Why Philanthropy Doesn’t Compensate for Failing to Pay Taxes

“Last fall, Robert F. Smith, the billionaire founder of
Vista Equity Partners, a private equity firm, paid $139 million to federal
authorities to settle one of the biggest tax evasion cases in American history,”
according to a March 12, 2021 article in The New York Times. The Department of Justice reports
that as part of the settlement, Smith agreed to “abandon his protective claims”
for an approximate $182 million in IRS tax refunds related, in part, to claims filed for charitable contribution
deductions.

Mr. Smith’s philanthropic interests have involved contributions to organizations and institutions
including the National Museum of African American History and Culture, Cornell
University, Carnegie Hall, and The Boys and Girls Club of San Francisco, among
others. For example, Smith vowed to wipe out the student debt of the entire 2019 graduating class of Morehouse
College. Notably, he also signed on to The Giving Pledge, a
movement of philanthropists who commit to giving a majority of their wealth to
philanthropic causes during their lifetimes or in their wills. 

 

A March 22, 2021 article in The Daily Beast reports that many institutions to which Smith has donated time
or funding, including Cornell, Carnegie Hall, and The Boys and Girls Club of
San Francisco, have not cut ties with him as a result of the tax scandal. The
publication reached out to CharityWatch Executive Director, Laurie Styron, for
comment on Smith’s philanthropy in consideration of “how his reputation for
generosity is complicated by the ways in which his financial crimes and
charitable giving are deeply intertwined,” according to the article.

 

“Allowing billionaires to skip out on their taxes or
pay less through legal tactics like subsidies, loopholes, or rare legal
arrangements like NPAs [Non-Prosecution Agreements] has clear and direct consequences, said Laurie Styron,
executive director of CharityWatch. ‘We lose the collective ability to manage
our society’s resources equitably,’ she explained. ‘Even if all of these
resources were to hypothetically be shifted from tax payments to philanthropic
gifts, the public still loses out for a few reasons.'”

“For one, Styron said, wealthy philanthropists often make their most
significant gifts late in life. The taxes they might have paid throughout their
careers are substituted with lump-sum gifts targeted at solving problems years
later, rather than preventing them along the way. For another, they tend to
favor a few charities working on pet causes important to them. ‘The public
loses the power to participate in the decision-making process of how, where,
and in what amounts those resources should be distributed,’ Styron said. ‘These
decisions are instead being made by one wealthy person or a handful of people
working for that person’s foundation.'”