Elon Musk's $5.7bn donation sparks more questions than answers about giving

Tesla chief executive's action fuels debates about transparency, tax deductions, congressional legislation, and speculation about where the money was donated

Tesla chief executive Elon Musk has been uncharacteristically quiet since his donations were made public. Reuters

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

In November, a regulatory filing shows, the Tesla chief executive donated to charity about five million shares of company stock worth $5.7 billion. Since the filing with the Securities and Exchange Commission was made public on Monday, Tesla hasn't responded to a request for comment. Nor has Mr Musk mentioned the donation on Twitter, his favourite communications forum.

Yet that hasn't quelled debates in and out of philanthropy, about transparency, tax deductions and congressional legislation, along with speculation about where exactly the money was donated. Some experts say Mr 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 upfront but aren’t legally required to distribute the money.

Experts say that would be the most advantageous strategy for Mr Musk, currently the world's richest man with an approximate net worth of more than $220bn. A DAF donation would allow him to claim a tax deduction of as much as 30 per cent of his 2021 adjusted gross income, instead of 20 per cent if he had donated it instead to his foundation. Mr 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’s getting a subsidy from society through this tax deduction, then there’s a responsibility that goes with it.”

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

“Society is giving them this tax deduction, this subsidy to encourage more resources to get to communities,” Mr Arnold said. “But the way that the tax law is structured today, it doesn’t necessitate that that happens. You can get the tax deduction today, and there’s no requirement for that money ever to get to the community. You can give money to a donor-advised fund and keep it in a tax-free investment account forever.”

Mr Arnold and others who want to address that loophole have formed a coalition, the Initiative to Accelerate Charitable Giving, that 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 remain in a DAF untaxed. Similar bipartisan legislation was introduced last year in the US Senate.

Many DAF proponents oppose the changes, arguing that DAFs, with an average payout rate of around 20 per cent, are distributing money faster and more robustly than many private foundations, whose average distribution is generally only slightly above the 5 per cent annually required by law, according to the Stanford Law School Policy Lab on Donor-Advised Funds.

If Mr Musk did place Tesla shares in a DAF, the tax law’s intent backfired, Mr Arnold said. The community received neither the tax revenue generated by Musk’s income on the shares or the philanthropic benefit that the tax deduction was meant to create.

DAFs also allow for anonymity. Benjamin Soskis, a historian of philanthropy and a senior researcher at the Urban Institute, suggested that Mr Musk's donation shows norms may be tipping towards a lack of disclosure about where large gifts are landing.

“When you’re giving away that much money, it is by definition a matter of public interest where it’s going to,” Mr Soskis said.

Generally, Mr Musk’s approach to donations has differed from that of many other wealthy donors, who are often accused of publicising their gifts as a way to burnish their reputations.

About a month before donating his stock, the notoriously provocative Mr Musk engaged in a Twitter fight with the head of the UN World Food Programme, who had urged billionaires to donate $6bn on a “one time basis” to help end starvation.

Musk said he would sell $6bn of Tesla stock and donate the proceeds to the agency if it could show how the money would solve world hunger. David Beasley, the organisation's executive director, said this week that it had not yet received a donation from the Tesla chief executive.

Mr Soskis, of the Urban Institute, has suggested that there's room for Mr Musk to be more transparent about his gifts while still signalling his “contempt” for “elite public opinion,” as the Tesla chief executive frequently does.

At times, Mr Musk does provide transparency about his donations. Last year, he gave $50 million to St Jude’s Children’s Research Hospital. He also donated about $30m to a variety of 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 that year to June 2020, the foundation distributed $23.6m in grants. Some of that went directly to working charities, but a large chunk — $20.7m — went to Fidelity Charitable, a grantmaker that sponsors DAFs.

Some who have worked with Mr Musk explain his style of philanthropy by saying he isn't focused on looking good.

It’s been pretty nice to work with the Musk Foundation as a donor who is not ... nitpicking on how we describe this or how we describe that. Or making sure they get the shine or the limelight

Marcius Extavour,
vice president of climate and energy at XPrize

Marcius Extavour, vice president of climate and energy at XPrize, which manages Mr Musk’s $100m prize for carbon removal, says Mr Musk wanted the project to be focused on finding effective solutions and didn’t want it to use his image everywhere. That's in contrast to some other donors, who, Mr Extavour asserts, seem more concerned about invitations to speaking engagements and other events.

“It’s been pretty nice to work with the Musk Foundation as a donor who is not ... nitpicking on how we describe this or how we describe that," Mr Extavour said. “Or making sure they get the shine or the limelight."

Steve Greanias, general manager of fund-raising solutions for the fund-raising platform GiveSmart, says that like most people working in philanthropy, he is curious about where Mr Musk’s money went and how it was or will be used. Yet he doesn’t think it’s necessarily everyone’s business to know. His own platform, which serves about 8,000 non-profits and has processed about $800m in donations, accepts anonymous donations.

“If you have this kind of money and you want to do good with it and you don’t feel the need to be recognised for it, that’s OK,” said Mr Greanias. “That’s between you and the organisation. As long as your relationship’s OK with them, it shouldn’t matter if the world wants to know where money came from.”