Proposals in both the House and Senate tax bills would increase the standard deduction to dollar amounts so high that a vast majority of American taxpayers would no longer itemize and therefore would receive no tax benefits for their charitable giving. Charities are particularly concerned about this expansion of non-itemizers because it would include many larger donors who tend to be mindful of the tax consequences of their gifts. A recent report by the Lilly Family School of Philanthropy estimates that charities could lose as much as $13 billion in donations if the standard deduction is increased.

The second threat to charities has to do with control of charitable donations. The requirement that donors give up control over donations to get the deduction is intended to withhold tax benefits until a charity is given full use of the funds.

But in recent years, financial institutions have promoted an investment vehicle — the donor-advised fund — that follows the letter but violates the spirit of this rule. Contributions to such funds receive an immediate tax benefit because donors give up legal control over the donated money. However, the appeal of donor-advised funds is that donors, in practice, retain control over the eventual distribution (and until then, the investment) of their contributions. Donors claim an immediate tax deduction but can defer distribution of the money into the indefinite future, all the while making money for the financial institution managing the funds.

Donor-advised funds are popular among the wealthy, with Fidelity Charitable, the largest purveyor of such funds, receiving more “donations” than any other charity, while six of the top 10 fund-raising charities were donor-advised fund sponsors. More than $85 billion is parked in donor-advised funds, but there is no obligation for these funds to ever be made fully available for charitable use. Although proposals have been made to ensure the timely payout of money put in donor-advised funds, Congress has yet to act.