Buried deep in House Ways & Means Committee Chair Dave Camp’s tax reform plan is a proposal to require donor-advised funds to distribute contributions within five years. The proposal would be a major change for these charitable vehicles, where funds currently can sit indefinitely. Donor-advised funds (DAFs) are an easy, low-cost way for people (who tend to be upper middle-class but not super-rich) to both shelter income and give to their favorite charities. And they have been booming. In 2012, according to the National Philanthropic Trust, these funds held more than $45 billion—nearly as much as the Gates and Ford foundations combined. Contributions were up by one-third over 2011. Think of them as mini private foundations for the merely wealthy, though middle-class people can certainly participate. They work like this: You set up a fund with a broker or mutual fund company, or with a non-profit community foundation. Each year you can instruct the fund to distribute a portion of your contribution to your favorite charity. However, you can immediately deduct your contributions even before they are distributed. As with other charitable gifts, you can avoid paying capital gains taxes by contributing appreciated stock or other property to the fund. And you get an extra benefit: You can transfer a single large piece of appreciated property (say, a rental house) to the DAF and then sell it and give the proceeds to many different charities without having to pay capital gains taxes. Unlike private foundations, DAFs have no minimum distribution rules. Your contributions can sit with your broker or community foundation in perpetuity and never have to be distributed to charities. The managers of the funds collect annual fees for holding and distributing the money. Camp would require funds to pay out contributions within five years of receipt. Undistributed assets would be hit with a stiff 20 percent excise tax. Are these funds a tax shelter or an effective tool to encourage well-off (but not rich) Americans to contribute more to charity? The answer may be both. Supporters note that annual payouts from DAFs average about 16 percent, more than three times the minimum 5 percent distributions required of private foundations (which tend to treat that target as a ceiling as well as a floor). They note that there are no set-up fees and that annual management fees are relatively low (1.1 percent for community foundations and about 0.6 percent or less for brokers—plus investment expenses).  Minimum contributions are usually about $5,000. Their big argument is that these funds can democratize endowed giving by making a private foundation-like mechanism available to middle-income people. This allows them to smooth their giving by contributing relatively large amounts to their DAF in fat years and smaller amounts in thin ones, and in fact increases charitable contributions overall. The Manhattan Institute’s Howard Husock made a nice case for the funds in a March 28 piece on Forbes.com: “Donor-advised funds, because of their scale and potential for substantial growth, may provide a new model for addressing America’s social needs.” But critics don’t buy it. Boston College law professor Ray Madoff calls DAFs “charitable checking accounts.” In a January article in the Journal of Philanthropy, she wrote, “…donors and the people who manage their money have been the primary recipients of benefits from the growth of donor-advised funds, while charities and the people they serve are being starved of resources.” She argues that despite the growing popularity of DAFs, there has been no increase in charitable giving. In fact, she says the ability of people to shelter income by shifting assets to DAFs rather than giving directly to charities may even have reduced contributions to charities themselves. While I have some sympathy for Husock’s argument, his democratization claim has limits. We don’t know much about the incomes of people who set up DAFs but we do know each fund holds an average of about $225,000. Thus, DAFs do make it possible for many more people to set up charitable funds, but the biggest tax beneficiaries are still quite likely to be high-income households. Some form of minimum payout rule seems to make sense though there is nothing magic about Camp’s five years. However, my Tax Policy Center colleague Gene Steuerle asks another question: If policymakers are so worried about sheltering, why impose a five-year distribution rule only on DAFs and not on private foundations as well? If the goal is to make sure funds end up the in hands of charities, why stop with DAFs?