The latest article in ProPublica’s investigations of IRS deductions enjoyed by the .001 percent focuses on people who’ve reduced their taxes by donating art and other assets to benefit the public — but then provided little of that public benefit.
(You may recall that the series began in June 2021, after an anonymous source provided ProPublica with the private tax data of some of America's richest citizens. ProPublica said it was publishing the articles "because we believe the public interest in an informed debate outweighs privacy considerations.”)
For the ultrawealthy, donating valuables like art, real estate and stocks to their own charitable foundation is a way to cut their tax bills, ProPublica says. In exchange for tax breaks, they're supposed to use the assets to serve the public: Art might be put on public display or stock sold to fund programs to combat child poverty. Across the United States, these foundations have more than $1 trillion in assets.
But ProPublica says some foundation donors have gotten millions of dollars in tax deductions without holding up their end of the bargain, and sometimes they personally benefit from donations that are supposed to benefit the public. For example, a tech billionaire used his charitable foundation to buy his girlfriend’s house, then stayed there with her while he was going through a divorce. A real estate mogul who keeps his nonprofit art museum in his guesthouse told ProPublica he hadn’t shown it to a member of the public since before the pandemic. A venture capitalist couple’s foundation bought the multimillion dollar house next to their own without ever opening the property to the public.
Unlike public charities, private foundations typically are funded by a single donor or family, who retain a high degree of control long after receiving a tax break for ostensibly giving their possessions away, says ProPublica.
“This is the classic problem with private foundations: Substantial contributors can see it as their thing,” says Philip Hackney, a law professor at the University of Pittsburgh and former IRS attorney. “There’s generally not a coalition who cares, other than the family, so there’s nothing to ensure that the assets are used for a particular purpose.”
In theory, it’s illegal to fail to provide a public benefit or to make personal use of the foundation's assets, says ProPublica. But the rules defining what’s in the public interest are vague, according to tax experts. Congress never has defined how many hours a museum would need to be open to be considered accessible to the public.
And with the IRS depleted by a decade of budget cuts, its enforcement has been lax, says ProPublica. The agency examines an average of 225 returns of the 100,000 filed by private foundations each year, according to agency statistics.
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