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Leave the discussion without a word – or tweet – to Elon Musk.
In November, the Tesla CEO donated nearly 5 million company shares worth $5.7 billion to the charity, according to a regulatory filing. Tesla did not respond to a request for comment, as the filing with the Securities and Exchange Commission was made public on Monday. Musk didn’t mention the donation on Twitter, his favorite communication forum.
Yet that hasn’t stifled debates about transparency, tax cuts and congressional legislation inside and outside of philanthropy, and speculation about exactly where the money is being donated. Some experts say Musk likely donated his shares to a donor-recommended fund, or DAF for short. DAFs are essentially charitable investment accounts where donors can claim tax breaks upfront but are not legally required to distribute the money.
Experts say this will be the most advantageous strategy for Musk, who is now the richest man in the world with a net worth of over $220 billion. The DAF donation would have allowed him to claim a tax deduction of up to 30% instead of 20% of his 2021 adjusted gross income had he donated to his foundation. Musk may also deduct the fair market value of the stock instead of its original value.
“With his money he can do whatever he wants – anyone can do it,” said billionaire philanthropist John Arnold, who founded the Laura and John Arnold Foundation and Arnold Ventures with his wife, Laura. “But if he’s getting a subsidy from the community through this tax cut, there’s also a responsibility that comes with it.”
Arnold said that whether or not Musk donated Tesla shares to a DAF, the possibility that he did highlights a questionable tax loophole for many wealthy Americans.
“The community is giving them this tax cut, this subsidy to encourage more resources to reach communities,” Arnold said. “But the way tax law is structured today doesn’t necessarily make it happen. You can get the tax cut today and there are no requirements for that money to reach the community. You can put money into a donor-advised fund and keep it in a tax-free investment account forever.”
Arnold and others seeking to address this gap formed a coalition called the Charitable Giving Acceleration Initiative, which aims to tighten requirements for DAFs and other financial instruments used by the wealthy.
This month, a bipartisan parliamentary group proposed a bill in the House of Representatives that would limit how long donations can stay in an untaxed DAF. Similar bipartisan legislation was introduced in the US Senate last year.
Many DAF advocates oppose the changes, arguing that DAFs with an average payout ratio of around 20% distribute money faster and more robustly than many private foundations, whose average distribution is usually only slightly over 5% per year required by law. To the Stanford Law School Policy Lab on Donor Advice Funds.
Arnold said that if Musk placed Tesla shares in a DAF, the purpose of the tax law backfired. The community received neither the tax revenue from Musk’s income from shares nor the charitable benefit that the tax cut should have generated.
DAFs also allow anonymity. Benjamin Soskis, a historian of philanthropy and a senior researcher at the Urban Institute, suggested that Musk’s donation demonstrates that the norm can lead to a lack of explanation for where great gifts come down.
“When you distribute that much money, by definition, where it goes is a matter of public interest,” Soskis said.
Overall, Musk’s approach to donations differs from that of many other wealthy donors, who are often accused of promoting their gifts as a way to shine their reputations.
About a month before donating his shares, the notorious provocative Musk got into a Twitter feud with the head of the United Nations World Food Program, urging billionaires to donate $6 billion “one-time” to end hunger.
Musk said he will sell $6 billion worth of Tesla shares and donate the proceeds to the agency if the money can show how it will solve world hunger. David Beasley, the organization’s executive director, said this week that he has yet to receive a donation from the Tesla CEO.
Urban Institute’s Soskis suggested that there is room for Musk to be more transparent about his gifts, as the Tesla CEO often does, while still signaling “contempt” to the “elite public”.
Musk occasionally provides transparency about his donations. Last year, St. Jude’s Children’s Research Hospital, donated $50 million. It also donated nearly $30 million to various public schools and nonprofits in South Texas, where SpaceX manufactures its rockets.
His private foundation’s most recent IRS filing shows he donated 11,000 Tesla shares to the charity in 2019. From July of the same year to June 2020, the foundation distributed $23.6 million in grants. Some of that went directly to charities, but the bulk of it – $20.7 million – went to Fidelity Charitable, a grant provider that sponsors DAFs.
Some people who have worked with Musk explain that his philanthropic style is not focused on looking good.
Marcius Extavour, vice president of climate and energy at XPrize, which manages Musk’s $100 million decarbonisation award, says Musk wants the project to focus on finding effective solutions and not using his image everywhere. This is in contrast to some other donors who seem more concerned about invitations to speaking engagements and other events, Extavour claims.
“It was pretty cool working with the Musk Foundation as a donor who doesn’t care about how we define it or how we define it,” Extavour said. “Or to make them shine or be the center of attention.”
Steve Greanias, general manager of fundraising solutions for fundraising platform GiveSmart, says that like most people working in philanthropy, Musk wonders where his money is going and how it is or will be used. Yet he does not think that knowing is necessarily everyone’s business. Its platform, which serves nearly 8,000 nonprofits and processes nearly $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 need recognition for it, that’s fine,” Greanias said. “This is between you and the organization. As long as you have a good relationship with them, it doesn’t matter if the world wants to know where the money is coming from.”
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