Bhargava claims to have given away $1 billion in 2009, with a letter to FORBES from his attorney, David Lieberman of the Michigan firm Seyburn Kahn, to back him up. Tax returns of Bhargava’s U.S. charity, the Rural India Supporting Trust, suggest a different narrative. Virtually the entire donation was in the form of a 45% stake in the privately held Living Essentials. Only a few million dollars was in cash.
Rural India then sold that 45% stake to Nevada 5, a private for-profit company. In exchange, Rural India got a note worth $623.6 million. Bhargava’s accountant Paul Edwards of Plante Moran says his client is not a beneficial owner in Nevada 5—but another one of his associates says it is a vehicle for Bhargava’s philanthropy and affiliated with Innovation Ventures, the parent company of Living Essentials.
This kind of deal raises questions, says Roger Colinvaux, professor at Catholic University’s Columbus School of Law and an expert on tax and philanthropy. “If it were a private foundation, it would be prohibited from selling to a company related to a major donor.”
Rural India itself appears not to be giving much away. It lists total grants paid out in 2010 of just $4 million off a total asset base that by the end of that year had been stepped up to just over $1 billion. Bhargava can get away with this because he set up Rural India as something called a supporting organization, or a group that financially supports other charities. Unlike a traditional private foundation, a supporting organization has no mandated 5% minimum outlay, pays no excise taxes on investment income and has fewer self-dealing restrictions. Bhargava is not doing anything illegal here, just exploiting a loophole in the tax code many other big philanthropists have used as well.
The BMGF operates through endowment, which a lot of organizations do. Basically, they don't expect many regular small donations (like a lot of smaller charities do), they expect just a couple of very big ones. Because the donations don't come every year, they need to last. So they invest the money, and use the interest for operation costs and grants. This way, they can give that $2b a year[1], in perpetuity. Another big donation means that they only give out slightly more per year, but that the donation will basically last forever.
There may be a better model, but this is a well respected method for making a big charitable gift last.
[1] more in years when the economy does well. E.g., in 2009 they gave slightly over $3B.
Giving $2b/yr in perpetuity is definitely not the mission of the Gates Foundation. They have set it up to run out of money within X years (10 IIRC) of Bill and Melinda's death.
With this guys track record, I wouldn't chalk this up to anything more than a clever tax-avoidance strategy.
http://www.forbes.com/sites/clareoconnor/2012/02/08/manoj-bh...
Bhargava claims to have given away $1 billion in 2009, with a letter to FORBES from his attorney, David Lieberman of the Michigan firm Seyburn Kahn, to back him up. Tax returns of Bhargava’s U.S. charity, the Rural India Supporting Trust, suggest a different narrative. Virtually the entire donation was in the form of a 45% stake in the privately held Living Essentials. Only a few million dollars was in cash.
Rural India then sold that 45% stake to Nevada 5, a private for-profit company. In exchange, Rural India got a note worth $623.6 million. Bhargava’s accountant Paul Edwards of Plante Moran says his client is not a beneficial owner in Nevada 5—but another one of his associates says it is a vehicle for Bhargava’s philanthropy and affiliated with Innovation Ventures, the parent company of Living Essentials.
This kind of deal raises questions, says Roger Colinvaux, professor at Catholic University’s Columbus School of Law and an expert on tax and philanthropy. “If it were a private foundation, it would be prohibited from selling to a company related to a major donor.”
Rural India itself appears not to be giving much away. It lists total grants paid out in 2010 of just $4 million off a total asset base that by the end of that year had been stepped up to just over $1 billion. Bhargava can get away with this because he set up Rural India as something called a supporting organization, or a group that financially supports other charities. Unlike a traditional private foundation, a supporting organization has no mandated 5% minimum outlay, pays no excise taxes on investment income and has fewer self-dealing restrictions. Bhargava is not doing anything illegal here, just exploiting a loophole in the tax code many other big philanthropists have used as well.