S. 1981 - Accelerating Charitable Efforts (ACE) Act

117TH CONGRESS
1ST SESSION

S. 1981

To amend the Internal Revenue Code of 1986 to modify rules
relating to donor advised funds, and for other purposes.

IN THE SENATE OF THE UNITED STATES

JUNE 9, 2021

Mr. KING (for himself and Mr. GRASSLEY) introduced the following bill;
which was read twice and referred to the Committee on _____

A BILL

To amend the Internal Revenue Code of 1986 to modify rules relating to donor advised funds, and for other purposes.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the “Accelerating Charitable Efforts Act" or the “ACE Act”.

SEC. 2. ADDITIONAL RESTRICTIONS ON DEDUCTIONS FOR CONTRIBUTIONS TO DONOR ADVISED FUNDS.

(a) LIMITATION ON DEDUCTION. — Section 170(f) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

"(19) TIME FOR DEDUCTIONS OF CONTRIBUTIONS TO DONOR ADVISED FUNDS. —

“(A) NONQUALIFIED DONOR ADVISED FUNDS. —

“(i) IN GENERAL. — In the case of a contribution to a donor advised fund (as defined in section 4966(d)(2)) which is not a qualified donor advised fund or a qualified community foundation donor advised fund —

“(I) in the case of any contribution of property other than cash, no deduction shall be allowed under this section unless the sponsoring organization sells such property for cash,

“(II) no deduction shall be allowed under this section for any contribution before the taxable year that, includes the date on which the sponsoring organization makes a qualifying distribution of such contribution (or the proceeds from the sale of such contribution), and

"(III) the amount of the deduction shall be equal to the amount of the qualifying distribution.

^"(ii) QUALIFYING DiSTRIBUTION. — For purposes of this subparagraph, the term 'qualifying distribution' means any distribution which is not a taxable distribution (as defined in section 4966(c), determined without regard to paragraph (2)(C) thereof).

“(iii) ORDERING RULE. — For purposes of this subparagraph., distributions shah be treated as made from contributions (and any earnings attributable thereto) on a first-in, first-out basis.

"(B) NONPUBLICLY TRADED ASSETS OF QUALIFIED DONOR ADVISED FUNDS. —

“(i) IN GENERAL. — In the case of a contribution of a non-publicly traded asset to a Qualified donor advised fund or a qualified community foundation donor advised fund —

“(I) no deduction shah be allowed under this section for any tax-includes the date on which the sponsoring organization sells the asset, and

“(II) the amount of the deduction allowed under subsection (a) shall not exceed the amount of gross proceeds received from such salt? and credited to the account or fund identified with the taxpayer.

“(h) NON-PUBLICLY TRADED ASSET. — For purposes of this subparagraph, the term 'non-publicly traded asset' means any asset for which (as of the date of the contribution) market quotations are not readily available on an established securities market.

“(C) CONTEMPORANEOUS WRITTEN ACKNOWLEDGEMENT. —

“(i) IN GENERAL. — In the case of a contribution described in subparagraph (A) or (B), no deduction shall be allowed under subsection (a) for such contribution unless the taxpayer substantiates the contribution by a contemporaneous written acknowledgement of the contribution by the sponsoring organization that meets the requirements of clause (ii).

"(ii) CONTEXT OF ACKNOWLEDGEMENT. — An acknowledgement meets the requirements of this subparagraph if it includes the following information:

“(I) The name of the donor.

“(II) In the case of a contribution described in subparagraph. (A) —

“(aa) if such contribution is described in subparagraph (A)(i)(I), a certification that the asset was sold for cash and the amount of cash received in such sale, and

”(bb) a certification that a qualifying distribution has been made from such contribution (or the proceeds from the sale of such contribution), an identification of the amount of such qualifying distribution, and a statement that the deductible amount may not exceed the amount of such qualifying distribution. 

“(III) In the case of a contribution described in subparagraph (B), a certification that the asset was sold and the amount of the gross proceeds received from finch sale and credited to the account or fund of the taxpayer, together with a statement that the deductible amount may not exceed the amount of the gross proceeds received from the sale of the asset and credited to the account or fund of the taxpayer,

“(iii) CONTEMPORANEOUS. — For purposes of clause (i), an acknowledgement shall be considered to be contemporaneous if the sponsoring organization provides it within 30 days of —

"(I) in the case of a contribution described in subparagraph (A), the date of the qualifying distribution, and

"(II) in the case of a contribution described in subparagraph (B), the date that the gross proceeds from the sale of the asset, are credited to tile account or fund of the taxpayer.

“(iv) INFORMATION TO SECRETARY. — A sponsoring organization required to provide an acknowledgement under this paragraph shall provide to the Secretary the information contained in the acknowledgement. Such information shall be provided at such time and in such manner as the Secretary may prescribe.

“(D) QUALIFIED DONOR ADVISED FUND. — For purposes of this paragraph, the term 'qualified donor advised fund' means a donor advised fund (as defined in section 4966(d)(2)) established under an agreement that requires, for the duration of such fund, the termination of any advisory privilege with respect to any contribution (including any earnings thereon) made by any donor (or any person appointed or designated by a donor) before the last day of the 14th taxable year beginning after the taxable year in which the contribution was made.

(E) QUALIFIED COMMUNITY FOUNDATION DONOR ADVISED FUND — For purposes of this paragraph —

“(i) IN GENERAL. — The term 'qualified community foundation donor advised fund' means a donor advised fund (as defined in section 4966(d)(2)) which is owned or controlled by a qualified community foundation and which meets one or more of the requirements of clauses (ii) or (iii).

“(ii) MAXIMUM VALUE OR ADVISORY PRIVILEGES. —

“(I) IN GENERAL. — A donor advised, fund meets the requirements of this clause if each individual who has advisory privileges with respect to such fund does not have advisory privileges with respect to 1 or more donor advised funds held by the qualified community foundation with an aggregate value at any time after the date of the enactment of this paragraph in excess of $1,000,000.

“(II) INFLATION ADJUSTMENT. — In the case of any taxable year beginning after 2021, the $1,000,000 amount in subclause (I)shall be increased by an amount equal to such dollar amount, multiplied by the cost-of-living adjustment determined under section 1(f)(3) for the calendar year in which the taxable year begins, determined by substituting in subparagraph (A) (ii) thereof 'calendar year 2020' for 'calendar year 2016'. If any amount as adjusted under the preceding sentence is not a multiple of $10,000, such dollar amount shall be rounded to the next lowest multiple of $10,000.

“(iii) MINIMUM PAYOUT. — A donor advised fund meets the requirements of this paragraph, if the fund is established under an agreement that requires that the fund make qualifying distributions (as defined in subparagraph (A)(ii)) each calendar year in an amount not less than 5 percent of the value of the fund (determined as of the last day' of the preceding calendar year).

“(iv) QUALIFIED COMMUNITY FOUNDATION. — The term 'qualified community foundation' means an organization —

“(I) which is described in section 501(c)(3),

“(II) which is organized and operated for the purpose of understanding and serving the needs of a particular geographic community that is no larger than 4 States by engaging donors and pooling donations to create charitable funds in direct furtherance of those needs, and

“(III) which holds substantial assets (but in no case less than 25 percent of the organization's total assets) outside of donor advised funds.

“(v) SPONSORING ORGANIZATION. — The term 'sponsoring organization' has the meaning given such term under section 4966(d)(1).”.

(b) OTHER REQUIREMENTS FOR QUALIFIED DONOR ADVISED FUNDS. — Section 170(f)(18) of the Internal Revenue Code of 1986 is amended by striking “and” at the end of subparagraph (A)(ii), by striking the period at the end of subparagraph (B) and inserting and”, and by adding at the, end the following new subparagraph:

"(C) in the case of a contribution to a qualified donor advised fund (as defined in paragraph (19)(D)), the taxpayer identifies for the sponsoring organization a preferred organization for the purposes of making distributions of so much of the amount contributed (and any earnings attributable thereto) as has not been distributed before the end of the last day of the 14th taxable year beginning after the taxable year in which the contribution was made.”.

(c) EFFECTIVE DATE. — The amendments made by this section shall apply to contributions made after the date of the enactment of this Act.

SEC. 3. FAILURE OF DONOR ADVISED FUNDS TO DISTRIBUTE CONTRIBUTIONS.

(a) IN GENERAL. — Subchapter G of chapter 42 of the Internal Revenue Code of 198G is amended by adding at the end the following new section:

“SEC. 4967A. FAILURE OF DONOR ADVISED FUNDS TO DISTRIBUTE CONTRIBUTIONS.

“(a) IN GENERAL. — In the case of a contribution which is held in a donor advised fund (other than a qualified community foundation donor advised fund), there is hereby imposed a tax equal to 50 percent of so much of the portion of such contribution (and any earnings attributable thereto) as has not been distributed by the sponsoring organization in a qualifying distribution before the last day of the sixth month following the last day of the applicable taxable year with respect to such contribution. The tax imposed by this subsection shall be paid by such sponsoring organization.

“(b) APPLICABLE TAXABLE YEAR. — For purposes of this section, the term 'applicable taxable year' means —

“(1) in the case of a contribution to a (qualified donor advised fund, the 14th taxable year beginning after the taxable year in which the contribution was made, and

“(2) in the ease of a contribution to any other donor advised fund (other than a qualified community foundation donor advised fund), the 49th taxable year beginning after the taxable year in which the contribution was made.

“(c) DEFINITIONS AND OTHER RULES.  —

“(1) QUALIFIED DONOR ADVISED FUND. — The term 'qualified donor advised fund' has the meaning given such term under section 170(f)(19)(D).

“(2) QUALIFIED COMMUNITY FOUNDATION DONOR ADVISED FUND. — The term 'qualified community foundation donor advised, fund' has the meaning given such term under section 170(f)(19)(E).

“(3) QUALIFYING DISTRIBUTION. — The term 'qualifying distribution' bas the meaning given such term under section 170(f)(19)(A)(ii).

“(4) ORDERING RULE. — Rules similar to the rules of section 170(f)(19)(A)(iii) shall apply for purposes of this section.”.

(b) CONFORMING AMENDMENT. — The table of sections for subchapter G of chapter 42 of such Code is amended by adding at the end the following new item:

"Sec. 4967A. Failure of donor advised funds to distribute contributions.".

(c) EFFECTIVE DATE. — The amendments made by this section shall apply to contributions made after the date of the enactment of this Act.

SEC. 4. TREATMENT OF PRIVATE FOUNDATION ADMINISTRATIVE EXPENSES PAID TO DISQUALIFIED PERSONS.

(a) IN GENERAL. — Section 4942(g) of the Internal Revenue Code of 1986 is amended by adding at the end the following new paragraph:

“(5) DISALLOWANCE OF ADMINISTRATIVE EXPENSES PAID TO DISQUALIFIED PERSONS. —

“(A) IN GENERAL. — For purposes of paragraph (1)(A), administrative expenses paid to any person described in subparagraph (B) shall not be treated as a qualifying distribution.

“(B) PERSON DESCRIBED. — A person is described in this subparagraph if such person is a disqualified person (as defined, in section 4946(a)(1)) with respect to the private foundation, other than a foundation manager (as defined in section 4946(b)(1)) of such private foundation who is not a member of the family (as defined in section 4946(d)) of any individual described in subparagraph (A) or (C) of section 4946(a)(1).”.

(b) EFFECTIVE DATE. — the amendment made by this section shall apply to taxable years beginning after December 31, 2021.

SEC. 5. TREATMENT OF DISTRIBUTIONS TO DONOR ADVISED FUNDS FROM PRIVATE FOUNDATIONS.

(a) PROHIBITION ON TREATMENT AS QUALIFYING DISTRIBUTIONS. —

(1) In GENERAL. — Section 4942(g)(1)(A) of the Internal Revenue Code of 1986 is amended by striking “paragraph (3), or” and inserting “paragraph (3), or (iii) a sponsoring organization (as defined in section 4966(d)(1)) if such contribution will be held in a donor advised, fund (as defined in section 4966(d)(2)), except as provided in paragraph (3), or".

(2) CONFORMING AMENDMENT. — Section 4942(g)(3) is amended by striking “(i) or (ii)” and inserting “(i), (ii), or (iii)”.

(b) REPORTING. — Section 6033(e) of the Internal Revenue Code of 1986 is amended —

(1) by redesignating paragraphs (1) and (2) as paragraphs (2) and. (3), respectively, and

(2) by inserting before paragraph (2) (redesignated) the following new paragraph:

“(I) the private foundation shall include in its annual return under this section information on —

“(A) the amount of any contribution to a sponsoring organization (as defined in section 4966(d)(1)) which will be held in a donor advised fund (as defined in section 4966(d)(2)),

“(B) the sponsoring organization to which such contribution was made, and

“(C) the donation advice given to such organization (if any),”, and

(3) in the matter following paragraph (3) (as redesignated) by striking “paragraph (1)” and inserting “paragraph (2)”.

(c) EFFECTIVE DATES. —

(1) PROHIBITION. — The amendment made by subsection (a) shall apply to distributions made after December 31, 2021.

(2) REPORTING. — The amendments made by subsection (b) shall apply to returns required to be filed alter December 31, 2021.

SEC. 6. TREATMENT OF CONTRIBUTIONS FROM DONOR ADVISED FUNDS FOR PURPOSES OF DETERMINING PUBLIC SUPPORT.

(a) PRIVATE FOUNDATIONS. — Section 509 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

“(g) SPECIAL RULES FOR SUPPORT FROM DONOR ADVISED FUNDS. —

“(1) IN GENERAL. — For purposes of subsection (a)(2), except as otherwise provided in this subsection, all amounts received hum sponsoring organizations (as defined in section 4966(d)(1)) —

“(A) shall not be treated as support received from an organization described in section 170(b)(1)(A), and

“(B) shall be treated as support received from one person.

“(2) EXCEPTION, WHERE DONOR IDENTIFIED. — In the case of support from a sponsoring organization which is provided from funds which are identified with a donor to a donor advised fund (as defined in section 4960(d)(2)) and the sponsoring organization identifies such donor, such support shall be treated as provided by such donor.

“(3) EXCEPTION FOR AMOUNTS NOT CONTRIBUTED FROM DONOR ADVISED FUNDS. — Paragraph (1) shall not apply to any amount if the sponsoring organization specifies that —

“(A) the amount is not a distribution from a donor advised fund (as so defined), and

“(B) no donor (or any person appointed or designated by such donor) had advisory privileges with respect to the provision of the support.”.

(b) DETERMINATION OF CONTRIBUTION LIMITATIONS. — Section 170(b)(1)(A) of such Code is amended by adding at the end the following: “For purposes of clause (vi), rules similar to the rules of section 509(g) shall apply”.

(c) EFFECTIVE DATE. — The amendments made by tins section shall apply to contributions made in taxableyears beginning after the date of the enactment of this Act.

SEC. 7. EXEMPTION FROM TAX ON INVESTMENT INCOME FOR CERTAIN PRIVATE FOUNDATIONS MAKING SIGNIFICANT QUALIFYING DISTRIBUTIONS.

(a) IN GENERAL. — Section 4940 of the Internal Revenue Code of 1986 is amended by adding at the end the following new subsection:

“(c) EXEMPTION FOR FOUNDATIONS MAKING SIGNIFICANT QUALIFYING DISTRIBUTIONS. — No tax shall be imposed by this section for any taxable year on any private foundation if such private foundation makes qualifying distributions (as defined in section 4942(g)) during such taxable year in an amount that is not less than 7 percent of the excess of —

“(1) the aggregate fair market value of all assets of the foundation (other than those which are used (or held for use) directly in carrying out the foundation's exempt purpose) determined as of the first date of the taxable year, over

“(2) the acquisition indebtedness with respect to such assets (determined under section 514(c)(1)).".

(b) EFFECTIVE DATE. — The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act.

SEC. 8. EXEMPTION FROM TAX ON INVESTMENT INCOME OF LIMITED-DURATION PRIVATE FOUNDATIONS.

(a) IN GENERAL. — Section 4940 of the Internal Revenue Code of 1986, as amended by section 7, is amended by adding at the end the following new subsection:

"(f) EXEMPTION FOR LIMITED-DURATION FOUNDATIONS. —

“ (1) EXEMPTION.  —

“(A) IN GENERAL. — No tax shall be imposed by subsection (a) on any private foundation if such private foundation meets the requirements of subparagraph (B).

“(B) REQUIREMENTS. — A private foundation meets the requirements of this subparagraph if, at the time of its establishment and at all times thereafter —

“(i) such private foundation has a duration specified in its governing documents of not more than 25 years, and

“(ii) such private foundation makes no distributions to disqualified private, foundations.

“(C) DISQUALIFIED PRIVATE FOUNDATION. — For purposes of this subsection, the term disqualified private foundation means,with respect to the private foundation described in subparagraph (B), another private, foundation with respect to which there is a disqualified person who is also a disqualified person with respect to such private foundation described in subparagraph(B).

“(2) RECAPTURE TAX. —

“(A) IN GENERAL. — If —

“(i) no tax is imposed under subsection (a) on a private, foundation by reason of paragraph (1), and

“(ii) such private foundation —

" (I) fails to meet the requirements of paragraph (1)(B) in any subsequent taxable year.

“(II) has a duration of more than 25 years, or

“(III) makes a distribution to a disqualified private foundation,

a tax shall be imposed on such foundation in the amount determined under subparagraph (B) for the first taxable year in which such private foundation is described in clause (ii).

“(B) AMOUNT OF TAX. — The amount of tax determined under tills subparagraph is the aggregate amount of taxes which would have been imposed on such private foundation for all taxable years before the first taxable year in which such foundation was described in subparagraph (A)(ii) if paragraph (1) had not applied.”.

(b) EFFECTIVE DATE. — The amendment made by this section shall apply to taxable years beginning after the date of the enactment of this Act.