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A is underway due to the growth of donor-advised funds in the United States.

Known widely as DAFs, these . Donors can get an immediate tax deduction by putting money or other assets into the accounts, and advise the accounts' managers to give away the money at a later date.

After years of concerns about how quickly the money reserved for charity gets distributed and whether donor-advised funds need to operate more transparently, are now pending. Though the regulations would not create new requirements for how rapidly these funds distribute money, they do provide some new guidelines for what by law.

As who studies DAFs, I believe these new changes may mark the start of what could become a series of reforms.

Nearly $230 billion

DAFs have been but got off to a slow start. After decades of being concentrated in community foundations, DAFs became more widely accessible with the introduction of —a DAF-sponsoring organization tied to Fidelity Investments—in 1991.

Many more DAF sponsors have since emerged.

Because donors and can then wait a long time before distributing it to nonprofits, DAFs essentially operate as .

DAFs are not, however, subject to the same restrictions.

Foundations have to disclose their donors to the public and also have to distribute minimum amounts for charitable use each year. .

and distributed some $52 billion to charities that year. Those are significant sums as giving of all kinds totaled about $500 billion that year.

As of 2023 there were about , according to the National Philanthropic Trust.

40% don't distribute a dime

Critics of DAFs say that the government should require them to .

Foundations have faced that kind of obligation for more than five decades. They must pay out at least each year—although some of that money can be used to pay for their operations or even be set aside in a donor-advised fund.

Supporters of DAFs counter that the payout rate for those accounts is already much higher than the foundation floor of 5%. It .

However, that statistic applies to all the money held in DAFs, not what happens with each one of them. in a given year.

Calling for change

Other changes have been proposed over the years, including:

• toward their annual 5% payout requirement.

• because currently the public, the charity that gets money from a DAF and even the IRS have for sure who originally provided those funds.

• the that have been at the center of much of the growth in DAFs, by limiting the fees they can earn or between them and their affiliated charities.

IRS regulations

The IRS released at the end of 2023, and gave the on them.

The , who is considered a fund's adviser, and restrictions on DAF disbursements.

Though largely focused on definitions, these proposed regulations are not without teeth. Nor .

The proposed regulations would identify certain distributions as taxable and declare that donors are not the only parties considered DAF advisers—the are, too. This means the financial advisers, like donors, cannot receive any benefits from a DAF.

In identifying taxable distributions, the regulations include the possibility that funds used to support could lead to penalties for both the donor and the fund's manager. And DAFs are commonly used to support lobbying.

A charged to a participating fund manager.

By including in the group considered advisers to the DAF, investment fees paid to such financial advisers for their services would become . As such, the proposed new rules would require the .

have objected to the proposed regulations. A key concern they've expressed has to do with what the regulations could mean for .

Since financial advisers often oversee investments of both the donor and the donor's charitable funds, such dual advisory roles may be eliminated by the threat of penalties.

Changes possible in Congress

Additional, bigger, changes could occur in the near future through legislation.

Possibilities include requiring DAFs to disclose donors and connect them with distributions so or when donations to DAFs are not immediately distributed to charities to encourage donors with DAFs to dispatch their gifts quickly.

Although legislation aimed at requiring faster payouts was , few lawmakers have made it a priority.

The most recent bill, the , was first proposed by in 2021. It did not to garner a vote. At this point, it is that measure.

But role in charitable giving, I believe that Congress will eventually have to take action if it wants to meaningfully regulate this new charitable environment.

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