The article above claims that somehow he can still claim a tax deduction from giving his shares to this foundation. How does that make any sense if its a for-profit foundation? Is the article wrong, or how can you claim a deduction giving money to a for-profit foundation?
I’m not interested in regestering with the Wall Street Journal. Can you give a summary? If he’s still controlling the shares, then to me it looks more like a cynical attempt to manufacture goodwill than anything else.
I’m not sure about the tax consequences, but choosing to form a for-profit corporation instead of non-profit is not necessarily a cynical goodwill-grabbing move. A for-profit corporation has fewer regulations, so Mark can direct its activities to good causes of his own choosing without having to answer to a board of directors or fill out as much paperwork. Or he could be trying to make an underhanded profit, who knows.
It’s baffling. The way it reads in the linked article in the OP Zuckerberg gets 1/3 of the value of the shares as a tax rebate for transferring to a LLC that leaves him still the beneficial owner of the shares. So the taxpayers are paying him to make the transfer.
I’m not interested in regestering with the Wall Street Journal. Can you give a summary?
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According to the WSJ article, because it’s a for-profit LLC, he will still have to pay capital gains taxes when he sells shares, and he can move money back out of the LLC if he chooses. Also, because it is a for-profit, he is not limited to investing in charitable activity but can also pursue other activities such as lobbying or campaign contributions.
If this is correct, I think the other article is incorrect to say that he gets to take a charitable deduction on his donations to the LLC. The WSJ article points out that the charitable deduction is not really useful to him, because it is limited to 1/3 of income, and he typically has no income at this point. He gets only a $1 salary and Facebook stock pays no dividends.
I’m not sure what the estate tax consequences are.
Overall, I think you’re correct that the transfer to the LLC is window dressing.
As an aside, you can usually read entire WSJ articles by running the title through Google and going in via the result. So here, google “Mark Zuckerberg Tests New Philanthropic Mode.”
My guess would be that he really intends to “make the world a better place” but wants complete control and the freedom to spend the money however he likes — which may very well mean that he’s going to waste it all on useless bullshit. We’ll see!
This is an article from the New York Times on why they chose the LLC route. It mentions that a traditional non-profit foundation is required to spend five percent annually on charitable purposes. Also, the LLC structure allows them to invest in for-profit companies whose goals match their own.
Wasn’t this his money to begin with? So if he wanted to “waste it all on useless bullshit” he could certainly already have done so, and without the spotlight that the LLC puts on his charitable endeavors.
He apparently wants to use a good bit of the money to lobby the government. Charitable foundations have strict rules regarding the amount of their money that can be spent on lobbying. By structuring the gift in this way he can have the freedom to spend money on lobbying as well as invest in companies he supports.
Again, if he wanted to use his money to lobby the government, he could do so without putting it in an LLC. And in fact, he’s going to contribute “only” a billion dollars each year to it, and will have billions more outside the LLC that he could use for lobbying if he so chose.
The key point is that he is going to spend the money on charitable purposes over the rest of his life–not immediately. I think the problem is the mass media didn’t understand what he was planning to do so started publishing articles about giving 99% of his wealth to charity–giving the impression he was doing it all immediately.
The LLC provides limited liability and allows Zuck to conduct his philanthropic/lobbying efforts/investing efforts through a separate legal entity. Since it’s an LLC, the tax consequences are essentially the same; any profit earned by the LLC is income for Zuck and Chan’s personal tax return, and any charitable donations it makes are deductions for them. The LLC itself doesn’t pay income taxes.
So the main advantages of this structure are:
[ul]
[li]Zuck and Chan have complete control over the LLC, and can direct its operations however they want. There is no outside BOD.[/li][li]The LLC can give money to charities and Zuck and Chan get the tax deduction just the same as if they gave personally[/li][li]The LLC can engage in political lobbying and activism, which charities can not do[/li][li]The LLC can invest in for-profit businesses which align with its objectives, and any returns can be kept in the LLC and used for other philanthropic efforts, or not[/li][li]Zuck and Chan can take money out of the LLC at any time, unlike a charitable foundation where once the foundation has the assets, its theirs forever[/li][li]Any liabilities of the LLC are limited; Zuck and Chan are not on the hook personally if the LLC gets sued or involved in a dispute.[/li][/ul]
It sounds like he’s creating a separate entity through which he will conduct certain business of a philanthropic nature that he could theoretically do himself, but for some reason he wants to spin it off onto another entity. Some of that might be the liability protection of the LLC; the entity can only lose whatever assets he transfers to it, not any of his personal assets that he doesn’t - something that would not be the case if he undertook these actions as an individual investor.