Photo: NASA Kennedy.

January 23, 2019; Guardian

The Guardian took on the philanthropy of Elon Musk this past week. After commenting on the brevity of his foundation’s website, which reads, “Grants are made in support of: renewable energy research and advocacy, human space exploration research and advocacy, pediatric research, science and engineering education, [and] development of safe artificial intelligence to benefit humanity,” it goes on to detail some of his grants, which range in size from a few thousand to millions of dollars and only sometimes reflect the intentions stated above.

A look at the Foundation’s 990s, the reporter points out, shows that some donations “have benefited the billionaire’s own initiatives and, indirectly, his family, while others have tackled his pet peeves….Recipients have included a school attended by Musk’s own children, a charity managed by his brother, a protest group fighting gridlock on Musk’s commute to SpaceX, and even an art project at Musk’s favorite festival, Burning Man.”

All of this is topped off by some traffic-related grants, in which Musk has an intense personal interest. Specifically, according to this article, the foundation paid out a total of $75,000 to a group called Angelenos Against Gridlock, which was advocating for improvements to the notoriously congested Interstate 405 highway that Musk uses regularly to commute from his Bel-Air home to SpaceX.

But the largest grant the foundation has made to date, at $37.8 million, was in 2016 to Vanguard Charitable to establish a donor-advised fund. That was one of only two grants made that year and was more than three-quarters of the total $47.8 million contributed. Just as pertinent is the fact that the foundation received a large gift of stock valued at $255 million the year before, which committed it to a higher payout.

Educated readers know, of course, that transferring or “contributing” money into a donor-advised fund can shield donations from public scrutiny about self-dealing. It also addresses in some small way the pesky five-percent payout rule at the foundation while providing no guarantee about when the money might actually be contributed to other working nonprofits. This appears to be exactly what critics have been warning regulators about in terms of how donor-advised funds can be misused.

As Ray Madoff wrote in July 2018 for NPQ, DAFs should be prevented from being used to undermine private foundation payout rules:

In 1969, Congress became concerned that private foundations were providing too many tax benefits to donors without any assurances that donated funds would benefit the public in a timely manner. In order to address this concern, Congress enacted a rule that required private foundations to distribute roughly 5 percent of their assets each year to public charities. Sensibly, the payout rule could not be evaded by a private foundation making distributions to other private foundations, because then the funds would simply await further distribution by that foundation.

Since the rise of donor-advised funds, some private foundations have been meeting their payout requirements by making grants to DAFs. The foundation can then advise distribution of the grant from the DAF to a charity at a later date. This can have multiple benefits for the foundation: one is that the transfer counts for purposes of the foundation’s payout (because the DAF sponsor is a public charity); another is that the foundation can disguise the source of the funding by flowing the funds through a DAF.

She concludes: “In order to address these concerns, Congress should provide that foundation-to-DAF transfers are not ‘qualifying distributions’ for purposes of a private foundation’s payout.”

Critics of donor-advised funds may have just been handed some pretty weighty fodder for their 2019 advocacy for regulation.—Ruth McCambridge