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For contributors to these funds, am I right in thinking that any tax avoided just goes into the charitable fund pot - no contributors are dodging tax that they

For contributors to these funds, am I right in thinking that any tax avoided just goes into the charitable fund pot - no contributors are dodging tax that they get to keep by misusing these things? Any money that comes out of the fund has to go to charity. Clearly, the financial industry is making money off these products, but the article makes it sound like people are misusing these things to pocket avoided tax.

lgleason 10y ago
There are lots of ways to do what the article described. For example you set up a foundation, spend only 5 % of the revenue/assets (the minimum under the law). Then you make a family member the director and allow them to live in a mansion which is an asset of the foundation. There are also loads of loopholes with foundations relating to director salaries where the money goes, "investments" etc. that are either 100% legal or are so poorly enforced that they might as well be legal.
skybrian 10y ago
I don't think so. If you give $1000 to a charity, the tax deduction doesn't affect that. It just means a lower tax bill.
- dragonwriter 10y ago
  > If you give $1000 to a charity, the tax deduction doesn't affect that. If your marginal rate of taxation on income is, say, 35%, then you give up only $650 in disposable income to donate $1,000 to charity. Without the deduction, someone in that circumstance who could afford to give $1,000 with the deduction could only give $650. Or, looked at a different way, someone with that tax rate who "gives $1,000" to charity is really giving $650, and the government is giving $350.
  - skybrian 10y ago
    Well, my point is that the charity still gets $1000 regardless of tax rate. You could increase how much you give based on your expected tax savings so it costs you $1000 after the tax refund, but it's not automatic.
exelius 10y ago
Not necessarily; if you donate $40,000 to a charity you work for, and as part of the duties of your job they provide you with a $40,000 car... This situation is surprisingly common; ESPECIALLY with religious charities. John Oliver had a great segment on it; but the problem extends to nonprofits as well (it's just that "religious" charities can wave the "discrimination against religion" flag). Basically, if you set up a religious nonprofit and funnel a lot of money through it, there's very little oversight from anyone about what you do with that money. And yes; people do use these types of charitable trusts to pocket avoided taxes. The legal complexity of it all precludes anyone who's not High Net Worth from using them (it's simply not profitable to pay lawyers to do the paperwork for less than a whole lot of money).
hundt 10y ago
Yes, once you give something to a DAF the only other place it can go is to a charity (modulo weird things like the DAF going bankrupt); the DAF offers no new opportunities to dodge taxes.
asbromberg 10y ago
From the article, it sounds like donors can use DAFs to get a higher tax deduction. When someone donates directly to a charity, the deduction he gets is the cost of the donation. However, when someone donates to a DAF, the deduction is the current appraised value of the donation. This matters when you consider that donations aren't just cash, but also art, real estate, non-traditional financial securities, etc. and the different between cost and current appraised value is substantial.
- hundt 10y ago
  No, that rule is only for donations to certain private foundations. If you give the "complex assets" directly to the charity you are entitled to a deduction of the fair market value[1]. However, donating such assets directly can be a hassle to do and relies on cooperation from the charity; the DAF has people who specialize in this and will take care of it for you. This allows you to get the biggest possible deduction with minimal hassle. This is the gist of most of the tax law complaints in the article: the DAF doesn't enable you to do anything you couldn't already do, but it makes everything easier to do, including the things that the author wishes you couldn't do. [1] https://www.irs.gov/publications/p526/ar02.html#en_US_2015_publink1000229765 https://www.irs.gov/publications/p526/ar02.html#en_US_2015_p...

lgleason 10y ago

There are lots of ways to do what the article described. For example you set up a foundation, spend only 5 % of the revenue/assets (the minimum under the law). Then you make a family member the director and allow them to live in a mansion which is an asset of the foundation. There are also loads of loopholes with foundations relating to director salaries where the money goes, "investments" etc. that are either 100% legal or are so poorly enforced that they might as well be legal.

skybrian 10y ago

I don't think so. If you give $1000 to a charity, the tax deduction doesn't affect that. It just means a lower tax bill.

dragonwriter 10y ago
> If you give $1000 to a charity, the tax deduction doesn't affect that. If your marginal rate of taxation on income is, say, 35%, then you give up only $650 in disposable income to donate $1,000 to charity. Without the deduction, someone in that circumstance who could afford to give $1,000 with the deduction could only give $650. Or, looked at a different way, someone with that tax rate who "gives $1,000" to charity is really giving $650, and the government is giving $350.
- skybrian 10y ago
  Well, my point is that the charity still gets $1000 regardless of tax rate. You could increase how much you give based on your expected tax savings so it costs you $1000 after the tax refund, but it's not automatic.

exelius 10y ago

Not necessarily; if you donate $40,000 to a charity you work for, and as part of the duties of your job they provide you with a $40,000 car... This situation is surprisingly common; ESPECIALLY with religious charities. John Oliver had a great segment on it; but the problem extends to nonprofits as well (it's just that "religious" charities can wave the "discrimination against religion" flag). Basically, if you set up a religious nonprofit and funnel a lot of money through it, there's very little oversight from anyone about what you do with that money. And yes; people do use these types of charitable trusts to pocket avoided taxes. The legal complexity of it all precludes anyone who's not High Net Worth from using them (it's simply not profitable to pay lawyers to do the paperwork for less than a whole lot of money).

hundt 10y ago

Yes, once you give something to a DAF the only other place it can go is to a charity (modulo weird things like the DAF going bankrupt); the DAF offers no new opportunities to dodge taxes.

asbromberg 10y ago

From the article, it sounds like donors can use DAFs to get a higher tax deduction. When someone donates directly to a charity, the deduction he gets is the cost of the donation. However, when someone donates to a DAF, the deduction is the current appraised value of the donation. This matters when you consider that donations aren't just cash, but also art, real estate, non-traditional financial securities, etc. and the different between cost and current appraised value is substantial.

hundt 10y ago
No, that rule is only for donations to certain private foundations. If you give the "complex assets" directly to the charity you are entitled to a deduction of the fair market value[1]. However, donating such assets directly can be a hassle to do and relies on cooperation from the charity; the DAF has people who specialize in this and will take care of it for you. This allows you to get the biggest possible deduction with minimal hassle. This is the gist of most of the tax law complaints in the article: the DAF doesn't enable you to do anything you couldn't already do, but it makes everything easier to do, including the things that the author wishes you couldn't do. [1] https://www.irs.gov/publications/p526/ar02.html#en_US_2015_publink1000229765 https://www.irs.gov/publications/p526/ar02.html#en_US_2015_p...