Buffett’s Generous Donations Dwarf His Tax Deductions

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By Colleen Murphy

Oct. 11 — When Warren Buffett donates to charity, he likely isn't doing it for a tax deduction.

The billionaire chairman of Berkshire Hathaway Inc. released information Oct. 10 about his personal taxes that shows vast charitable giving and a long history of income tax payments. The disclosure, in which Buffett said he has paid income tax since 1944, was his latest effort to pressure Republican presidential candidate Donald Trump into releasing his tax returns.

While the disclosure is a high-level summary of Buffett's tax history and doesn't include every detail of a tax return, it does include a particularly eye-popping figure. Buffett gave $2.8 billion to charity in 2015, an amount that far outstrips his adjusted gross income of $11.5 million.

Several law professors who specialize in nonprofit tax told Bloomberg BNA that the whopping amount Buffett gives to charity far exceeds the amount he is able to deduct according to the rules laid out in tax code Section 170. Buffett claimed charitable contribution deductions that equal 30 percent of his adjusted gross income, the maximum amount allowable, which flies in the face of Trump's claim during the Oct. 9 presidential debate that Buffett took a “massive deduction.”

Neither a spokeswoman for Buffett nor a spokeswoman for Trump returned Bloomberg BNA requests for comment.

Motivation to Give

“People give for lots of reasons, taxes may play into it. He is reducing his taxes significantly by doing it,” Lloyd Hitoshi Mayer, a law professor at University of Notre Dame Law School, told Bloomberg BNA Oct. 11. “But he's giving so much beyond what gets the tax benefit—the main motivation has to be something else.”

The most notable detail about Buffett's disclosure is indeed “that his philanthropy so far exceeds any personal tax benefit for his giving,” said Rosemary Fei, a principal at Adler & Colvin in San Francisco.

He “clearly isn’t giving away his wealth to be ‘smart,' or to lower his tax bill. He’s giving to be generous,” she said in an Oct. 11 e-mail to Bloomberg BNA.

Some Tax Benefits

Still, Buffett's altruism does bring some tax benefits, said Brian Mittendorf, an accounting professor at the Ohio State University Fisher College of Business.

Buffett announced in 2006 that he would gradually give away 85 percent of his holdings in Berkshire Hathaway—the source of much of his fortune—to five foundations in annual gifts of stock, with the largest contribution going to the Bill and Melinda Gates Foundation. He later expanded the pledge, saying 99 percent of his wealth would go to philanthropy during his lifetime or at his death.

Individuals who donate appreciated stocks don’t have to recognize the capital gains as income—meaning they don’t pay capital gains tax and can still claim a charitable deduction. That is “an interesting extra tax benefit” of donating stock, Mittendorf said Oct. 11.

“The tax code rewards people to give securities that have gone up in value more than it rewards giving cash, which is kind of odd,” Mittendorf said.

Buffett also showed his tax savvy in the structuring of Berkshire Hathaway, which doesn't pay a dividend. That decision, which meant he could accumulate wealth through capital gains, allowed him to make “tens of billions of dollars and yet have incomes in the tens of millions,” said Daniel Hemel, an assistant professor at the University of Chicago Law School.

“For Warren Buffett, tax is a rounding error because income is a rounding error. And income is a rounding error for Warren Buffett because of the way Berkshire Hathaway is structured,” Hemel said Oct. 11.

To contact the reporter on this story: Colleen Murphy in Washington at cmurphy@bna.com

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com

For More Information

Text of the Buffett disclosure is at http://src.bna.com/jiY.

Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.

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