Foundation fund

Musk’s $5.7 billion donation sparks donation questions

Leave it to Elon Musk to stir up controversy without saying – or tweeting – a word.

In November, according to a regulatory filling, Tesla CEO donated to charity about 5 million shares of the company, worth $5.7 billion. Since the Securities and Exchange Commission filing was made public on Monday, Tesla has not responded to a request for comment. Musk also didn’t mention the donation on Twitter, his favorite communication forum.

Still, it hasn’t stifled debates in and out of philanthropy, about transparency, tax deductions and congressional legislation, as well as speculation about exactly where the money was donated. Some experts say Musk likely donated his shares to his Donor Advised Fund, or DAF for short. DAFs are essentially charitable investment accounts in which donors can claim a tax deduction up front, but are not legally required to distribute the money.

Experts say this would be the most beneficial strategy for Musk, currently the richest man in the world with an approximate net worth of over $220 billion. A DAF donation would allow him to benefit from a tax deduction of up to 30% of his 2021 adjusted gross income, instead of 20% if he had instead donated it to his foundation. Musk could also deduct the fair market value of the stock, instead of its original value.

“He can do whatever he wants with his money – anyone can,” said John Arnold, a billionaire philanthropist who co-founded the Laura and John Arnold Foundation and Arnold Ventures with his wife, Laura. “But if he receives a subsidy from society through this tax deduction, then there is a responsibility that goes with it.”

Whether or not Musk donated his Tesla shares to a DAF, Arnold said, the possibility that he did highlights a questionable tax loophole for many wealthy Americans.

“Society is giving them this tax deduction, this grant to encourage more resources to go to the communities,” Arnold said. “But the way tax law is structured today doesn’t require that to happen. You can get the tax deduction today, and that money doesn’t have to go back to the community. You can give money to a donor-advised fund and keep it forever in a tax-free investment account.

Arnold and others who want to close this loophole have formed a coalition, the Initiative to Accelerate Charitable Giving, which seeks to tighten requirements for DAFs and other financial vehicles used by the wealthy.

This month, a bipartisan group of lawmakers proposed a bill in the House of Representatives that would limit how long donations can stay in an untaxed DAF. Similar bipartisan legislation has been presented last year in the US Senate.

Many DAF supporters oppose the changes, arguing that DAFs, with an average distribution rate of around 20%, distribute money faster and more vigorously than many private foundations, whose average distribution is not typically only slightly higher than the 5% annual required by law, according to the Stanford Law School Policy Lab on Donor Advised Funds.

If Musk put Tesla stock in a DAF, the intent of the tax law backfired, Arnold said. The community received neither the tax revenue generated by Musk’s stock earnings nor the philanthropic benefit the tax deduction was meant to create.

DAFs also allow for anonymity. Benjamin Soskis, a philanthropy historian and senior fellow at the Urban Institute, suggested Musk’s donation shows standards could be tipping towards a lack of disclosure about where major donations land.

“When you give away that much money, it’s by definition a matter of public policy where it goes,” Soskis said.

In general, Musk’s approach to donations differs from that of many other wealthy donors, who are often accused of publicizing their donations as a way to boost their reputation.

About a month before donating his shares, the notoriously provocative Musk engaged in a Twitter battle with the head of the United Nations’ World Food Program, who had urged billionaires to donate $6 billion “once to help end famine.

Musk said he would sell $6 billion worth of Tesla stock and donate the proceeds to the agency if it could show how the money would solve world hunger. David Beasley, the organization’s executive director, said this week that it had yet to receive a donation from Tesla’s CEO.

Soskis of the Urban Institute suggested it was possible for Musk to be more transparent about his giveaways while signaling his “contempt” for “elite public opinion,” as the CEO of You’re here.

At times, Musk provides transparency about his donations. Last year, he donated $50 million to St. Jude’s Children’s Research Hospital. He has also donated about $30 million to various public schools and nonprofits in South Texas, where SpaceX builds its rockets.

His private foundation’s latest IRS filing shows he donated 11,000 Tesla shares to the charity in 2019. From July of that year to June 2020, the foundation gave away $23.6 million. in grants. Some of that sum went directly to active charities, but a large portion — $20.7 million — went to Fidelity Charitable, a grantmaker that sponsors the DAFs.

Some who have worked with Musk explain his style of philanthropy by saying he doesn’t focus on looks.

Marcius Extavour, vice president of climate and energy at XPrize, which manages Musk’s $100 million carbon offset prize, said Musk wanted the project to focus on finding impactful solutions. and didn’t want him to use his image anywhere. This contrasts with some other donors who, according to Extavour, seem more concerned with invitations to speaking engagements and other events.

“It’s been really nice to work with the Musk Foundation as a donor that’s not… fussy about how we describe this or how we describe that,” Extavour said. “Or make sure they get the shine or the limelight.”

Steve Greenias, managing director of fundraising solutions for fundraising platform GiveSmart, says like most people working in philanthropy, he’s curious about where Musk’s money went and how he got it. been or will be used. Still, he doesn’t think it’s necessarily everyone’s business to know. Its own platform, which serves about 8,000 nonprofits and has processed about $800 million in donations, accepts anonymous donations.

“If you have that kind of money and you want to do good with it and you don’t feel the need to be recognized for it, that’s okay,” Greenias said. “It’s between you and the organization. As long as your relationship is good with them, it shouldn’t matter if the world wants to know where the money is coming from.