I’m not going to claim to be an expert. The analysis I’ve read said he wouldn’t pay taxes.
After all, by donating the stock, the gain he would have experienced on selling it is never taxed. The donee organization can either hold or sell the stock. But since it is a tax-qualified charity, if it sells the stock it pays no tax regardless of how big the gain. And since Mr. Zuckerberg will get credit on his tax return for the market value of what he donates, he can use that to shelter billions of other income.
The criticism is because it’s Zuckerberg I think. He has a history of “charity” that is ham handed and ineffective (at best) and which serves only to stroke his own ego. This seems like the perfect vessel to continue is attempts to “help” (him feel better at himself).
I mean, this doesn’t sound functionally different than what Musk has done, but people worship at Musk’s feet. Of course, Musk only ever really talks about making the world a better place when he’s trying to get people involved, and he is good at convincing people he can accomplish what he wants to do.
Zuckerberg seems like an egotistical menace who is trying to get credit for “donating” when what he’ll likely end up doing is “meddling in things he’ll probably screw up”. But hey, maybe he really has learned his lesson and this time around he’ll actually do some good. It’s possible!
A tenth of that basically guarantees his descendents royalty status into perpetuity (until it gets to a descendent that decides he wants to fuck over his descendents in advance, which tends to be how aristocratic wealthy families meet their end). Of course he’s not even keeping a tenth so yeah he definitely seems to be making a sacrifice here in terms of direct material wealth for his descendents.
(And so on.) Thanks, the Forbes article is somewhat interesting, and not for nothing, it ends with “Mr. Zuckerberg’s pledge is incredibly generous. But it is also likely to involve some very savvy tax planning.”
There’s a little bit that hinges on the exact nature of the shares Z is transferring. If they’re plan old unrestricted stock that the LLC can transfer to a tax-deductible recipient, then the Forbes article is spot on, and the Z quote I shared earlier is misleading (the “when” should be an “if”). On the other hand, if for some reason Z’s holdings are in some restricted form that requires them to be sold rather than transferred to a third party (this is exactly the case with stock options such as used to be a common form of compensation in Silicon Valley), then the sentence I quoted earlier would apply as written and the Forbes analysis wouldn’t. I don’t know the specifics and I don’t care enough to dig into it further.
In any case, I can’t bring myself to resent him for using the tax code exactly as it was written and exactly for the purpose. He was encouraged to transfer a vast sum of money to a set of charitable organizations?!? Those organizations will receive the full donated amount and not the amount net of taxes?!? Oh no!!! If we don’t like it that way, we need to rewrite the tax code (OK by me, by the way) not blame, as others have pointed out, the player.
The article makes a great point that this donation tacitly acknowledges that no one could personally spend $45 Billion and that raises the question of why we don’t tax wealth, only income. I have to quibble with this line:
I have no idea how to evaluate if the P.R. received is worth $45 Billion, but there seem to be better returns to be had. Consider that a presidential candidate can get a year or more of news cycles for a mere $1 Billion, The Chan Zuckerburg initiative got just one day.
But they get to get PR again when they spend the money on things. Sort of funny that, you get PR for donating, then for against for spending the same money. It’s almost like you didn’t donate it at all…
Well let us see what is actually done with the money. For all we know tomorrow it will fund a generic drug company to do the paperwork for a certain toxoplasmosis drug to be produced for patients at cost. Or it may well push Facebook branded internet on and many people as possible.
Oh. Silly me. There is actually a much more straightforward explanation for why the quote “And just like everyone else, we will pay capital gains taxes when our shares are sold by the LLC.” is a “when” and not an “if”. If we suppose that (a) the LLC intends to be around for decades and not shoot its wad in the next few years, and (b) they’re not morons and understand that Facebook isn’t going to be the flavor of the week forever, then it follows that they’ll need to diversify their holdings. To do that, they’ll need to sell a massive crapload of Facebook stock. When they do that, capital gains taxes will be incurred. Presumably the LLC is structured such that the taxes will be paid out of the proceeds, but taxes there will be. Q.E.D. the Forbes article quoted earlier is probably full of shit.
Look, I don’t turn to Forbes to tell me whether or not I should think Zuckerburg is generous, but unless you are an accountant or a tax lawyer, random article from Forbes still has more credibility than random person on the internet. I’m totally open to the possibility that there the article was written in haste, or was part of some groupthink picked up and carried from media outlet to media outlet (since Forbes was hardly the only one). I have Forbes, the NY Times and others telling me there is a tax shelter effect, and Zuckerburg saying, “No, there isn’t.”
Zuckerburg is saying that when a corporation he created sells something - incurring no gain to him - he will have to pay taxes on that sale. I’m not going to tell you that would be the craziest tax law I’ve ever heard of, but it raises some questions in my mind about how that would work, on what part of that gain he would be taxed, etc. I certainly don’t have any reason to just take his word for it, and since this will be out of the news cycle in a couple of days (I think it’s actually already over as I write this) I’ll likely never know for sure. Because of that, it’s totally plausible that Zuckerburg could just say “No” to save face, knowing that no one but some left-wing-identified alternative media sources will call him on it; especially if the real answer is, “It’s more complicated than that.”
While I’m not a tax lawyer or accountant, I have been a partner (technically, a “member”, good for hours of juvenile hilarity) in a company organized as an LLC so I’ve had advice from tax lawyers and accountants and have filed personal income tax returns on which I did, in fact, have to pay tax on the LLC’s profits (I also got to carry forward company losses and credits). That’s just how LLCs work. They’re basically a variant on a limited partnership, they exist to provide limited liability but for tax purposes they barely exist at all, taxes flow through to the personal taxes of the members. This is generally handled by having an accountant work out how much of each member’s tax liability is due to the LLC, and the LLC cuts a check to cover it. It’s a pain in the ass, and I probably wouldn’t organize as an LLC again because of it, but presumably Zuckerberg had good advice in doing it and has a small army of accountants to work out his taxes for him anyway.
Anyway, take it or leave it, no skin off me. It’s easy enough to look up the tax treatment of an LLC, though, assuming you trust Wikipedia: Limited liability company - Wikipedia
Woo, tax law! Now I would have to know which of the apparently several taxation options available Zuckerburg’s LLC chose and what each of those meant. At any rate, if you haven’t proven that there is no tax benefit, you’ve at least given me plenty of reason to question hastily published articles about what the tax benefits might be.
I’m still not jumping up and down to congratulate Zuckerburg over “donating” money that he essentially still controls, but the tax picture is obviously far more complicated that it is made out to be in the simplistic explainers.
The explainers read a lot like they are assuming Zuckerberg did the conventional thing. (The whole assets → foundation → ??? → profit! pattern is a standard one.) Which is perfectly natural, especially with short publication cycles.
