When “donor-directed depositories” arose in the 1990’s, these giving-vehicles competed with private foundations and so caused quite a stir in the tax-exempt organization world. Over time, foundations prevailed, but not entirely; the modern version of DDDs – now called “donor-advised funds” or DAFs – are booming. As it has for decades, the Internal Revenue Service dawdled in producing formal guidance over DAFs and other donor-guided funding mechanisms; in this case, the IRS has recently proposed sweeping changes in the regulations governing DAFs, and they, too, are causing a ruckus. The fuss is partly caused by recent congressional attention to alleged mis-use of tax-exempt organizations, but also from the new regulations’ poor drafting decisions; for example, unlike most such new IRS rules which take effect in the tax year following promulgations, the new regulations would take effect in the year they are promulgated — that is, immediately, even if actions already have been taken that might be affected by the new regs.

That makes a new report from Fidelity Charitable, the largest sponsor of DAFs with a record $12 billion in charitable giving in 2023, quite interesting. The Associated Press has a summary of some surprising statistics, including that the FC DAF had a 5% increase in distribution at a time when “generally donations are dropping”, and its “distributions to nonprofits in 2023 were four times what they were 10 years ago.”

One concern about DAFs, for example, was that it would encourage more anonymity in giving, but 96% of FC DAF donors self-identified either themselves or their DAFs. Another concern was that DAFs would only be used by wealthy individuals to sequester funds or support their own interests, but “the average grant in 2023 was $4,625, with the average DAF handing out 11.8 grants in the year.” And the most popular recipients of grants from DAFs were not politically-active or non-mainstream charities, but “Doctors Without Borders USA and St. Jude Children’s Research Hospital”, as they were in 2022.

It appears that DAFs, like their predecessor organizations, are competing with private foundations, and doing so quite well. In fact, millennials and Gen Xers, who might be thought to be more careful in early giving, seem more willing to use DAFs than give to charities directly. It’s not clear why the IRS is choosing to impose substantial new and expansive regulations on a system that seems to be doing what seems to help the charitable sector and those it serves. Perhaps it’s the same impulse that did in the Donor Directed Depositories — competition with private foundations — but if this competition is being resolved by market forces, it’s not clear that private foundations have the moral high ground, despite a legislative and regulatory record that supports vigorous governmental intervention rather than donor choice.