Why Mark Zuckerberg’s ‘Charity’ is a Scheme to Dodge Billions in Taxes|
Facebook pays almost nothing in taxes. And now its founder won’t either.
On the surface, Facebook founder Mark Zuckerberg’s announcement that he’s donating 99 percent — roughly $45 billion — of his Facebook stock to philanthropy seems genuine. Other notable billionaires, like Warren Buffett and Bill Gates, have made similar pledges to donate a large bulk of their net worth to charitable causes. However, this is actually just a clever ruse that allows these billionaires to get out of paying taxes on their enormous sums of wealth. As facts come out about Zuckerberg’s new organization, the Initiative seems less like charity and more like a tax ploy.
Unlike the Bill and Melinda Gates Foundation, a 501(c)(3) nonprofit, the newly-created Chan Zuckerberg Initative (named after both the Facebook mogul and his wife, Priscilla Chan) is an LLC. This frees up the Initative to do everything from invest its endowment in private corporations as well as fund charitable efforts and participate in politics. A public release from Facebook confirmed the structure of Zuckerberg’s new project:
“The Chan Zuckerberg Initiative will pursue its mission by funding non-profit organizations, making private investments and participating in policy debates, in each case with the goal of generating positive impact in areas of great need … Any profits from investments in companies will be used to fund additional work to advance the mission.”
The release also states that Zuckerberg will maintain control of all the shares donated to the Initiative and that he’ll serve as the organization’s principal figure for the foreseeable future. Forbes author Robert W. Wood noted Zuckerberg’s decision to donate stock rather than cash is a business-savvy decision allowing much greater opportunity to avoid paying taxes:
Why donate stock? With stock, the donor gets a charitable contribution deduction based on the fair market value of the shares. Value and basis are different things, which can mean enormous tax advantages. In the past, Mr. Zuckerberg has donated hundreds of millions of dollars to charity, as he has to the Silicon Valley Community Foundation. Of course, he donates millions of shares, thus skipping tax on the run up in value. Facebook went public in May 2012, with shares initially priced at $38. They proceeded to dip below $20 but then rose by more than 25% by the time of Mr. Zuckerberg’s year-end donation. Zuckerberg’s deduction is keyed to that market value.
Alice Ollstein of Think Progress wrote that by donating almost all of his stock to the LLC, Zuckerberg will save at least 20 percent in capital gains taxes that normally would have been levied upon sale of the stock. And Max, the child that inspired Zuckerberg to launch the LLC, will be spared from paying millions in estate taxes from the wealth she will eventually inherit from her father. As Wood explains, the “donation” is actually just shifting wealth from one account to another tax-free one under the guise of “charity.”
After all, by donating the stock, the gain [Zuckerberg] 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.
This kind of tax strategy is not a foreign concept to Zuckerberg — Facebook’s Initial Public Offering (IPO), which went live in 2012, was a tax strategy in itself. Thanks to tax breaks for executive stock options, Facebook was able to pay $0 in state and federal income taxes in its first year after going public. As Citizens for Tax Justice explained in a 2013 report, Facebook actually ended up getting $429 million in tax refunds due to its IPO:
Facebook’s income tax refunds stem from the company’s use of a single tax break, the tax deductibility of executive stock options. That tax break reduced Facebook’s federal and state income taxes by $1,033 million in 2012, including refunds of earlier years’ taxes of $451 million. But that’s not all of the stock-option tax breaks that Facebook generated from its initial public offering of stock (IPO). Facebook is also carrying forward another $2.17 billion in additional tax-option tax breaks for use in future years.
German billionaire Peter Krämer sees right through “charitable efforts” like Zuckerberg’s new LLC. In a 2010 interview with Der Spiegel, Kramer said philanthropy efforts like Warren Buffett’s pledge for billionaires to donate at least 50 percent of their net worth to charity is often just a ruse for billionaires to get out of paying their fair share of taxes:
Krämer: I find the US initiative highly problematic. You can write donations off in your taxes to a large degree in the USA. So the rich make a choice: Would I rather donate or pay taxes? The donors are taking the place of the state. That’s unacceptable.
SPIEGEL: But doesn’t the money that is donated serve the common good?
Krämer: It is all just a bad transfer of power from the state to billionaires. So it’s not the state that determines what is good for the people, but rather the rich want to decide. That’s a development that I find really bad. What legitimacy do these people have to decide where massive sums of money will flow?
In Zuckerberg’s defense, he maintains that the Initiative will dedicate its funds to “providing everyone with basic healthcare,” “preventing, curing or managing all or most [diseases] in the next 100 years,” and funding “personalized” online education programs. But as I reported last month for US Uncut, Zuckerberg’s previous foray into education-related philanthropy involved dumping $100 million into Chris Christie’s pillaging of Newark public schools. The money was spent on hiring consultants who charged $1,000 a day, firing 1,000 public school teachers and 800 staff, and closing public schools while opening charters. That effort has been widely criticized from a multitude of news outlets.
Tom Cahill is a writer for US Uncut based in the Pacific Northwest. He specializes in coverage of political, economic, and environmental news. You can contact Tom via email at [email protected]