Billionaires funding a Goldman charity unmasked by IRS snafu

Wednesday , March 14, 2018 - 10:10 AM

Tom Metcalf

(c) 2018, Bloomberg.

Three of America’s most discreet billionaire philanthropists have emerged as the biggest donors to the Goldman Sachs Philanthropy Fund after the IRS accidentally revealed their identities.

A filing shows that former Microsoft Chief Executive Officer Steve Ballmer poured $1.9 billion into the fund. Trusts linked to Laurene Powell Jobs, the widow of Steve Jobs with significant stakes in Apple and Walt Disney, gave $526 million. Jan Koum, who co-founded WhatsApp and sold it to Facebook in 2014, contributed $114 million.

Two pages that the Internal Revenue Service should have excised from a filing were obtained by Bloomberg in January after they were posted on GuideStar, a website that collects data about nonprofits, before being taken down.

The slip-up sheds light on the money flowing into one of America’s most prominent donor-advised funds, or DAFs, whose popularity is reshaping the world of philanthropy. Goldman’s fund is the fastest growing charity in the U.S., after raising $3.2 billion in 2016 -- five times the previous year’s level. Such funds provide flexibility and anonymity to wealthy people who want to keep their charitable giving private and offer clients tax benefits.

DAFs attracted $23 billion in contributions, made $16 billion of grants and had total charitable assets of $85 billion in 2016, according to a report last year by the National Philanthropic Trust.

The 2016 donations by Ballmer, Powell Jobs and Koum -- who are worth a combined $68 billion, according to the Bloomberg Billionaires Index -- haven’t previously been disclosed. Stockpiling $2.5 billion in cash and assets with the Goldman DAF lets the money grow there until they decide to allocate it to causes. It’s not clear what the trio has done or plans to do with this portion of their philanthropy.

Goldman Sachs spokesman Andrew Williams and Bruce Friedland of the IRS declined to comment. Representatives for the billionaires didn’t respond to emailed questions.

The filing doesn’t specify what assets have been donated. It shows $1.1 billion of Ballmer’s donation comprised publicly traded shares, meaning it could be a disposal of part of his Microsoft stake, which was last disclosed in 2014, when he retired. The company reported at the time that Ballmer owned 4 percent of the software maker, which would be valued at $32 billion today -- if he hasn’t sold or gifted any of the shares. Microsoft spokesman Peter Wootton said the company doesn’t comment on the holdings of individual shareholders.

No matter how the 61-year-old chose to fund the donation, the contribution to the Goldman charity is permanent and represents about 5 percent of his fortune on the Bloomberg index, a ranking of the world’s richest people. Koum’s gift, approximately 1 percent of his net worth, was entirely in shares. Half of Powell Jobs’s donation was in stock, according to the filing, and represented 2.7 percent of her wealth.

There’s some controversy over the impact of the funds. Critics suggest they can slow the flow of money to working charities and increase opacity into philanthropic giving.

“Steve Ballmer and other donors still benefit from the utter lack of transparency that characterizes donor-advised funds,” said Alan Cantor, a consultant in the nonprofit sector who has criticized the lack of visibility of the vehicles. “We now know that Ballmer put $1.9 billion into the Goldman Sachs Philanthropy Fund, but from that point on we know nothing.”

Defenders counter that DAFs, which have been around since the 1930s, make it easier to give. The vehicles took off in 1991, when wealth manager Fidelity won a landmark ruling from the IRS that recognized its fund as a public charity. This lets donors book an immediate tax advantage, so deposits can be timed to maximize savings. Donors can then parcel the money out to charities at their leisure -- and if they so choose, privately.

In contrast, donations via a private foundation -- the more traditional way for the ultra wealthy to give -- requires more disclosure. And foundations are subject to a federal mandate that they must distribute 5 percent of the value of their net investment assets annually. No such requirement applies to DAFs, although many -- including the Goldman vehicle -- have processes that ensure grant distributions reach certain levels.

Goldman’s fund was started in 2001 as the vehicles were growing in popularity. The firm’s wealth advisers had seen the success of offerings backed by Fidelity, Vanguard and Schwab and wanted their own version. Contributions can be invested in a variety of mutual funds, including those managed by Goldman.

“There was a realization that if a private wealth-management firm wanted to provide a full set of services, then philanthropy had to be part of the offering,” said Doug Bauer, who helped set up Goldman’s fund and is now executive director of the Clark Foundation, which supports nonprofits in New York. “It’s something clients really cared about.”

Ballmer, Powell Jobs and Koum were only revealed because the IRS made what’s termed “an inadvertent disclosure.” The IRS requires the funds to submit annual reports, which include schedules detailing their biggest contributors. The IRS is supposed to remove that information when making the filing public, but it didn’t.

For billionaires, the tax benefits can be substantial. Ballmer’s gift of cash and stock should be eligible for tax deductions, meaning he can reduce his adjusted gross income by as much as half for the 2016 tax year and for up to five years after that, until the deduction is exhausted. And -- if Goldman’s wealth managers invest the gift wisely -- his charitable firepower should grow until he elects to give it away. Perhaps most alluringly for the publicity-shy billionaires, the Goldman fund doesn’t need to identify its clients or their contributions, sparing them unwanted attention.

Such giving probably continued in 2017 as tax-savvy philanthropists scrambled to maximize deductions ahead of the Republican tax overhaul. Not that it will be possible to identify shy donors -- even the wayward Goldman filing has since been amended to remove the names.

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Bloomberg contributors: Max Abelson, Dakin Campbell and Shahien Nasiripour.

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