sponsors.

Let’s get the first two issues out of the way first. A lot of us wring our hands about donor anonymity but maybe we don’t mind anonymity for environmental causes. All the religions say that we should desire anonymity in our good works anyway. The highest form of altruism is the type that rejects recognition. Maybe we just don’t like anonymity in politics. And what about the ability to drop the money into successive DAFs? They can both sit on the money indefinitely. I don’t think warehousing is the purpose in this case but the use of multiple DAFs imply that the tax deduction might not be compensated by good works for a long time. We should probably look at that.

Here is the most fundamental question. Fidelity Charitable collects money from donors and then disburses the money in whatever way the donor says, as long as the donor’s instructions pass the “that looks like a charity” test. That is, the donor can advise disbursements to anything even smelling like charity. At worst, Fidelity is a mere conduit, an agent with no charitable purpose of its own. At best, we might call Fidelity a “trustee,” but even then it does not appear to take its duties seriously enough to wonder whether there is a better charitable use for donor funds than what the donor advises. Why should it be tax exempt?

Giving Green, on other hand, does all sorts of research and vetting of environmental groups before giving a stamp of approval and adding groups to its own list of approved recipients. Donors give to Giving Green and can then advise a disbursement to those organizations independently approved by the sponsor. Here are all the steps Giving Green takes independently of any donor’s advice or desires:

Step 1: Identify impact strategies

We start with an evolving list of “impact strategies”—ways that organizations across the world are tackling the climate crisis through systemic change in policy and technology.

Step 2: Assess impact strategies

We evaluate our list of impact strategies based on:

- Scale: How big a problem is it?
- Feasibility: How hard is the problem to address?
- Funding need: How much would more donations help?

Step 3: Longlist potential organizations

For impact strategies that we find promising, we map the existing universe of funding opportunities.

Step 4: Evaluate specific funding opportunities

We then move to evaluating the most promising funding opportunities. We seek to answer the questions like: How well-placed is the organization for implementing the impact strategies we have prioritized? What would the organization do with additional funding?

Step 5: Publish recommendations

When we find an organization that meets our criteria for recommendation, we consider it a “recommendation” and add it to our website and donation platform, making it easy to act on our findings. We publish a summary of our research so that anyone can understand our reasoning.

Why might the donor have done it this way other than a purpose to warehouse wealth for which a deduction has already been provided. If I had to guess, I would say that Fidelity’s donor parked the donations in a Fidelity account with the intent that it be used for climate change now. Then when the donor — through its own efforts — found a serious climate change organization, it advised a disbursement. Fidelity complied each time, presumably. All that takes time, money, and effort that Fidelity didn’t expend. The donor had to do that work itself.

But then the donor found a DAF, Giving Green Fund, that actually does the work that Fidelity doesn’t do. And why should Fidelity join in the underlying charitable purpose and do all that work? Fidelity Charitable has no interest in any particular charitable operation and certainly doesn’t care whether the operation is efficient or effective. It just does whatever the donor says, collecting a fee exempt from taxation. Doing more would only cost Fidelity money. But by making a donation from the commercial DAF to the charitable DAF, the donor is assisted in his purpose by an organization that has skin in the game. Because only the charitable DAF is interested enough in the underlying charitable effort. Fidelity could not care less.

Problem solved for the donor. But the donor has incurred an unnecessary cost, hasn’t it? We all have. What does the donor need Fidelity for and why do we exempt it from taxes just like we exempt Giving Green? Fidelity adds no value to the cost of tax exemption. If it’s the public benefit rationale that justifies tax exemption — for every dollar exempted, the government is repaid in public benefit — I am not sure we are getting anything from Fidelity. Certainly not enough to justify its tax exemption. We are only getting banking services.

darryll k. jones