As Congress continues to examine various aspects of the tax code in the context of potential tax reform, the tax deduction for charitable contributions may come under scrutiny. Congress has long been concerned with ensuring that contributions for which tax deductions are claimed directly benefit charitable activities. Certain organizations that support charitable activities, however, may receive tax deductible charitable contributions today, but may not be required to use those funds for charitable purposes within any specific time frame. Thus, taxpayers may be claiming tax deductions for donated funds that are not immediately serving charitable purposes. Certain types of organizations are given preferred tax status for supporting charitable activities, even if the organization is not directly involved in providing charitable goods or services. Private foundations, for example, make grants to charities but generally do not directly provide charitable goods and services. Grants are paid out of earnings on donated assets held by the foundation. Donor advised funds (DAFs) are another type of organization that serves to facilitate charitable giving, but are not directly involved in the provision of charitable goods and services. Like foundations, charitable contributions made directly to DAFs are tax deductible. Unlike foundations, DAFs are not subject to minimum payout requirements. DAFs have become increasingly popular in recent years, partly due to commercial fund sponsors (e.g., Fidelity and Vanguard) with limited traditional charitable interests. Foundations, DAFs, and other organizations that invest contributed funds confer an additional tax benefit in the form of a tax exemption. This tax exemption allows organizations to accumulate assets without paying tax on earnings. During normal years (before the asset collapse during the recession) estimates suggested that the revenue loss from this tax benefit was even larger than that associated with charitable contributions deductions. If charitable contributions were spent quickly, this benefit would be minimal. If contributions are held as assets and invested, the tax exemption may confer significant financial benefits. Congress moved to impose greater restrictions on organizations that support, but are not directly involved in providing, charitable goods and services in the Pension Protection Act of 2006 (PPA; P.L. 109-280 ). Notably, certain types of supporting organizations were subject to a minimum payout ratio of 5% of assets under provisions enacted as part of the PPA. DAFs, however, were not subject to payout requirements. The PPA did impose additional reporting requirements on DAFs, and requested a Treasury Department study of DAFs along with supporting organizations. The Treasury Department's study was released in 2011. The Treasury Report was criticized by Senator Chuck Grassley, chairman of the Senate Finance Committee in 2006, as being "disappointing and nonresponsive." This report reviews the findings of the Treasury study with respect to DAFs and provides additional analysis of payout behavior of DAFs (one of Congress's primary concerns when requesting the study) using data from the 2008 Internal Revenue Service (IRS) Statistics of Income (SOI) public use file for tax-exempt organizations. Donor advised funds allow individuals to make a gift to a fund in a sponsoring organization. Sponsoring organizations are charities that are allowed to receive tax-deductible donations. The gift is irrevocable, as in the case of a gift to a foundation or any other charity. The donor does not legally oversee the payment of grants to charities from the fund, which is determined by the sponsoring organizations. Donors make recommendations for grants (hence donor advised), and there is general agreement that these recommendations determine, with few exceptions, the contributions. For example, the Treasury Report indicated that all respondents providing public comments reported no conflicts with their donor's advice and agreed that the donor's recommendations are generally followed. DAFs first appeared in the 1930s, largely sponsored by community foundations and involving relatively large contributions. Over time, these DAFs continued to be largely sponsored by community foundations, and, to a lesser extent, religious organizations. However, in the early 1990s, investment firms began to set up charitable organizations to sponsor DAFs. Fidelity established a DAF sponsoring organization in 1992, and other financial institutions quickly followed. Currently, numerous commercial DAF sponsors operate, with Fidelity, Schwab, and Vanguard being the largest in terms of asset size. The rapid growth in DAFs is associated with the appearance of commercial DAF sponsors which now control roughly one-third of DAF assets. Community foundations account for 43% of DAF assets and religious organizations 15%. Commercial DAFs tend to allow relatively small contributions and do not have a direct charitable interest, as is the case for the other DAF sponsors, such as community foundations, religious organizations, education, health, or other charitable organizations. DAFs may be used to hold funds temporarily, which may be useful for year end planning, and distributions out of the contributions may be made quickly. They also may be used in the same way as private foundations: with a large contribution to the fund, which is then used to generate income and make grants largely out of income. In cases where DAFs' advisor status can be inherited, such funds can exist in perpetuity, just as most foundations do. Not only can this treatment, compared to ordinary charitable giving, confer additional tax benefits by allowing fund earnings to accumulate tax free, it can facilitate the contributions of appreciated property. A DAF can permit the contribution of a large indivisible appreciated property such as real estate. When property is not divisible, the contribution cannot be spread across many charitable donors or donated over time. Contributions of property can be made to a DAF, sold without tax consequences, and the proceeds used to make smaller subsequent contributions to multiple recipients or donations over time. Donors receive another tax benefit when they donate appreciated property, because they do not have to pay capital gains tax on the appreciation, while at the same time deducting the charitable gift at market value in most cases. As shown in Table 1 , DAFs, as ordinary charities, have more generous treatment than private foundations in several respects. Only publicly traded property such as corporate stock is eligible for a deduction for the full fair market value when donated to a private foundation. Property such as real estate is allowed a deduction for fair market value when contributed to a public charity including a DAF, but is limited to cost basis when contributed to a private foundation. The limits on the share of income that can be donated in any one year to charities, which contributions to DAFs fall under (50% for cash contributions and 30% for gifts of appreciated property) are more generous than for contributions to foundations (30% for cash and 20% for gifts of appreciated property). There are no minimum payout requirements (which could require a certain percentage of assets be paid out in grants each year) or excise taxes. Prior to the 2006 act, DAFs had the same rules on self dealing as public charities, although they are now subject to many private foundation rules (such as disallowing transactions with the donor, such as loans). DAFs may also have some advantages outside of tax benefits. The cost of setting up and administering a DAF is smaller than in the case of a foundation, which can be important for smaller contributions. Where privacy in making contributions is desired, DAFs can be superior since individual DAF grants are not public. Private foundations have more favorable treatment than DAFs in two respects. Donors who establish foundations (or their heirs) may continue to control the foundation by being a director or trustee and can receive a salary for services, while donors to DAFs do not have legal control over investment or grant choices. Wealthy individuals, for example, may leave large shares of their estate to a foundation, and their children may be involved in its operation, conferring social status as well as possible employment. Evidence suggests, however, that donors to DAFs have effective control over grants, and to some extent investments, because sponsoring organizations typically follow the donor's advice. The second benefit for foundations is greater freedom in grant making: they can make grants to individuals and to non-profit organizations for charitable purposes, if certain requirements are met. These parallels to foundations, along with the rapid growth of DAFs including commercial DAFs, coupled with some reports of abuse, caused much of the legislative attention to DAFs (as well as supporting organizations) leading up to the 2006 legislation. Following some initial studies by staff of the Senate Finance Committee, hearings were held in 2005 that addressed DAFs as well as supporting organizations, gifts of appreciated property, and other charitable issues. In 2006, a GAO study recommended additional reporting of information on DAFs. The Pension Protection Act of 2006 ( P.L. 109-280 ) made two changes with respect to DAFs: it required reporting of the aggregate assets, grants, and contributions for sponsoring organizations and provided for penalty taxes and restrictions on grants that did not meet required standards or that benefited the donor or the donor's family. It did not impose minimum payout requirements on DAFs (only on certain supporting organizations) and did not alter the income limits for contributions. Rather, it mandated a study of these issues by Treasury. In mandating the study of DAFs and supporting organizations, Congress specifically asked four questions of the Treasury Department: 1. Are existing charitable deductions (which have more generous limits and deduction amounts than those for private foundations) appropriate considering the use of contributions (type, extent, and timing) or the use for the benefit of the donor? 2. Should DAFs be subject to a payout ratio? 3. Is an advisory role in the investment or distribution of donated funds consistent with a completed gift? 4. Do these issues apply to other charitable gifts? The remaining sections examine the first three questions as they relate to DAFs, how Treasury answered them, and what further policy options might be considered. The 2011 Treasury Report made comments regarding restrictions on giving as a percentage of income and on the treatment of gifts of appreciated property.