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Accelerating Charitable Efforts Act Introduced

June 11, 2021

Senators Chuck Grassley (R-IA) and Angus King (I-ME) introduced the Accelerating Charitable Efforts Act (ACE Act) on June 9. A joint press release states that the purpose of the ACE Act is to reform private foundations and ensure that donor advised funds (DAFs) make resources available to “working charities” in a “reasonable period of time.”

The ACE Act introduces a complex set of incentives and penalties to drive philanthropic behavior in order to impose new policy constraints on the charitable sector. As discussed further below, the ACE Act would divide DAFs into a variety of categories, including qualified and nonqualified DAFs, with different tax consequences depending on whether the sponsoring charity is a geographically limited community foundation focusing on four or fewer states or a DAF sponsor with a national or issue area focus. The Act would also modify the rules applicable to private foundations, exempting from the annual 1.39% excise tax those foundations with a limited duration or which make distributions in excess of 7%. It would also modify the public support rules for public charities, no longer treating DAF distributions as support from a public charity.

The bill has a prospective effective date. The provisions relating to the charitable contribution deduction only apply to contributions made after the enactment of the bill—contributions to DAFs prior to the enactment date would be grandfathered. The effective date for reforms relating to entities, including DAF sponsors, private foundations, and public charities, are with respect to tax years beginning after December 31, 2021.


The legislative proposal represents the culmination of a multiyear effort on the part of the Initiative to Accelerate Giving, which is funded by John Arnold and supported by academics Ray Madoff and Roger Colinvaux, among others.[1]

The Initiative to Accelerate Giving is motivated primarily by two federal tax policy concerns.

  • Timing mismatch. Some academics and policymakers believe that the income tax deduction for charitable contributions is a federal subsidy intended to finance the production of charitable goods and services. They believe that philanthropic institutions like private foundations and DAFs do not produce charitable goods and services (i.e., they are not “working charities”), and that the federal tax “subsidy,” therefore, should not apply as robustly to gifts to such institutions. They advocate for changes in tax policy to match the timing of the production of charitable goods and services with the timing of the charitable deduction. Specifically, they recommend deferring the income tax charitable contribution deduction for gifts to such philanthropic institutions until the gift is used by a “working charity” to produce goods and services. Some refer to this timing mismatch as “warehousing.”
  • Perpetuity. Some academics and policymakers believe that donors should not exert control over charitable gifts after their lifetimes (no control by the “dead hand of the past”). They advocate for limiting the self-governance powers of DAFs and private foundations to prevent the creation of charitable institutions with perpetual life.


In the short term, the ACE Act may have the opposite of its intended result—accelerating gifts into rather than out of DAFs and private foundations—because the proposal increases regulatory risk associated with DAFs even if it is not enacted any time soon. Because contributions made prior to enactment of the bill are grandfathered, some donors may wish to act swiftly to lock up gifts into DAFs as soon as possible.

The bill is likely to engender significant opposition within the nonprofit sector. The premises upon which it is based are not universally accepted. Many believe, for example, that grantmaking is itself a charitable activity, and, therefore, that the date of the gift to a grantmaking institution should match the date of the charitable contribution deduction, as it does under current law. The notion that charitable perpetuities and long-lived grantmaking institutions are bad is contrary to the fact that most if not all private foundations and DAFs do good work, even after the founder has long since passed away. Moreover, the sheer complexity that the ACE Act would introduce into an already complicated legal landscape is itself a basis for opposition, both within the nonprofit sector and among policymakers.

It is unlikely that the reforms proposed in the ACE Act will be implemented in the near future. That said, all or portions of the Act could be picked up and added to a legislative vehicle with tax provisions moving at any time, so it is important for charities and donors to voice their concerns now. Although Senator King is an Independent, he caucuses with the Democrats. This fact is important because it makes the ACE Act a bipartisan bill, thereby increasing the chances that it is included, or parts of it are included, in future legislation. Senator Grassley is a powerful legislator, serving in Republican leadership as ranking member of the Senate Committee on Finance. Over the course of his career, he has spearheaded efforts to reform the charitable sector. As a matter of fact, this August marks the 15th anniversary of the Pension Protection Act, which was the last major reform of the charitable sector, one which, incidentally, codified the current rules governing DAFs that the ACE Act now throws into question.

Major Provisions in the ACE Act

New charitable giving vehicles

  • QDAFs: Time-limited national DAFs. The ACE Act defines “Qualified DAFs” (QDAF) as DAFs (including non-geographically limited DAFs) that impose a 15-year limitation on advisory privileges conferred upon any donor as measured from the contribution date. Contributions to QDAFs must designate a charitable recipient to receive the remaining assets undistributed at the end of the 15-year time limit. “Non-Qualified DAFs” (NQDAF) are DAFs that have no such time limitation. If a QDAF fails to pay out within 15 years, then the sponsoring organization must pay a penalty tax of 50% of the amount that has not been distributed.
  • QCFs: Geographically Limited Community Foundations. The ACE Act defines a “Qualified Community Foundation” (QCF) as a 501(c)(3) organization whose purpose is to understand and serve the needs of a geographic community that is no larger than four states and which has at least 25% of its assets held outside of DAFs. There is no provision for issue-focused community foundations such as religious community foundations within the definition of QCFs.
  • Size-limited QCFDAF. The ACE Act defines “Qualified Community Foundation DAFs” (QCFDAFs) as DAFs sponsored by a QCF that limit donor advisory privileges to DAFs with an aggregate value of $1 million or less (as adjusted for inflation).
    • Minimum payout QCFDAF. The ACE Act also defines QCFDAFs to include DAFs sponsored by a QCF that are contractually obliged to distribute at least 5% annually.
    • Non-Qualified QCFDAFs. DAFs sponsored by a QCF that are neither size limited nor limited by minimum payout are “Non-Qualified Community Foundation DAFs” (NQCFDAF).

New limitations on the income tax charitable contribution deduction

  • Timing. No income tax deduction for gifts to NQDAFs or NQCFDAFs until the NQDAF or NQCFDAF makes a qualifying distribution to another charitable organization (other than a DAF). The amount of the donor’s deduction is further limited to the amount of the qualifying distribution out of the DAF.
  • Property. No income tax deduction for gifts of property other than cash (including, for example, gifts of publicly traded stock, closely held or illiquid assets, real estate, art, etc.) to NQDAFs or NQCFDAFs until the property has been sold and reduced to cash and then distributed to another charitable organization (other than a DAF).
  • Illiquid Assets. No income tax deduction for gifts of non-publicly traded assets to QDAFs or QCFDAFs until the asset has been sold (but not distributed) by the DAF sponsor. The amount of the deduction is limited to the value credited to the DAF as a result of the sale (i.e., net of fees and costs associated with the sale). Compare the illiquid asset rule for gifts to QDAFs and QCFDAFs with rule above for gifts of all property to NQDAFs and NQCFDAFs, which has a less favorable timing rule.
  • IRS Information Reporting and Contemporaneous Written Acknowledgment. The ACE Act requires donors to obtain a contemporaneous written acknowledgment from the sponsoring organization to claim a charitable deduction for gifts to DAFs, and it provides what the contents of the letter must contain to give effect to the new rules the ACE Act imposes. The ACE Act also requires sponsoring organizations of DAFs to inform the IRS of the same information provided to donors with respect to gifts received “at such time and in such manner as the Secretary may prescribe.” This would likely necessitate a new IRS form. It is unclear whether such information reporting would take the form of direct reporting from the sponsoring organization to the IRS using Form 1099 or indirect information reporting by the taxpayer on the next filed return using Form 8283 (noncash charitable contributions).

New rules for private foundations

  • Administrative Expenditures. Private foundations would no longer be entitled to count certain administrative expenses paid to disqualified persons (other than foundation managers who are not family members) toward meeting the minimum distribution requirement. For example, the ACE Act would prevent a foundation from counting salary paid to a substantial contributor to the foundation or such person’s family members as qualifying distributions. Such payments would not, however, be prohibited self-dealing transactions.
  • Distributions to DAFs. Private foundations would not be permitted to count distributions to DAFs as qualifying distributions for purposes of meeting their minimum distribution requirement.
  • Information Reporting. Private foundations would be required to report any distributions to DAFs on their Form 990-PF.
  • Significant Qualifying Distributions. Under current law, private foundations must distribute at least 5% of their net assets per year. In addition, they are subject to a 1.39% excise tax on their net assets. The ACE Act would eliminate the 1.39% excise tax applicable to a private foundation in any year in which the foundation distributes at least 7% of its net assets.
  • Limited Duration Foundation. The ACE Act would eliminate the 1.39% excise tax on any “limited duration foundation” (LDF) defined as a foundation with a duration of less than 25 years under its governing documents. An LDF may not make any distributions to a “Disqualified Private Foundation” (DPF), defined as any private foundation that has disqualified persons in common with the LDF. If an LDF fails to qualify as such in any year (e.g., as a result of changing its governing instrument to increase the duration beyond 25 years or making a distribution to a DPF), then it will be subject to a recapture tax equal to any tax benefits that the LDF previously received.

New rules for public charities

  • Limited Public Support from DAFs. Under the ACE Act, a public charity may not treat distributions it receives from a sponsoring organization of DAFs as public support received from another public charity unless the distribution from the sponsoring organization is not sourced to a DAF. All anonymous distributions from DAFs held by a sponsoring organization are treated as though they are from a single source. Distributions from DAFs that are identified to a particular donor may be counted as support received from that individual donor.


If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

New York
Tomer J. Inbar
Megan E. Bell
Catherine C. Oetgen
Elizabeth Lauren Simpson

Washington, DC
Celia Roady
Matthew R. Elkin
Shira M. Helstrom
Caroline W. Waldner
Chelsea Rubin