The Nation's Richest Are Moving Enormous Sums Via LLCs and DAFs. We Should Demand Transparency

It’s easy to lose sight of just how much power today’s billionaire donors wield via their philanthropy. In many cases, the sums they’re spending on tax-deductible giving, often with policy ramifications, dwarf the amounts spent to elect and influence our nation’s political leaders directly.

Consider California’s 2022 governor’s race, where incumbent Gov. Gavin Newsom raised $27 million for his reelection. Steve and Connie Ballmer, significant givers in the state, have more than two dozen individual grants through their Ballmer Group that are at least as big. And several awards are two, three, even 10 times larger.

Or take New York City, where an all-time high of $130.9 million was spent on lobbying last year. Jeff Bezos’ climate fund spends many times more than that each year — including on individual programs that are larger.

Donors like the Ballmers and Bezos can get tax write-offs for those contributions, but they are under no obligation to tell us who benefitted from their grants. Like an increasing number of folks on the Forbes 400 List, they conduct much of their charity through limited liability companies — and LLCs have virtually no disclosure requirements.

To their credit, the Ballmers and Bezos are among the billionaires with public grantmaking operations, ones that list grants on their website. But they and other ultra-wealthy donors are not required to give us a complete list, or any list at all.

In short, we must take some of the most powerful people in the world at their word — whether they’re using LLCs or other structures to give away money.

This goes beyond LLCs. Take Larry Page. Unlike the Ballmers and Bezos, the Google cofounder has a foundation. From that, one might assume that what he’s backing will be transparent via required IRS disclosures. Yet in recent years, 97.8% of the payout from his $6.8 billion operation has exited through a common loophole into a donor-advised fund — and DAFs also have practically no transparency requirements.

Yes, there are everyday folks who use DAFs for their end-of-year charitable donations, and the accounts have also become a much-used tool for pooling money in philanthropic collaborations. But some of the wealthiest people on the planet are keen on them, too. Elon Musk, for instance, moved tens of millions of dollars from his foundation into a Vanguard account, and an IRS error revealed that Steve Ballmer stuck $1.9 billion in his Goldman Sachs DAF several years ago. And those are just the ones we know about.

The villain in this story is our outdated system and rules, dating back to the Tax Reform Act of 1969, passed at a time when DAFs and philanthropy-oriented LLCs were nigh unheard-of and living megadonors took up much less space in philanthropy.

Today, billionaires like the Ballmers, Bezos, Page and Musk could choose a more transparent route — and we should demand as much. But the IRS does not require them to do so.

Our tax laws allow for black-box philanthropy on a massive scale, no matter how much you give away, even for billionaires getting tax relief of up to 74 cents on the dollar. Whether a donor grants $100 million, a billion or tens of billions, DAFs and LLCs can reduce how much they owe the IRS while letting them skip any requirement to tell the world how much money is going where, or who’s benefiting.

We all know that money can buy influence, and the implications here for civil society and the public square are troubling. The charitable tax deduction is meant, at least in part, to foster a wider variety of solutions to civic problems than government alone can encompass. But when the sums involved are double, triple, even 10 times what can buy influence at some of the highest levels of our society, it is time for reevaluation. It is no threat to the overall principle of donor privacy to say there is a level of wealth, applicable only to a few hundred people, beyond which privacy must have limits. Plus, as advocates rightly point out, not all the money at stake here is, in fact, private. Public dollars are always in the mix when it comes to tax-deductible philanthropy.

Granted, it’s impossible to say whether an individual philanthropic operation is reducing a donor’s tax bill, let alone how much they’re saving. But that’s what both DAF and LLC structures allow for, as Dana Brakman Reiser and Steven A. Dean, authors of “For-Profit Philanthropy,” covered in IP last year. While donors don’t get a tax write-off for moving money into an LLC, charitable contributions by LLCs can often be deducted by the original donors as if the donor made the donation themselves. DAFs, of course, grant tax relief upon receipt of funds, without requiring the money ever be spent.

The fact is, we have no idea how much power is being exercised through so-called “philanthropic LLCs,” (which aren’t legally distinct from regular LLCs) or even the extent of their usage. The donors I’ve mentioned, after all, are just the ones who are public about their giving, to their credit. As Brakman Reiser and Dean wrote last year of such LLCs, “How many are there? Nobody knows because they are permitted to remain entirely private.”

You might applaud the causes these donors are publicly funding. You might think donors have a right to privacy. You might be sympathetic to the argument that giving through an LLC or a DAF simplifies and streamlines the process for megadonors seeking to put their dollars to work for public impact. But I think the question should be whether a single person should be able to choose where so much money goes and receive tax benefits for those donations without publicly revealing what they are doing.

Our system, right now, says yes. And billionaire donors — not just those mentioned above, but also people like Jack Dorsey, Laurene Powell Jobs and, yes, MacKenzie Scott — are taking advantage of that reality, whether they support it or not.

Put another way, we let the richest, most powerful people in the world spend not just their money but our tax dollars as they choose — and we do not require them to tell us to whom they gave them or even how much they are giving away.

For these donors, there’s an easy, ready-to-go measure they can take to show they believe in transparency: Give through a foundation. For the rest of us, maybe it’s time to start backing reform.

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