Leave it to Elon Musk to stir up controversy without saying a word – or tweeting.
In November, Tesla’s CEO made a donation to charity, according to a regulatory filing Approximately 5 million shares of the company valued at $5.7 billion. Tesla has not responded to a request for comment since filing with the Securities and Exchange Commission on Monday. Mask also didn’t mention the donation on Twitter, his preferred communication forum.
However, that hasn’t dampened discussions inside and outside of philanthropy, regarding transparency, tax deductions and Congressional legislation, and speculation regarding where exactly the money is being donated. Some experts say Musk donated his shares to his Donor Fund, or DAF for short. DAF funds are essentially charitable investment accounts where donors can claim an upfront tax deduction but are not legally required to distribute the funds.
Experts say it would be the most beneficial strategy for Musk, currently the world’s richest man with an estimated fortune of more than $220 billion. A DAF donation would allow him to claim a tax deduction of up to 30% of his adjusted gross income for 2021, rather than 20% if he had donated it to his foundation instead. Musk can also subtract the market value of the stock instead of the original value.
“He can do whatever he wants with his money – anyone can,” said John Arnold, the billionaire philanthropist who founded the Laura and John Arnold and Arnold Ventures Foundation with his wife Laura. “But if he gets support from society through that tax credit, then with that comes liability.”
Whether or not Musk donates his Tesla stock to a fund, the prospect of doing so underscores a questionable tax loophole for many wealthy Americans, Arnold said.
“The community gives them that tax credit, that support, to encourage more resources to reach the communities,” Arnold said. However, the current structure of tax law does not require this. You can get the tax deduction today and there is no need for that money to even reach the community. You can donate the money to a recommended donor fund and keep it in a tax-free investment account forever.”
Arnold and others looking to close this loophole have formed a coalition, the Accelerated Philanthropic Giving Initiative, which is trying to tighten requirements on charitable endowments and other financial vehicles used by the wealthy.
This month, a bipartisan group of lawmakers in the House of Representatives proposed legislation that would limit how long donations to the DAF fund can go untaxed. Similar bipartisan legislation was introduced last year im US-Senat.
Many of Duff’s supporters oppose these changes, arguing that grant funds, with an average payout rate of around 20%, pay out faster and more robustly than many private foundations, whose average payout is typically just over the 5% per year required by law. according to the Stanford Law School Policy Lab on donor-recommended funds.
Arnold said that if Musk had actually put Tesla stock into the DAF, the intent of the tax law would have backfired. The company did not receive the tax revenue generated by Musk’s income from the stock, nor the charitable benefit that the tax deduction was intended to create.
DAFs also allow for anonymity. Benjamin Susakis, historian of philanthropy and senior researcher at the Urban Institute, has suggested that Musk’s donation shows that standards may be skewed in not disclosing where large gifts are delivered.
“By definition, when you donate that much money, it’s a matter of public interest where you go,” Susakis said.
In general, Musk’s handling of donations differed from that of many other wealthy donors, who are often accused of promoting their gifts to improve their reputation.
About a month before donating his stock, a notoriously provocative Musk got into a Twitter battle with the head of the United Nations World Food Program, who was urging billionaires to donate $6 billion “one time” to help end the famine.
Musk said he would sell $6 billion worth of Tesla stock and donate the proceeds to the agency if it might show how the money would solve world hunger. David Beasley, the foundation’s CEO, said this week that he has yet to receive a donation from the Tesla CEO.
The Urban Institute’s Susakis suggested that there was room for Musk to be more transparent regarding his gifts, while still signaling his “disdain” for “elite public opinion,” as Tesla’s CEO often does.
Sometimes Musk provides transparency regarding his donations. Last year he donated $50 million to St. Jude Children’s Research Hospital. He also donated regarding $30 million to various public schools and nonprofits in South Texas, where SpaceX builds its rockets.
A recent IRS filing for his own foundation shows that he donated 11,000 Tesla shares to charity in 2019. From July of this year through June 2020, the foundation distributed $23.6 million in grants. A portion of that went directly to working charities, but a large portion — $20.7 million — went to Fidelity Charitable, a donor who sponsors DAFs.
Some of those who have worked with Musk attribute his philanthropic approach to not focusing on looking good.
Marcius Extavour, vice president of climate and energy at XPrize, which administers Musk’s $100 million award for decarbonization, says Musk wanted the project to focus on finding impactful solutions and didn’t want his image used everywhere will. This is in contrast to some other donors who, as Extavour points out, are more concerned regarding invitations to speak and other events.
“It’s been great working with the Musk Foundation as a donor who doesn’t… understand how we’re describing this or how we’re describing it,” Extafor said. “Or making sure they get the flashes or the spotlights.”
Steve Greenas, general manager of fundraising solutions for fundraising platform Jeff Smart, says that like most people who work in philanthropy, he’s curious regarding where Musk’s money went and how it was or would be used. However, he doesn’t think it’s necessary for everyone to know. His own platform, which serves regarding 8,000 nonprofits and has processed regarding $800 million in donations, accepts anonymous donations.
“If you have that kind of money and you want to get good at it and you don’t feel the need to admit it, that’s fine,” Grenias said. “It’s 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.”
____
The Associated Press receives support from the Lilly Endowment to report on philanthropy and community service. AP is solely responsible for all content. For all AP coverage of philanthropy, visit https://apnews.com/hub/philanthropy.
