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.'"