In addition to helping secretive donors avoid disclosure, DAF funding like this can also help organizations circumvent rules that prevent privately governed and funded organizations from masquerading as public charities. This is called the “public support test.”
Simply put, if a nonprofit received the bulk of its funding from a single source, its status as a public charity would be in jeopardy, and it would lose the many benefits deriving from that status.
But under current regulations, grants from DAFs are treated as grants from the sponsor, which is a public charity, and so would not tip the nonprofit out of its public charity status.
In its most recently reported filing (year ending December 31, 2021), 85 Fund’s total public support was $117 million. We don’t know how much it’s grown since, but that single grant from Schwab was more than 85 Fund’s entire revenue for that year.
It’s entirely likely that, if that grant had come from a private individual or a private foundation, 85 Fund would have lost its public charity status — the gift could not have been included in the calculation of its public support.
This merits much deeper investigation. It’s also a perfect example of one of the many ways that the regulations around donor-advised funds need fixing.
This particular fix — attributing grants like this to the donor behind the DAF rather than the sponsor — has been stalled under consideration by the IRS for nearly 6 years. And among those opposing the fix? Schwab Charitable.