ACE Act

II 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 Finance 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 Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Accelerating Chari- 4 table Efforts Act’’ or the ‘‘ACE Act’’. 5 SEC. 2. ADDITIONAL RESTRICTIONS ON DEDUCTIONS FOR 6 CONTRIBUTIONS TO DONOR ADVISED FUNDS. 7 (a) LIMITATION ON DEDUCTION.—Section 170(f) of 8 the Internal Revenue Code of 1986 is amended by adding 9 at the end the following new paragraph: 10 VerDate Sep 11 2014 16:59 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\S1981.IS S1981 pamtmann on DSKBC07HB2PROD with BILLS 2 •S 1981 IS ‘‘(19) TIME FOR DEDUCTION OF CONTRIBU- 1 TIONS TO DONOR ADVISED FUNDS.— 2 ‘‘(A) NONQUALIFIED DONOR ADVISED 3 FUNDS.— 4 ‘‘(i) IN GENERAL.—In the case of a 5 contribution to a donor advised fund (as 6 defined in section 4966(d)(2)) which is not 7 a qualified donor advised fund or a quali- 8 fied community foundation donor advised 9 fund— 10 ‘‘(I) in the case of any contribu- 11 tion of property other than cash, no 12 deduction shall be allowed under this 13 section unless the sponsoring organi- 14 zation sells such property for cash, 15 ‘‘(II) no deduction shall be al- 16 lowed under this section for any con- 17 tribution before the taxable year that 18 includes the date on which the spon- 19 soring organization makes a quali- 20 fying distribution of such contribution 21 (or the proceeds from the sale of such 22 contribution), and 23 VerDate Sep 11 2014 16:59 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\S1981.IS S1981 pamtmann on DSKBC07HB2PROD with BILLS 3 •S 1981 IS ‘‘(III) the amount of the deduc- 1 tion shall be equal to the amount of 2 the qualifying distribution. 3 ‘‘(ii) QUALIFYING DISTRIBUTION.— 4 For purposes of this subparagraph, the 5 term ‘qualifying distribution’ means any 6 distribution which is not a taxable distribu- 7 tion (as defined in section 4966(c), deter- 8 mined without regard to paragraph (2)(C) 9 thereof). 10 ‘‘(iii) ORDERING RULE.—For pur- 11 poses of this subparagraph, distributions 12 shall be treated as made from contribu- 13 tions (and any earnings attributable there- 14 to) on a first-in, first-out basis. 15 ‘‘(B) NONPUBLICLY TRADED ASSETS OF 16 QUALIFIED DONOR ADVISED FUNDS.— 17 ‘‘(i) IN GENERAL.—In the case of a 18 contribution of a non-publicly traded asset 19 to a qualified donor advised fund or a 20 qualified community foundation donor ad- 21 vised fund— 22 ‘‘(I) no deduction shall be al- 23 lowed under this section for any tax- 24 able year before the taxable year that 25 VerDate Sep 11 2014 16:59 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\S1981.IS S1981 pamtmann on DSKBC07HB2PROD with BILLS 4 •S 1981 IS includes the date on which the spon- 1 soring organization sells the asset, 2 and 3 ‘‘(II) the amount of the deduc- 4 tion allowed under subsection (a) shall 5 not exceed the amount of gross pro- 6 ceeds received from such sale and 7 credited to the account or fund identi- 8 fied with the taxpayer. 9 ‘‘(ii) NON-PUBLICLY TRADED 10 ASSET.—For purposes of this subpara- 11 graph, the term ‘non-publicly traded asset’ 12 means any asset for which (as of the date 13 of the contribution) market quotations are 14 not readily available on an established se- 15 curities market. 16 ‘‘(C) CONTEMPORANEOUS WRITTEN AC- 17 KNOWLEDGEMENT.— 18 ‘‘(i) IN GENERAL.—In the case of a 19 contribution described in subparagraph (A) 20 or (B), no deduction shall be allowed under 21 subsection (a) for such contribution unless 22 the taxpayer substantiates the contribution 23 by a contemporaneous written acknowl- 24 edgement of the contribution by the spon- 25 VerDate Sep 11 2014 16:59 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\S1981.IS S1981 pamtmann on DSKBC07HB2PROD with BILLS 5 •S 1981 IS soring organization that meets the require- 1 ments of clause (ii). 2 ‘‘(ii) CONTENT OF ACKNOWLEDGE- 3 MENT.—An acknowledgement meets the 4 requirements of this subparagraph if it in- 5 cludes the following information: 6 ‘‘(I) The name of the donor. 7 ‘‘(II) In the case of a contribu- 8 tion described in subparagraph (A)— 9 ‘‘(aa) if such contribution is 10 described in subparagraph 11 (A)(i)(I), a certification that the 12 asset was sold for cash and the 13 amount of cash received in such 14 sale, and 15 ‘‘(bb) a certification that a 16 qualifying distribution has been 17 made from such contribution (or 18 the proceeds from the sale of 19 such contribution), an identifica- 20 tion of the amount of such quali- 21 fying distribution, and a state- 22 ment that the deductible amount 23 may not exceed the amount of 24 such qualifying distribution. 25 VerDate Sep 11 2014 16:59 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\S1981.IS S1981 pamtmann on DSKBC07HB2PROD with BILLS 6 •S 1981 IS ‘‘(III) In the case of a contribu- 1 tion described in subparagraph (B), a 2 certification that the asset was sold 3 and the amount of the gross proceeds 4 received from such sale and credited 5 to the account or fund of the tax- 6 payer, together with a statement that 7 the deductible amount may not exceed 8 the amount of the gross proceeds re- 9 ceived from the sale of the asset and 10 credited to the account or fund of the 11 taxpayer. 12 ‘‘(iii) CONTEMPORANEOUS.—For pur- 13 poses of clause (i), an acknowledgement 14 shall be considered to be contemporaneous 15 if the sponsoring organization provides it 16 within 30 days of— 17 ‘‘(I) in the case of a contribution 18 described in subparagraph (A), the 19 date of the qualifying distribution, 20 and 21 ‘‘(II) in the case of a contribu- 22 tion described in subparagraph (B), 23 the date that the gross proceeds from 24 VerDate Sep 11 2014 16:59 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\S1981.IS S1981 pamtmann on DSKBC07HB2PROD with BILLS 7 •S 1981 IS the sale of the asset are credited to 1 the account or fund of the taxpayer. 2 ‘‘(iv) INFORMATION TO SECRETARY.— 3 A sponsoring organization required to pro- 4 vide an acknowledgement under this para- 5 graph shall provide to the Secretary the in- 6 formation contained in the acknowledge- 7 ment. Such information shall be provided 8 at such time and in such manner as the 9 Secretary may prescribe. 10 ‘‘(D) QUALIFIED DONOR ADVISED FUND.— 11 For purposes of this paragraph, the term 12 ‘qualified donor advised fund’ means a donor 13 advised fund (as defined in section 4966(d)(2)) 14 established under an agreement that requires, 15 for the duration of such fund, the termination 16 of any advisory privilege with respect to any 17 contribution (including any earnings thereon) 18 made by any donor (or any person appointed or 19 designated by a donor) before the last day of 20 the 14th taxable year beginning after the tax- 21 able year in which the contribution was made. 22 ‘‘(E) QUALIFIED COMMUNITY FOUNDATION 23 DONOR ADVISED FUND.—For purposes of this 24 paragraph— 25 VerDate Sep 11 2014 16:59 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\S1981.IS S1981 pamtmann on DSKBC07HB2PROD with BILLS 8 •S 1981 IS ‘‘(i) IN GENERAL.—The term ‘quali- 1 fied community foundation donor advised 2 fund’ means a donor advised fund (as de- 3 fined in section 4966(d)(2)) which is 4 owned or controlled by a qualified commu- 5 nity foundation and which meets one or 6 more of the requirements of clauses (ii) or 7 (iii). 8 ‘‘(ii) MAXIMUM VALUE OF ADVISORY 9 PRIVILEGES.— 10 ‘‘(I) IN GENERAL.—A donor ad- 11 vised fund meets the requirements of 12 this clause if each individual who has 13 advisory privileges with respect to 14 such fund does not have advisory 15 privileges with respect to 1 or more 16 donor advised funds held by the quali- 17 fied community foundation with an 18 aggregate value at any time after the 19 date of the enactment of this para- 20 graph in excess of $1,000,000. 21 ‘‘(II) INFLATION ADJUST- 22 MENT.—In the case of any taxable 23 year beginning after 2021, the 24 $1,000,000 amount in subclause (I) 25 VerDate Sep 11 2014 16:59 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\S1981.IS S1981 pamtmann on DSKBC07HB2PROD with BILLS 9 •S 1981 IS shall be increased by an amount equal 1 to such dollar amount multiplied by 2 the cost-of-living adjustment deter- 3 mined under section 1(f)(3) for the 4 calendar year in which the taxable 5 year begins, determined by sub- 6 stituting in subparagraph (A)(ii) 7 thereof ‘calendar year 2020’ for ‘cal- 8 endar year 2016’. If any amount as 9 adjusted under the preceding sentence 10 is not a multiple of $10,000, such dol- 11 lar amount shall be rounded to the 12 next lowest multiple of $10,000. 13 ‘‘(iii) MINIMUM PAYOUT.—A donor 14 advised fund meets the requirements of 15 this paragraph if the fund is established 16 under an agreement that requires that the 17 fund make qualifying distributions (as de- 18 fined in subparagraph (A)(ii)) each cal- 19 endar year in an amount not less than 5 20 percent of the value of the fund (deter- 21 mined as of the last day of the preceding 22 calendar year). 23 VerDate Sep 11 2014 16:59 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\S1981.IS S1981 pamtmann on DSKBC07HB2PROD with BILLS 10 •S 1981 IS ‘‘(iv) QUALIFIED COMMUNITY FOUN- 1 DATION.—The term ‘qualified community 2 foundation’ means an organization— 3 ‘‘(I) which is described in section 4 501(c)(3), 5 ‘‘(II) which is organized and op- 6 erated for the purpose of under- 7 standing and serving the needs of a 8 particular geographic community that 9 is no larger than 4 States by engaging 10 donors and pooling donations to cre- 11 ate charitable funds in direct further- 12 ance of those needs, and 13 ‘‘(III) which holds substantial as- 14 sets (but in no case less than 25 per- 15 cent of the organization’s total assets) 16 outside of donor advised funds. 17 ‘‘(v) SPONSORING ORGANIZATION.— 18 The term ‘sponsoring organization’ has the 19 meaning given such term under section 20 4966(d)(1).’’. 21 (b) OTHER REQUIREMENTS FOR QUALIFIED DONOR 22 ADVISED FUNDS.—Section 170(f)(18) of the Internal 23 Revenue Code of 1986 is amended by striking ‘‘and’’ at 24 the end of subparagraph (A)(ii), by striking the period at 25 VerDate Sep 11 2014 16:59 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6201 E:\BILLS\S1981.IS S1981 pamtmann on DSKBC07HB2PROD with BILLS 11 •S 1981 IS the end of subparagraph (B) and inserting ‘‘, and’’, and 1 by adding at the end the following new subparagraph: 2 ‘‘(C) in the case of a contribution to a 3 qualified donor advised fund (as defined in 4 paragraph (19)(D)), the taxpayer identifies for 5 the sponsoring organization a preferred organi- 6 zation for the purposes of making distributions 7 of so much of the amount contributed (and any 8 earnings attributable thereto) as has not been 9 distributed before the end of the last day of the 10 14th taxable year beginning after the taxable 11 year in which the contribution was made.’’. 12 (c) EFFECTIVE DATE.—The amendments made by 13 this section shall apply to contributions made after the 14 date of the enactment of this Act. 15 SEC. 3. FAILURE OF DONOR ADVISED FUNDS TO DIS- 16 TRIBUTE CONTRIBUTIONS. 17 (a) IN GENERAL.—Subchapter G of chapter 42 of the 18 Internal Revenue Code of 1986 is amended by adding at 19 the end the following new section: 20 ‘‘SEC. 4967A. FAILURE OF DONOR ADVISED FUNDS TO DIS- 21 TRIBUTE CONTRIBUTIONS. 22 ‘‘(a) IN GENERAL.—In the case of a contribution 23 which is held in a donor advised fund (other than a quali- 24 fied community foundation donor advised fund), there is 25 VerDate Sep 11 2014 16:59 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00011 Fmt 6652 Sfmt 6201 E:\BILLS\S1981.IS S1981 pamtmann on DSKBC07HB2PROD with BILLS 12 •S 1981 IS hereby imposed a tax equal to 50 percent of so much of 1 the portion of such contribution (and any earnings attrib- 2 utable thereto) as has not been distributed by the spon- 3 soring organization in a qualifying distribution before the 4 last day of the sixth month following the last day of the 5 applicable taxable year with respect to such contribution. 6 The tax imposed by this subsection shall be paid by such 7 sponsoring organization. 8 ‘‘(b) APPLICABLE TAXABLE YEAR.—For purposes of 9 this section, the term ‘applicable taxable year’ means— 10 ‘‘(1) in the case of a contribution to a qualified 11 donor advised fund, the 14th taxable year beginning 12 after the taxable year in which the contribution was 13 made, and 14 ‘‘(2) in the case of a contribution to any other 15 donor advised fund (other than a qualified commu- 16 nity foundation donor advised fund), the 49th tax- 17 able year beginning after the taxable year in which 18 the contribution was made. 19 ‘‘(c) DEFINITIONS AND OTHER RULES.— 20 ‘‘(1) QUALIFIED DONOR ADVISED FUND.—The 21 term ‘qualified donor advised fund’ has the meaning 22 given such term under section 170(f)(19)(D). 23 ‘‘(2) QUALIFIED COMMUNITY FOUNDATION 24 DONOR ADVISED FUND.—The term ‘qualified com- 25 VerDate Sep 11 2014 16:59 Jun 22, 2021 Jkt 019200 PO 00000 Frm 00012 Fmt 6652 Sfmt 6201 E:\BILLS\S1981.IS S1981 pamtmann on DSKBC07HB2PROD with BILLS 13 •S 1981 IS munity foundation donor advised fund’ has the 1 meaning given such term under section 2 170(f)(19)(E). 3 ‘‘(3) QUALIFYING DISTRIBUTION.—The term 4 ‘qualifying distribution’ has the meaning given such 5 term under section 170(f)(19)(A)(ii). 6 ‘‘(4) ORDERING RULE.—Rules similar to the 7 rules of section 170(f)(19)(A)(iii) shall apply for 8 purposes of this section.’’. 9 (b) CONFORMING AMENDMENT.—The table of sec- 10 tions for subchapter G of chapter 42 of such Code is 11 amended by adding at the end the following new item: 12 ‘‘Sec. 4967A. Failure of donor advised funds to distribute contributions.’’. (c) EFFECTIVE DATE.—The amendments made by 13 this section shall apply to contributions made after the 14 date of the enactment of this Act. 15 SEC. 4. TREATMENT OF PRIVATE FOUNDATION ADMINIS- 16 TRATIVE EXPENSES PAID TO DISQUALIFIED 17 PERSONS. 18 (a) IN GENERAL.—Section 4942(g) of the Internal 19 Revenue Code of 1986 is amended by adding at the end 20 the following new par [Text truncated for display. Full text available on Congress.gov.]