Leave it to Elon Musk to stir up controversy without saying – or tweeting – a word.
In November, according to a regulatory filing, the CEO of Tesla made a donation to charity About 5 million shares of the company’s stock valued at $5.7 billion. Since the filing with the Securities and Exchange Commission was announced on Monday, Tesla has not responded to a request for comment. Mask also didn’t mention the donation on Twitter, his favorite communications forum.
However, that hasn’t dampened discussions inside and outside of philanthropy, about transparency, tax deductions and congressional legislation, along with speculation about exactly where the money will be donated. Some experts say Musk has donated his shares to his Donor Fund, or DAF for short. DAF funds are essentially charitable investment accounts where donors can claim a tax deduction up front but are not legally obligated to distribute the funds.
Experts say this would be the most beneficial strategy for Musk, currently the world’s richest man with an approximate 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, instead of 20% if he had donated it instead to his foundation. Musk can also deduct the stock’s fair market value instead of its original value.
“He can do whatever he wants with his money — anyone can,” said John Arnold, the billionaire philanthropist who co-founded the Laura and John Arnold and Arnold Ventures Foundation with his wife Laura. “But if he’s getting support from society through this tax credit, then there’s a liability that goes along with that.”
Whether or not Musk donates his Tesla shares to a fund, the prospect of doing so highlights a questionable tax loophole for many wealthy Americans, Arnold said.
“The community is giving them this tax credit, this support to encourage more resources to reach out to the communities,” Arnold said. The way tax law is structured today, however, does not necessitate this happening. You can get the tax deduction today, and there is no need for this money to reach the community at all. You can donate the money to a recommended donor fund and keep it in a tax-free investment account forever.”
Arnold and others who want to address this loophole have formed a coalition, the Accelerated Philanthropic Giving Initiative, which seeks to tighten requirements for charitable trusts and other financial tools 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 in the DAF fund can remain untaxed. Similar bipartisan legislation was introduced last year in the US Senate.
Many of Duff’s supporters oppose these changes, arguing that grant funds, with an average payout rate of around 20%, distribute funds faster and more robustly than many private foundations, whose average distribution is generally just above the 5% per year required by law , according to the Stanford Law School Policy Lab on donor-advised funds.
Arnold said if Musk had indeed put Tesla shares in the DAF, the intent of the tax code backfired. Society did not receive the tax revenue generated by Musk’s income on the stock or the charitable benefit that the tax deduction was supposed to create.
DAFs also allow for anonymity. Benjamin Susakis, a historian of philanthropy and senior researcher at the Urban Institute, has suggested that Musk’s donation shows that standards may be skewed toward not revealing where large gifts will be delivered.
“When you donate that much money, it is by definition a matter of public interest where you are going,” Susakis said.
In general, Musk’s approach to donations differed from that of many other wealthy donors, who are often accused of advertising their gifts as a way to improve their reputation.
About a month before donating his shares, a notoriously provocative Musk got involved in a Twitter fight with the head of the United Nations World Food Program, who urged billionaires to donate $6 billion “one time” to help end the famine.
Musk said he would sell $6 billion in Tesla stock and donate the proceeds to the agency if it could show how the money would solve world hunger. David Beasley, the foundation’s CEO, said this week that he has not yet received a donation from the Tesla CEO.
Susakis, of the Urban Institute, suggested there was room for Musk to be more transparent about his gifts while still signaling his “disdain” for “elite public opinion,” as the Tesla CEO often does.
Sometimes, Musk provides transparency about his donations. Last year, he gave $50 million to St. Jude Children’s Research Hospital. He also donated about $30 million to a variety of 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 that year to June 2020, the foundation distributed $23.6 million in grants. Part of that went directly to working charities, but a large portion — $20.7 million — went to Fidelity Charitable, a donor that sponsors DAFs.
Some of those who have worked with Musk explain his approach to philanthropy by saying that he does not focus 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 to be used everywhere. This is in contrast to some other donors, who, as Extavour stresses, seem more concerned about invitations to lectures and other events.
“It has been great working with the Musk Foundation as a donor that is not … understanding how we describe this or how we describe it,” said Extafor. “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 working in philanthropy, he’s curious about where Musk’s money went and how it was or would be used. However, he does not believe that it is necessary for everyone to know. His own platform, which serves about 8,000 nonprofit organizations and has processed about $800 million in donations, accepts anonymous donations.
“If you have that kind of money and you want to get good at it and don’t feel the need to admit it, that’s okay,” Grenias 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 came from.”
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