ProPublica Report Shows Facebook’s CEO Saving Himself a Ton in Tax Dollars
In a move that brought praise and admiration from many, Zuckerberg and his wife, Dr. Priscilla Chan, this week announced that, to celebrate the birth of their daughter, they would donate 99 percent (worth approximately $45 billion) of their Facebook shares to make the world a better place for her to grow up in.
In an open letter to their infant daughter, the pair said their “initial areas of focus will be personalized learning, curing disease, connecting people and building strong communities,” adding that while $45 billion is a “small contribution compared to all the resources and talents of those already working on these issues,” the couple wants to do what they can.
To do this, Zuckerberg created the Chan Zuckerberg Initiative — not a non-profit organization, but, rather, a limited liability company.
The move, as ProPublica pointed out, “has already reaped enormous benefits as a public relations coup for himself.”
“His PR return-on-investment dwarfs that of his Facebook stock. Zuckerberg was depicted in breathless, glowing terms for having, in essence, moved money from one pocket to the other,” wrote ProPublica’s Jesse Eisinger.
“An LLC can invest in for-profit companies (perhaps these will be characterized as societally responsible companies, but lots of companies claim the mantle of societal responsibility). An LLC can make political donations. It can lobby for changes in the law. He remains completely free to do as he wishes with his money. That’s what America is all about. But as a society, we don’t generally call these types of activities ‘charity’.”
As Eisinger noted, by going the LLC rather than the charity route, Zuckerberg and Chan avoid the rules and transparency requirements that a non-profit is required to follow. For instance, a charitable foundation must distribute a certain percentage of its assets annually.
Eisinger also pointed out that an LLC will mean more favorable taxes for the Zuckerbergs.
University of San Diego School of Law professor Victor Fleischer, a tax specialist, told ProPublica if the LLC sold stock, Zuckerberg would be hard hit but, if the company instead donated shares to a charity, he would get a deduction. But an even smarter move, Fleischer said, would be to have the LLC donate the appreciated shares to charity, producing a deduction at fair market value of the stock, which means no tax.
“Zuckerberg didn’t create these tax laws and cannot be criticized for minimizing his tax bills. If he had created a foundation, he would have accrued similar tax benefits,” Eisinger wrote. “But what this means is that he amassed one of the greatest fortunes in the world — and is likely never to pay any taxes on it. Any time a superwealthy plutocrat makes a charitable donation, the public ought to be reminded that this is how our tax system works. The superwealthy buy great public relations and adulation for donations that minimize their taxes.”
Zuckerberg, does not see it that way, however. In a Facebook post, he said he and his wife decided to structure the Chan Zuckerberg Initiative as an LLC rather than as a charity because it allows them to “pursue our mission by funding non-profit organizations, making private investments and participating in policy debates — in each case with the goal of generating a positive impact in areas of great need. Any net profits from investments will also be used to advance this mission.”
“By using an LLC instead of a traditional foundation, we receive no tax benefit from transferring our shares to the Chan Zuckerberg Initiative, but we gain flexibility to execute our mission more effectively,” Zuckerberg added.“In fact, if we transferred our shares to a traditional foundation, then we would have received an immediate tax benefit, but by using an LLC we do not. And just like everyone else, we will pay capital gains taxes when our shares are sold by the LLC.”
What are your thoughts? Are Zuckerberg’s motives wholly altruistic or is this simply a smart way avoid tax while also currying public favor?