ACE Act
Bill: S.1981 | Sponsor: Sen. King, Angus S., Jr. (I-ME)
Policy area: Taxation

Summary:
Accelerating Charitable Efforts Act or the ACE Act
This bill modifies tax rules relating to donor advised funds (DAFs) (separately identified funds maintained and operated by a tax-exempt charitable organization for which a donor retains advisory privileges with respect to the distribution of funds and the investment of assets).
Specifically, the bill places certain restrictions on charitable contribution deductions for gifts made to a nonqualified DAF. It also sets forth rules for the treatment of private foundation administrative expenses paid to disqualified persons and for the treatment of distributions to DAFs from private foundations.
The bill imposes a 50% penalty on contributions held in a DAF that are not timely distributed.
The bill also sets forth special rules for the treatment of contributions from DAFs for purposes of meeting the public support test (the requirement that charitable organizations receive a certain percentage of their support from public sources).
The bill exempts from the tax on the investment income of a private foundation (1) distributions to a DAF of not less than 7% of the foundation's assets, and (2) for foundations that have a duration, specified in their governing documents, of not more than 25 years.

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 deduction 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 shall 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 shall be allowed 
                                under this section for any taxable year 
                                before the taxable year that 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 sale and credited to 
                                the account or fund identified with the 
                                taxpayer.
                            ``(ii) 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) Content 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 such 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 the 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 of 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 1986 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 case 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' has 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(c) of the Internal Revenue Code of 
1986 is amended--
            (1) by redesignating paragraphs (1) and (2) as paragraphs 
        (2) and (3), respectively,
            (2) by inserting before paragraph (2) (as redesignated) the 
        following new paragraph:
            ``(1) 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 after 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 from 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 4966(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 this section shall 
apply to contributions made in taxable years 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:
    ``(e) 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 this 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.
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