Tax avoidance or philanthropy? Where did Musk's $5.7 billion donation go?

Text/Eliza Haverstock

Elon Musk's personal net worth has reached an astronomical amount — as of Tuesday afternoon local time, his net worth is estimated at $246 billion. While Musk has never been a big philanthropist based on past donation records, new documents released monday night by the U.S. Securities and Exchange Commission show that Musk transferred about 5 million shares of Tesla stock to "charities" last November, worth about $5.7 billion at the stock price at the time. If this were true, the donation would represent 2.3% of their personal net worth. That's not a high percentage, but it's more than 20 times musk's previous donation.

When the document was released, some speculated that it contained a large sum of money that Musk had donated to the United Nations World Food Programme (WFP). A month before the stake was transferred in November, Musk tweeted that he would donate $6 billion to the World Food Programme — if the group could describe "how that $6 billion would solve the problem of world hunger" (some have speculated that Musk, who has long liked to tweet flippantly, is just playing a prank).

However, the World Food Programme told Forbes on Tuesday that it had not received such a gift. The agency's executive director, David Beasley, said in a statement: "It remains to be seen whether WFP will receive the money, but I am delighted to hear that Elon will be involved." No other charity has announced donations, and Musk has not responded to multiple requests for comment from reporters.

If viewed more reasonably, the money should have landed on a donor designated fund (DAF). The fund acts like a charitable bank account, essentially a black box because it does not contain specific requirements, such as annual distribution or public disclosure of grants related to a particular donor. Money can be stored in DAFs for years without flowing into operating nonprofits, which is why Forbes doesn't include these funds in its measurements when evaluating philanthropists, unless the rich will share the details of the actual donations made by their DAFs, as one of Musk's representatives once did. Forbes estimates that of musk's current $280 million to charity (not counting the recent huge sum), about 20 percent is donated through DAF.

One of the benefits of donating shares to DAF is that musk can enjoy the tax breaks that come with the donation, which can reach 30% of his adjusted total income in 2021, even though the shares he donated are still intact in the account.

In another case, Musk could inject the money into his own foundation. In this case, he can still get immediate tax relief. However, unlike donating directly to DAF, foundations need to allocate about 5% of their assets each year (if this percentage is not reached, the foundation pays more tax).

So far, musk has been one of the least philanthropic billionaires in the world, especially relative to the size of his wealth. But there is evidence that he may be considering further action. In February 2021, he said he would award $100 million through the "XPRIZE" competition to teams that have the ability to decarbonize the atmosphere. According to a representative of Musk, he donated a little more than half of the total prize money to the X-Prize Foundation, which oversees the award. The foundation has already distributed $5 million to 23 student-led teams to support the early development phase of its carbon removal project, but the entire competition won't end until 2025.

Last year, Musk asked St. Jude Children's Research Hospital.com. Jude's Children's Research Hospital donated $55 million and about $30 million to various public schools and nonprofits in Rio Grande Valley, South Texas, where SpaceX makes rockets. The donations were announced in March 2021 at a time of growing criticism from local activists who accused SpaceX of disrupting the site's ecosystem and crowding out long-standing communities.

In the fiscal year ending June 2020, the Musk Foundation had total assets of $941 million, of which less than $24 million was disbursed, of which about $20 million was invested in DAFs, while the remaining $2.9 million was spent primarily on education-related causes. The Mercatus Center at George Mason University in northern Virginia received $1 million from Musk. The agency is a liberal think tank that aims to advance the idea of a free market. According to the Musk Foundation's tax filings, the donation to the Mocaster Center is intended to advance "scientific research on the coronavirus." Another $1 million was donated to the Wikimedia Foundation, a nonprofit behind Wikipedia. In addition, $500,000 was donated to Hack Club. It is a Vermont-based nonprofit that manages nearly 500 student-led programming clubs around the world. Last fall, Musk donated another $1 million to Hack Club.

Musk has also given time to the operation of the organization. In March 2020, several teenage members of the group found Musk's contact details from public records and asked him to speak to the group. Musk agreed, and spent the following month more than an hour on a live Q&A video chat, and soon after, he made a donation to the organization. Christina Asquith, COO of Hack Club, said: "This money allows us to recruit a large number of engineers to make cool programming games, as well as one-on-one coaching for teenagers to better support them in learning code. ”

In 2020, Musk also made donations to several private schools in Los Angeles, including The Windward School and The Windward School. His foundation has allocated $50,000 for a coronavirus antibody study at Sacred Heart University. In addition, Musk donated $60,000 to Ad Astra School, an experimental private school he co-founded in 2014 at SpaceX's Los Angeles campus, where his children and the children of some SpaceX employees attend. The school is located in Austin, Texas, where Musk spends most of his time, and Tesla has moved its headquarters there.

Musk never made the Forbes list of top philanthropists. The ranking tracks the donations of the rich as a percentage of their net worth and only counts the money flowing into the hands of charities (not the money in the rich's own charitable foundations or DAFs). Currently, Musk has donated only 0.001 percent of his $246 billion fortune, and Forbes does not count its latest $5.7 billion in donations unless it is known that the money has been used by charities.

By contrast, most of Musk's wealthy peers have a better philanthropic record. Warren Buffett is undoubtedly the most philanthropic man, donating about $46.1 billion in his lifetime, or 40 percent of his $115.6 billion fortune. In 2010, Buffett and Bill Gates co-founded the Giving Pledge. It's a non-binding vow made by one of the world's richest people to donate most of their property before or after death. Gates and his ex-wife, Melinda French Gates, donated a total of $33.4 billion, or about 24 percent of their total assets (estimated at $140.7 billion). Amazon founder Bezos, the world's third-richest man, has donated $2.1 billion to philanthropy, of which about $1.3 billion is spent on climate change-related causes, which equates to about 1 percent of his $188 billion fortune.

Musk signed the pledge in 2012, and he has said he will increase his donation for the rest of his life. In 2018, Musk tweeted that he would sell about $100 million worth of Tesla stock for charity "every few years" and would "make significant spending moves within 20 years while Tesla is in a stable state." Tesla's stock price has soared 1,200 percent since the tweet was posted, adding hundreds of billions of dollars to Musk's book wealth as a result.

Over time, recipients of Musk's $5.7 billion donation are likely to surface. But until then, it's best to remember that in the same year that he donated the largest sum of money in his life, he also sold the most Tesla stock in his life and exercised the most Tesla options in his life. Therefore, the motivation for giving away shares may be to reduce tax bills, and not for any other reason. If Musk's past record says anything, it's likely that the money hasn't gone to those in need, who may have to wait a while.