In November, according to a regulatory filing, Tesla’s CEO donated nearly 5 million shares of the company’s stock, valued at $5.7 billion. Since the filing with the Securities and Exchange Commission was made public on Monday, there has been no response from Tesla, nor did Musk mention the donation on Twitter.
Yet it has sparked a debate inside and outside philanthropy, about transparency, tax cuts, and congressional legislation. Also the biggest issue is where exactly the money was donated.
Some experts say that Musk may have donated his shares to his donor-aided fund, or DAF, in a nutshell. DAFs are essentially charitable investment accounts in which donors can claim a tax deduction, but are not legally required to distribute the funds.
Experts say this will be the most profitable strategy for Musk, who is currently the richest man in the world with a net worth of more than $220 billion.
A DAF donation would allow her to claim a tax deduction of 30% of her 2021 adjusted gross income, instead of 20% if she had donated to a foundation other than her own. Musk can also cut the high market value of the stock instead of its original value.
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John Arnold, a billionaire philanthropist, said “anybody can do whatever he wants with his money.” Arnold co-founded the Laura and John Arnold Foundation and Arnold Ventures with his wife, Laura. He added, “But if he is getting subsidy from the society through this tax cut, then there is a responsibility with it.”
Whether or not Musk donated his Tesla shares to DAF, Arnold said, likely opened the way for many wealthy Americans to a dubious tax evasion.
“Society is giving them this tax cut, this subsidy to encourage and promote more resources for communities to achieve,” Arnold said.
He added, “But the way the tax law is framed today, it is not necessary to do so. You can get a tax deduction today, and there is no need to take that money to the community as well. Instead You can donate money to the Donor Added Fund and keep it in a tax-free investment account forever.”
Indeed this month, a bipartisan group of lawmakers proposed a bill in the House of Representatives that would limit how long donations cannot be made to the DAF. A similar bipartisan law was introduced in the US Senate last year.
According to the Stanford Law School Policy Lab on Donor Advised Funds, many DAF supporters opposed these changes, arguing that DAFs, with an average payout rate of around 20%, are faster and more robust than many private foundations. are transferring funds to and from the U.S., whose average distribution is generally only slightly above the 5% per annum required by law.
Arnold said that if Musk placed Tesla shares in the DAF, the intent of the tax law would backfire. The community received neither the tax revenue from Musk’s proceeds on the shares nor the philanthropic benefits that required tax deductions.
DAFs also allow anonymity. Benjamin Soskis, a historian of philanthropy and a senior researcher at the Urban Institute, suggested that Musk’s donation shows are pointing to a lack of disclosure about where large gifts are landing.
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In general, Musk’s approach to charity differs from that of many other wealthy donors. About a month before donating his stock, Musk urged billionaires to donate $6 billion on a “one-time basis” to help end hunger.
Musk said he would sell $6 billion worth of Tesla stock and donate it to the agency only if it could show how the money would solve the world’s hunger problem. The organization’s executive director, David Beasley, said this week that he has yet to receive any donations from the Tesla CEO.
Soskis of the Urban Institute suggested that Musk should be more transparent about his gifts and donations. At times, Musk is transparent about his donations. Last year, he gave $50 million to St. Jude’s Children’s Research Hospital. He donated about $30 million to various public schools and nonprofits in South Texas, where SpaceX makes its rockets.
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