Political engagement is a big concept that could conceivably encompass most charitable activities: Think nonpartisan voter registration, issue advocacy, and policy education. Charities have a rich history of fostering civic engagement, promoting democratic principles, and championing groups and causes. But until now, we had little broad-based information about how donor-advised funds, or DAFs, fit into this picture.
A recent study I co-authored found that when donors give to politically engaged charities, they are disproportionately likely to use donor-advised funds to do it. DAFs support politically engaged groups at a 70 percent higher rate than other funders.
Our study also suggests that the anonymity DAFs offer may be driving this. The more funding DAFs get from private foundations, the more politically engaged grants they give out — indicating that foundation donors may be using DAFs to get around foundation disclosure rules. And DAF donors are 3.5 times more likely to give to hate groups — a controversial type of giving that donors may particularly want kept private.
What are DAFs?
Donor-advised funds, or DAFs, have burst onto the charitable scene with gusto over the past decade. DAFs now make up half of the top 20 charities in the U.S. and take in 27 percent of all individual giving.
DAFs are financial accounts that are managed by nonprofit organizations, which are called sponsors. Donors can give money to a personal DAF account and take a tax deduction right away, since they are giving the money to a charitable organization. The sponsor then gives the donor broad authority to recommend where and when the DAF assets will get granted out to other charities.
The interconnection of DAFs, anonymity, and politics
My IPS colleagues and I have written before about how DAFs raise a number of concerns. They have no payout requirement whatsoever, so there is no guarantee that the money sitting in them will ever make its way out to working charities. There is a significant amount of money just cycling between DAFs each year. And some private foundations appear to be using grants to DAFs as a way of meeting their payout requirements when they would otherwise fall short.
But another major issue with DAFs is that they are almost entirely opaque. DAF sponsors only have to disclose grant recipients in aggregate, so there is no way for grantees, the IRS, or the public to know which accounts grants come from unless the donor tells them. DAFs, in other words, allow donors to be completely anonymous.
And this means that DAFs can easily be used to fund politically engaged charities without any way to trace the giving back to the original donor. Mother Jones warned about this as far back as 2013, when they called DonorsTrust, a right-leaning DAF sponsor, “the Right’s dark money ATM.” In recent years, donors have used DAFs to fund everything from hate groups to the conservative transition plan Project 2025 to the recent redistricting effort in Texas.
Formulating a study
There has been little quantitative analysis of how donors may be using DAFs to give to politically engaged nonprofits across the board. So I was pleased to collaborate with Ohio State University accounting professor Brian Mittendorf to examine whetherDAFs help facilitate giving to politically engaged charities — and to what extent that giving is driven by the anonymity that DAFs offer.
Charitable political engagement can range anywhere from everyday legislative lobbying, advocacy, and get-out-the-vote efforts, to dark money groups, all the way out to hate and anti-government groups. Currently, 501(c)(3) operating charities are prohibited from partisan politicking — advocacy for or against specific political candidates — but they are allowed to do a limited amount of lobbying for or against specific legislation.
And 501(c)(3)s can be affiliated with 501(c)(4) social welfare organizations, which are allowed to do essentially unlimited amounts of lobbying and a certain amount of politicking as well. These relationships can be quite close: 501(c)(3)s often share brand names, volunteers, and resources with their 501(c)(4) affiliates, and can even give grants to them as well.
For our study, we gathered electronic tax returns for a set of more than a thousand donor-advised fund sponsors, tens of thousands of private foundations, and hundreds of thousands of 501(c)(3) operating charities for the three years from 2020 to 2022.
We grouped the operating charities based on whether they did no political work at all, or they were politically engaged — in other words, whether they themselves lobbied around legislation, or they or their affiliated organizations engaged directly in politicking for or against specific candidates. Then we looked at how revenue was flowing from DAF sponsors to the operating charities.
Donors disproportionately use DAFs for political giving
Overall, politically engaged charities made up just 1.2 percent of the whole group of charities we analyzed. But we found that donor-advised funds gave 5.9 percent of their grants to those politically engaged charities, while other funders gave 3.6 percent.
In other words, DAFs gave to politically engaged charities at a rate 70 percent higher than other funding sources.
Looking at it the other way around: DAFs accounted for 14.7 percent of the contributions going to politically engaged charities, but only 9.4 percent of the contributions going to other charities.
Politically engaged giving also varied across different types of sponsors. It was highest for national sponsors — sponsors without any specific geographic or mission focus, such as the Fidelity Charitable Gift Fund. And it was lowest for single-issue sponsors — operating charities with a specific mission, like Cornell University.
We also found that DAF sponsors gave more to politically engaged charities when they were more financially reliant on their donor-advised funds program. If all of a sponsor’s incoming contributions went to its DAFs, the sponsor tended to give more of its grants to politically engaged organizations than if it had only a small chunk of its incoming contributions going into its DAFs.
This told us that donors were disproportionately using DAFs for politically engaged giving because of something inherent in the DAFs, rather than something inherent in the organizations housing the DAFs.
Are donors using DAFs because of the anonymity they offer?
Without talking to each and every DAF donor, it’s impossible to know whether or not they’re using a DAF because it gives them anonymity. But we inferred donor motivations through a couple of methods.
First, we looked at whether foundation donors are giving disproportionately to DAFs, and then whether those DAFs, in turn, disproportionately gave to political charities. Foundations have stricter transparency requirements than DAFs, in that they have to disclose both their major donors and their grantees.
But DAF sponsors don’t have to reveal their major donors at all, and only have to report their grantees in aggregate, not by individual account. So if a foundation donor wanted to give anonymously to politically engaged charities, funneling their foundations’ grants through DAFs would be a logical way to do it.
It does turn out that when DAF sponsors receive more funding from foundations, they also give significantly more to political organizations. This suggests that foundation donors may indeed be circumventing public disclosure of their political giving by filtering funds through DAFs.
The graph below, for example, shows our estimates of giving rates to politically engaged groups for selected groups of sponsors. The more support a sponsor gets from foundations, the higher its rate of giving to politically engaged organizations.
Another way we examined anonymity was through fringe group giving. In theory, donors giving to charities at the extreme edge of the political spectrum — hate and anti-government groups — would be more likely to want that giving to be private. The graph below shows the rates of sponsor giving to hate and antigovernment groups, broken down by sponsor type.
Although this type of giving is — thankfully — rare, DAF sponsors give grants to these fringe groups at 3.5 times the rate of other funders. In fact, DAFs account for more than a quarter of hate group funding. And the more a sponsor relies on DAFs for its own funding, the more likely it is to give grants to hate groups.
We need new rules
Collectively, the results of our study suggest that donor-advised funds play a key role in the wider network of money and politics.
Political activity is, in and of itself, not a bad thing for a charity to engage in. Indeed, for many organizations, it is essential to their missions.
But DAFs are essentially private giving accounts with next to no transparency requirements. They give donors basically the same level of control they’d have with a private foundation, but allow them to be completely anonymous — even from regulators and the recipients themselves. And DAFs give foundation donors a way to do an end-run around their stricter disclosure requirements.
This may be an intoxicating cocktail for donors, but it is a dangerous brew for the public. Through the charitable deduction, taxpayers subsidize the money going into foundations and DAFs. But when donors use DAFs to advance self-serving public policy agendas, there is no way for taxpayers to know, much less hold them accountable.
Reasonable policy reform could fix this. We could require that DAF donors disclose their major donors, at least to the IRS, on an individual account level. We could require that DAFs be subject to the same disclosure requirements as private foundations. And we could prevent grants to DAFs from counting towards a foundation’s charitable distribution requirement.
Any of these measures would help ensure that our charitable system works for all of us.
You can read the full paper about our study in Nonprofit Policy Forum.
The post Donor-Advised Funds: a Powerful Tool for Political Engagement appeared first on CounterPunch.org.
This content originally appeared on CounterPunch.org and was authored by Helen Flannery.