On December 1, when announcing the birth of his daughter, Facebook CEO Mark Zuckerberg along with his wife Priscilla Chan, pledged to give away 99% of his estimated $45 billion in Facebook stock to charity. But not everyone thought his motives were pure. People soon began to ask a pertinent question: Was the donation to a Delaware-based LLC, nothing more than a way to duck California taxes?
BuzzFeed first pointed out that the Chan Zuckerberg Initiative was not a non-profit, but a for-profit Limited Liability Corporation (LLC), which has no obligation to actually engage in charitable activity. While The New York Times questioned Zuckerberg and Chan’s charitable intent, the Los Angeles Times went on to accuse them of tax evasion.
Mark Zuckerberg pledges that he and his wife will give 99% of their Facebook shares “during our lives” to charity https://t.co/0CRi2D26T2
— The New York Times (@nytimes) December 1, 2015
Says.com dissected further:
The vehicle for his beneficence will be the Chan Zuckerberg Initiative LLC, a family-run foundation that he controls and through which he will maintain control of Facebook for “the foreseeable future”. Which basically means: Mark Zuckerberg will transfer ownership of his Facebook stock without paying capital gains taxes. He will also benefit from the possibility that his foundation will live beyond him, with his heirs and their heirs at the helm, untouched by estate taxes. Which means that unlike a charitable trust, which is compelled to spend its money on charity, Chan Zuckerberg Initiative, LLC will be able to spend its money on whatever it wants, including private, profit-generating investment.
Donating appreciated stock is a much better tax move than selling it and donating the sales proceeds. 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.
Widespread criticism forced Zuckerberg to respond in another post on Facebook. Defending the use of an LLC as a way to better advance their stated goals of helping society and future generations, he claimed, “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. 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.”
A note from Mark thanking the community for all the well wishes, and providing more detail on our focus areas and how we’re structuring our work
Posted by Chan Zuckerberg Initiative on Thursday, December 3, 2015
Whether his money is going to a charity or to his own LLC, whether he is evading tax by moving his private assets into a foundation, or whether he is simply making the move because it allows him to do things that charitable trusts are not allowed to do, the ‘charity’ in all earnest seems to benefit the Zuckerberg family more than a traditional trust.
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