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Billionaire's 501(c)(3)s aren't charities in the typical sense. They're tax-exempt piles of money that are controlled exclusively by billionaire and their famil

Billionaire's 501(c)(3)s aren't charities in the typical sense. They're tax-exempt piles of money that are controlled exclusively by billionaire and their families (in this case Musk and his brother). The Musk Foundation in particular has donated less than 1% of the "charities" assets (most donations less than $500K, most years less than $1M) and these "charities" can pay out to their owners from tax-exempt gains on the back-end. It is a super common tax avoidance scheme. It is legal. Pretending it has anything to do with good-cause charity isn't based in reality however. PS - And to confuse matters further there are billionaires who are donating a lot to charity, like the Gates Foundation.

badrequest 4y ago
> Billionaire's 501(c)(3)s aren't charities in the typical sense. They're tax-exempt piles of money that are controlled exclusively by billionaire and their families Ah, so basically the exact same as every other billionaire family's charity.
- Bilal_io 4y ago
  What's your point? Pointing out other billionaires doesn't make the billionaire we're discussing less horrible. Most billionaires are horrible in my opinion. This is due to the idea that you cannot get that rich without exploiting people, taking money from government (while simultaneously talking against people receiving help), and this charity scheme is yet another loophole that needs to be closed.
  - boringg 4y ago
    While you may love/hate certain classes of people it would probably be helpful for you to refresh how economies work and, not just modern day economies, all economies. There will always be some level of exploitation in every single type of government/economy and there will always be government there to support interest of its people. You might finesse your argument to the fact that you deem the level of exploitation and gains accrued to "billionaires" is too great for your tastes and that there needs to be a better balance struck. If not it just reads as thoughtless criticism without understanding how are human systems work.
    - yunohn 4y ago
      You’re standing up for the equality of billionaires? Sure, they’re a minority by definition, but I think we can all agree they’re not a disadvantaged class.
      - boringg 4y ago
        Standing up for billionaire? Nope. Pointing out that the complaint is poorly structured in how the world works with a goal is to help strengthen arguments and promote better conversation on here.
        varnaud 4y ago
        We'll never make the world perfect, but we can try and make it better. Less exploitation seems like a good thing to do. Don't you agree?
        yunohn 4y ago
        You’re saying that drawing a line at billionaire wealth doesn’t make sense. I don’t understand that logic, we draw lines for everything - why is this is such a messy limit according to you?
        boringg 4y ago
        >This is due to the idea that you cannot get that rich without exploiting people, taking money from government (while simultaneously talking against people receiving help), I'm ripping this part of OP commentary apart since it essentially describes everyone and not billionaires. It's a lazy argument.
  - badrequest 4y ago
    My point is that the other billionaires are just as bad. The OP was framed in a way as though Musk was doing something novel, when it's the oldest trick in the book.
- pwinnski 4y ago
  Right, billionaire family charities are almost uniformly horrible, including this one.
SamBam 4y ago
> and these "charities" can pay out to their owners from tax-exempt gains on the back-end. I pretty certain that legally these charities can only give to causes that furthers their exempt purpose. [1] E.g. a charity claiming to be devoted to saving children's lives in Africa can only spend money on exactly that, governance costs and fundraising. The charity may be paying the owners as employees, and/or the owners may twist the spending to pretend it is in line with the purpose, but I don't think they can literally give the owners the tax-exempt gains. 1. https://www.irs.gov/charities-non-profits/charitable-organizations/exempt-purposes-internal-revenue-code-section-501c3 https://www.irs.gov/charities-non-profits/charitable-organiz...
- notjulianjaynes 4y ago
  What's your take on these newer "economic development" 501c3's? Example: https://archgrants.org/ https://archgrants.org/ I've talked with the founder of Arch Grants, and I don't doubt their intentions are pure (there's others I'm more skeptical of), but either way it's difficult for me to wrap my head around the concept of a non profit that is by most metrics operating as a startup accelerator giving seed funding to for-profit businesses. *Edit:grammur
  - jcheng 4y ago
    Not taking any equity is a pretty important distinction.
    - s1artibartfast 4y ago
      Even if they did take equity, I'm not sure that would be a problem. Charities and non-profits can make investments. For example, foundations have huge market investments. The distinction is that the owners can never cash out and put the money in their pocket. At most, they can take a salary with justification.
      - SQueeeeeL 4y ago
        If you can't cash out of equity it makes a deeply insecure situation for everyone involved. It basically becomes a weird way to perform stock buy backs and would almost certainly be immediately exploited
mrits 4y ago
It does have something to do with good-cause charity if you believe Forbe's reporting. Before this they estimated he gave $280 million to charities which about 20% came from this DAF.
TuringNYC 4y ago
>> The Musk Foundation in particular has donated less than 1% of the "charities" assets That is how almost all endowments work -- they give away their interest income or other income, not the principal, this way they can theoretically last forever. In the past, this was easier since you could earn 5% or 7% interest on a 1-yr Certificate of Deposit. Now, rates have been 0% so charities have to either dig into principal and risk their longevity or give out very little.
- boringg 4y ago
  Oh but most people think how it works is you give away all your money and if you don't do that you aren't very charitable. However the smart way to donate is keep principal alive and any money that money makes it goes to the charity therefore ensuring money in perpetuity. You bring up the challenge in the current environment.
  - hcknwscommenter 4y ago
    "smart"? I'm not so sure. That assumes doing good deeds later (forever later really) is more valuable than doing them now/soon.
    - boringg 4y ago
      Id say being able to fund people to work on a problem over a long haul has a lot of value. Theres obvious short term needs and funding that is also important. I guess it also depends on how that money is making money
    - TuringNYC 4y ago
      >> "smart"? I'm not so sure. That assumes doing good deeds later (forever later really) is more valuable than doing them now/soon. I can see both sides of the argument here. I think we can at least appreciate many instances of endowments. A great example might be universities...some of which have been around for hundreds of years c/o endowments. It also allows individual programs and facilities to be funded forever so they do not need to fight yearly for budgets. https://www.harvard.edu/about/endowment/ https://www.harvard.edu/about/endowment/
deleted 4y ago
[deleted]
yellowstuff 4y ago
You have just enough information about foundations to completely misunderstand them. It's true that a major reason for the popularity of foundations is legal tax avoidance: you can donate to a foundation in a year when you have lots of income, get the tax benefit in that year, and not have to make a charitable donation in the same year. The foundations is allowed to sit on most of the money for a long time. However, crucially, when the money leaves the foundation it must go to an approved charity. There have been some high-profile abuses of foundations, but that's simply illegal, the same way it would be illegal to not make a donation in the first place and claim a tax exemption.
- kaesar14 4y ago
  I'm guessing there's more wealthy people getting away with breaking those rules or being extremely creative with them then not.
- Retric 4y ago
  You are mistaken, it is very possible and legal to extract money from a 501(c)(3). “If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction.” https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations https://www.irs.gov/charities-non-profits/charitable-organiz... One example would be putting staff members up at a hotel you own.
  - dabernathy89 4y ago
    I don't think it's clear how this contradicts the comment you're replying to.
    - Retric 4y ago
      “However, crucially, when the money leaves the foundation it must go to an approved charity.” They can spend money on expenses and those expenses can benefit you. Having family members work for and be generously paid by such an orientation is a common example. Anytime you control a cash flow you can benefit from that cash flow.
bane 4y ago
Right, I first learned about this when being forced to watch some of the "Housewives of ..." shows by my wife. I couldn't figure out why all these objectively terrible people all had their own personal charities (many of the episodes revolve around the social group of the show going to each other's charity events). It turns out it's a common, but legal, "scam". Take in funds from fundraisers, give away a little, then pay yourself a ridiculous salary for running the organization with the rest of the money. You can also have the charity "buy" things for future fundraisers like trips on private jets, or fundraising events in the Bahamas, etc. I have no idea how it has stayed even remotely legal other than it seems a great many people above a certain wealth level all seem to be involved in it.
- hindsightbias 4y ago
  You'll see a lot of giant yachts that are in "research" foundations. They get tax breaks for supporting "research" and have a few jaunts with scientist in popular vacation areas.
  - culi 4y ago
    Right. I mean 501c3's rules around politics are notoriously lax. You basically just can't donate to a candidate of a party. But there's plenty of 501c3's that simply don't explicitly represent a certain party go to pains to reach out to areas that are very reliably a certain party. A lot of these "charities" being donated to out of DAFs are for political influence like this. They can push for laws and regulations that will benefit, in this case, Tesla or Twitter or whatever, and Musk now can play politics without having to pay taxes on that money
- mrep 4y ago
  > then pay yourself a ridiculous salary for running the organization with the rest of the money So instead of paying 20% cap gains, they choose to pay 37% federal income taxes + state?
  - trs8080 4y ago
    Yes, because pocketing money directly from fundraising activities for a 501c3 is illegal, regardless of if you pay capital gains on it.
s1artibartfast 4y ago
>these "charities" can pay out to their owners from tax-exempt gains on the back-end. Even if this were true, that back-end would be taxable, so who cares? That said, why would this make sense from the donor perspective? Why would I want to donate $1M to a charity to avoid taxes, just so that it can pay me $1M which I would then have to pay taxes on again?
- pwinnski 4y ago
  Because the charity can expense things you can use without anyone paying taxes on anything. Charity holds a conference at a resort, that's an operating expense. Present are the officers of the company, which is you and your friends and family. All expenses for the charity, paid from the million, and therefore untaxed.
  - s1artibartfast 4y ago
    Still seems like a pretty crappy deal to me and negative expected value. More so if you have your own Corporation that can do all those things. I feel like there is a n Physical limit on the number of tax deductible meals and vacations someone and their family can consume
    - pwinnski 4y ago
      Your own corporation pays corporate taxes that a non-profit does not, and you cannot transfer personal wealth to a corporation without paying taxes on it as you can with a non-profit.

badrequest 4y ago

> Billionaire's 501(c)(3)s aren't charities in the typical sense. They're tax-exempt piles of money that are controlled exclusively by billionaire and their families Ah, so basically the exact same as every other billionaire family's charity.

Bilal_io 4y ago
What's your point? Pointing out other billionaires doesn't make the billionaire we're discussing less horrible. Most billionaires are horrible in my opinion. This is due to the idea that you cannot get that rich without exploiting people, taking money from government (while simultaneously talking against people receiving help), and this charity scheme is yet another loophole that needs to be closed.
- boringg 4y ago
  While you may love/hate certain classes of people it would probably be helpful for you to refresh how economies work and, not just modern day economies, all economies. There will always be some level of exploitation in every single type of government/economy and there will always be government there to support interest of its people. You might finesse your argument to the fact that you deem the level of exploitation and gains accrued to "billionaires" is too great for your tastes and that there needs to be a better balance struck. If not it just reads as thoughtless criticism without understanding how are human systems work.
  - yunohn 4y ago
    You’re standing up for the equality of billionaires? Sure, they’re a minority by definition, but I think we can all agree they’re not a disadvantaged class.
    - boringg 4y ago
      Standing up for billionaire? Nope. Pointing out that the complaint is poorly structured in how the world works with a goal is to help strengthen arguments and promote better conversation on here.
      - varnaud 4y ago
        We'll never make the world perfect, but we can try and make it better. Less exploitation seems like a good thing to do. Don't you agree?
      - yunohn 4y ago
        You’re saying that drawing a line at billionaire wealth doesn’t make sense. I don’t understand that logic, we draw lines for everything - why is this is such a messy limit according to you?
        boringg 4y ago
        >This is due to the idea that you cannot get that rich without exploiting people, taking money from government (while simultaneously talking against people receiving help), I'm ripping this part of OP commentary apart since it essentially describes everyone and not billionaires. It's a lazy argument.
- badrequest 4y ago
  My point is that the other billionaires are just as bad. The OP was framed in a way as though Musk was doing something novel, when it's the oldest trick in the book.
pwinnski 4y ago
Right, billionaire family charities are almost uniformly horrible, including this one.

SamBam 4y ago

> and these "charities" can pay out to their owners from tax-exempt gains on the back-end. I pretty certain that legally these charities can only give to causes that furthers their exempt purpose. [1] E.g. a charity claiming to be devoted to saving children's lives in Africa can only spend money on exactly that, governance costs and fundraising. The charity may be paying the owners as employees, and/or the owners may twist the spending to pretend it is in line with the purpose, but I don't think they can literally give the owners the tax-exempt gains. 1. https://www.irs.gov/charities-non-profits/charitable-organizations/exempt-purposes-internal-revenue-code-section-501c3 https://www.irs.gov/charities-non-profits/charitable-organiz...

notjulianjaynes 4y ago
What's your take on these newer "economic development" 501c3's? Example: https://archgrants.org/ https://archgrants.org/ I've talked with the founder of Arch Grants, and I don't doubt their intentions are pure (there's others I'm more skeptical of), but either way it's difficult for me to wrap my head around the concept of a non profit that is by most metrics operating as a startup accelerator giving seed funding to for-profit businesses. *Edit:grammur
- jcheng 4y ago
  Not taking any equity is a pretty important distinction.
  - s1artibartfast 4y ago
    Even if they did take equity, I'm not sure that would be a problem. Charities and non-profits can make investments. For example, foundations have huge market investments. The distinction is that the owners can never cash out and put the money in their pocket. At most, they can take a salary with justification.
    - SQueeeeeL 4y ago
      If you can't cash out of equity it makes a deeply insecure situation for everyone involved. It basically becomes a weird way to perform stock buy backs and would almost certainly be immediately exploited

mrits 4y ago

It does have something to do with good-cause charity if you believe Forbe's reporting. Before this they estimated he gave $280 million to charities which about 20% came from this DAF.

TuringNYC 4y ago

>> The Musk Foundation in particular has donated less than 1% of the "charities" assets That is how almost all endowments work -- they give away their interest income or other income, not the principal, this way they can theoretically last forever. In the past, this was easier since you could earn 5% or 7% interest on a 1-yr Certificate of Deposit. Now, rates have been 0% so charities have to either dig into principal and risk their longevity or give out very little.

boringg 4y ago
Oh but most people think how it works is you give away all your money and if you don't do that you aren't very charitable. However the smart way to donate is keep principal alive and any money that money makes it goes to the charity therefore ensuring money in perpetuity. You bring up the challenge in the current environment.
- hcknwscommenter 4y ago
  "smart"? I'm not so sure. That assumes doing good deeds later (forever later really) is more valuable than doing them now/soon.
  - boringg 4y ago
    Id say being able to fund people to work on a problem over a long haul has a lot of value. Theres obvious short term needs and funding that is also important. I guess it also depends on how that money is making money
  - TuringNYC 4y ago
    >> "smart"? I'm not so sure. That assumes doing good deeds later (forever later really) is more valuable than doing them now/soon. I can see both sides of the argument here. I think we can at least appreciate many instances of endowments. A great example might be universities...some of which have been around for hundreds of years c/o endowments. It also allows individual programs and facilities to be funded forever so they do not need to fight yearly for budgets. https://www.harvard.edu/about/endowment/ https://www.harvard.edu/about/endowment/

deleted 4y ago

[deleted]

yellowstuff 4y ago

You have just enough information about foundations to completely misunderstand them. It's true that a major reason for the popularity of foundations is legal tax avoidance: you can donate to a foundation in a year when you have lots of income, get the tax benefit in that year, and not have to make a charitable donation in the same year. The foundations is allowed to sit on most of the money for a long time. However, crucially, when the money leaves the foundation it must go to an approved charity. There have been some high-profile abuses of foundations, but that's simply illegal, the same way it would be illegal to not make a donation in the first place and claim a tax exemption.

kaesar14 4y ago
I'm guessing there's more wealthy people getting away with breaking those rules or being extremely creative with them then not.
Retric 4y ago
You are mistaken, it is very possible and legal to extract money from a 501(c)(3). “If the organization engages in an excess benefit transaction with a person having substantial influence over the organization, an excise tax may be imposed on the person and any organization managers agreeing to the transaction.” https://www.irs.gov/charities-non-profits/charitable-organizations/exemption-requirements-501c3-organizations https://www.irs.gov/charities-non-profits/charitable-organiz... One example would be putting staff members up at a hotel you own.
- dabernathy89 4y ago
  I don't think it's clear how this contradicts the comment you're replying to.
  - Retric 4y ago
    “However, crucially, when the money leaves the foundation it must go to an approved charity.” They can spend money on expenses and those expenses can benefit you. Having family members work for and be generously paid by such an orientation is a common example. Anytime you control a cash flow you can benefit from that cash flow.

bane 4y ago

Right, I first learned about this when being forced to watch some of the "Housewives of ..." shows by my wife. I couldn't figure out why all these objectively terrible people all had their own personal charities (many of the episodes revolve around the social group of the show going to each other's charity events). It turns out it's a common, but legal, "scam". Take in funds from fundraisers, give away a little, then pay yourself a ridiculous salary for running the organization with the rest of the money. You can also have the charity "buy" things for future fundraisers like trips on private jets, or fundraising events in the Bahamas, etc. I have no idea how it has stayed even remotely legal other than it seems a great many people above a certain wealth level all seem to be involved in it.

hindsightbias 4y ago
You'll see a lot of giant yachts that are in "research" foundations. They get tax breaks for supporting "research" and have a few jaunts with scientist in popular vacation areas.
- culi 4y ago
  Right. I mean 501c3's rules around politics are notoriously lax. You basically just can't donate to a candidate of a party. But there's plenty of 501c3's that simply don't explicitly represent a certain party go to pains to reach out to areas that are very reliably a certain party. A lot of these "charities" being donated to out of DAFs are for political influence like this. They can push for laws and regulations that will benefit, in this case, Tesla or Twitter or whatever, and Musk now can play politics without having to pay taxes on that money
mrep 4y ago
> then pay yourself a ridiculous salary for running the organization with the rest of the money So instead of paying 20% cap gains, they choose to pay 37% federal income taxes + state?
- trs8080 4y ago
  Yes, because pocketing money directly from fundraising activities for a 501c3 is illegal, regardless of if you pay capital gains on it.

s1artibartfast 4y ago

>these "charities" can pay out to their owners from tax-exempt gains on the back-end. Even if this were true, that back-end would be taxable, so who cares? That said, why would this make sense from the donor perspective? Why would I want to donate $1M to a charity to avoid taxes, just so that it can pay me $1M which I would then have to pay taxes on again?

pwinnski 4y ago
Because the charity can expense things you can use without anyone paying taxes on anything. Charity holds a conference at a resort, that's an operating expense. Present are the officers of the company, which is you and your friends and family. All expenses for the charity, paid from the million, and therefore untaxed.
- s1artibartfast 4y ago
  Still seems like a pretty crappy deal to me and negative expected value. More so if you have your own Corporation that can do all those things. I feel like there is a n Physical limit on the number of tax deductible meals and vacations someone and their family can consume
  - pwinnski 4y ago
    Your own corporation pays corporate taxes that a non-profit does not, and you cannot transfer personal wealth to a corporation without paying taxes on it as you can with a non-profit.