Giving Compass' Take:

• Bill High argues that critics' concerns over donor-advised funds and taxes disincentivize private foundations to be liberal with their giving. 

• What are the pros of increasing privacy for private foundations? What might be the cons? How can you maintain transparency and effectiveness in your giving?

• Learn more about donor-advised funds and private foundations.

Some of those who have private foundations wish their giving was actually a little more private. That desire for privacy stems from three issues:

• In general, no one relishes the thought of having their tax returns made available to the world.

• Nonprofits use those tax returns to determine whether they can submit a grant request to those foundations, which can produce a lot of unwanted requests.

• Critics increasingly scrutinize those tax returns to protest or challenge grants to charitable organizations that might not fit within their political spectrum.

This is perhaps a factor in the rising popularity of donor-advised funds (DAFs). People make a gift to a DAF and retain the privilege of advising grants out to specific charities. Unlike a private foundation, a DAF is just an account and doesn’t file a tax return. The DAF charitable sponsor files a tax return that aggregates the contributions and grants from all of its DAF accounts. As a result, no one knows how much or to which charities any individual donor-advised fund may give to.

Let’s not forget a key fact: The law only requires private foundations to make an annual minimum distribution of 5%. While DAFs have no such minimum distribution, the National Philanthropic Trust (a DAF sponsor) reported a 20% distribution rate -- four times the amount that many private foundations grant out annually.

A hallmark of American charity has always been a right to privacy. We should not take away that privacy right. If people want to criticize particular charities, they should take that issue up with the IRS at the point of the initial grant of tax-exempt status, not at the point of giving. To do otherwise will only create a chilling effect upon the charity our country has always sought to inspire.

Read the full article about the privacy giving dilemma by Bill High at Forbes.