
Mark Zuckerberg’s Philanthropy Uses L.L.C. For More Control - tysone
http://www.nytimes.com/2015/12/03/technology/zuckerbergs-philanthropy-uses-llc-for-more-control.html
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mikeash
I don't think I've seen a single positive statement about Zuckerberg's
foundation.

It would have been 100% fully within his right to simply keep it all, or blow
his fortune on snorting Fabergé eggs, or buying classic cars and crashing
them.

Instead, he's giving almost all of it away. He's choosing to retain control
over how it's given away? Well so what! It's still way better than keeping it
all.

I am no fan of Facebook, but man, the amount of vitriol coming out about this
move just astounds me. Giving away 99% of your wealth is apparently not
commendable unless you do it _just right_. Meanwhile, how much are the
commenters themselves giving away? Oh, somewhat less than 99%? Yeah.

~~~
whoiskevin
"Meanwhile, how much are the commenters themselves giving away? Oh, somewhat
less than 99%? Yeah."

Terrible statement. If a commenter here makes 100,000 and gives away 99% well
they are now extremely poor. If I have billions and give away 99% my life
isn't likely to change.

~~~
stuartaxelowen
Well, 50%? 25%? 5%?

~~~
cerebrum
Even 5% is a lot if you already have difficulties making ends meet. I mean you
still want to invest something to have some kind of a cushion if you lose your
job right?

So yes, for someone with little income donating 5% can already be too much.

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amalag
By putting money in the LLC he can avoid estate taxes and still give his
family control if he wants.

>To sum up, his money is not going to a charity, but to his own LLC, which
will let him evade tax by moving his private assets into a foundation.

>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.

From: [http://says.com/my/news/what-no-one-is-telling-you-about-
mar...](http://says.com/my/news/what-no-one-is-telling-you-about-mark-
zuckerberg-donating-99-of-his-fortune-to-charity)

~~~
Nrsolis
I don't see how this is a problem. He's following the law and organizing his
affairs to retain control of the money he earned.

You aren't less of a citizen because you try to not pay more tax than you owe.
The exemptions for certain types of income are put there because the
legislature wants to promote certain activities as beneficial to the public
good. Charitable Remainder Trusts are one of those things written into the
law. Complain to your lawmakers if you think that's unfair.

Seriously. does anyone reading this post think the government is a better
steward of their income than they are? If you think so, then donate 100% of
your income to the government and live on public assistance. That option is
provided on the tax return you sign here in the USA.

~~~
littletimmy
This sort of mindset only works when rich people are not the ones making laws
in the first place. The law is not independent of the rich - they can
influence the laws they follow. That's why it is a problem.

~~~
drzaiusapelord
and what happens when we let the "poor" make laws? Endless welfare,
unaffordable backroom union deals, massive corruption, massive taxation to
move money from the uppers to the lowers, etc. Just visit Chicago or Greece to
see what happens when the power shifts to the unions instead of companies.

Also, 'rich' is often a placeholder for companies. Companies want to be
successful. That means compromise in a million different ways as bold moves
can lead to bankruptcy, boycotts, competitors coming in and taking your market
share, etc. Companies have an incentive to play ball as they want to survive
and be competitive. Government, on the other hand, survives by default and
doesn't have to be efficient at all.

The reality is that good government works when we have all players mobilized
and part of the process. Its incredibly cynical to just claim the rich make
laws to benefit themselves, especially considering that the US runs on a
popular democracy model to the point of directly electing the highest office,
which is unheard of in parliamentary democracies. The rich are vastly
outnumbered. Perhaps you should consider that a lot of regular people vote in
policies that are pro-business because they want jobs and wealth in their
area. Not everyone can become a silicon valley hotshot or NYC finance banker.
Those 'red state' policies you hate so much bring in employers, jobs, create
wealth, etc. We tried communism. Turns out it didnt work. In fact it led to
the deaths of 50-100m people and created autocracies, war, political
persecution, poverty, and misery on a level unimaginable before.

My friends here in Chicago are all looking for new jobs because a couple
employers have already left and many are planning on leaving as the tax level
and anti-business attitudes here are killing the economy. This is a city of 3m
people with a $550b GDP and we have a junk credit rating and no one knows how
to pay off these fatcat union pensions. So yeah, be careful what you wish for.
When the average guy has political power, he just writes checks for his
friends at the cost of the taxpayer and the local economy. Without the
business owning class calling some of the shots, there's really no incentive
to do anything right as you can just keep dipping into the public treasury and
when that runs out just keep raising taxes per the Chicago model. Which
inevitably culminates into a Detriot-like bankruptcy.

~~~
littletimmy
A transfer of wealth from the upper class to the lower class is the price we
pay for civilization. No welfare to the poor means they have no incentive not
to kill you.

~~~
Nrsolis
AYFKM?

If you kill all the rich people and take their money, who is going to be left
to organize businesses or produce the kinds of inventions that benefit
society? The "next-richest" people?

A society that demonizes its most successful members is a doomed one.

~~~
littletimmy
Inventions can be made through state grants (a lot of innovation is already
funded by state grants like NIH). Who told you rich people finance innovation?

A society that demonizes its poorest is a doomed one.

~~~
drzaiusapelord
>state grants like NIH

The PhD's, researchers, and managers at Federal organizations make salaries
that would classy them as "rich" in this scenario. Just because something is
publicly funded doesn't mean its thrifty, efficient, or "for the people." If
anything, considering what we know of how governments all over the world work,
its more than likely public research and programs are wasteful and corrupt
compared to private equivalents.

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jayess
If anything, this transaction will actually result in more taxes being levied
than if he had transferred it to a foundation. There still will be capital
gains tax when the LLC sells Facebook shares. It will pay income tax on any
dividends. Any investments it makes will similarly be treated. There will be
no estate tax dodge. The LLC will be valued at the value of its assets at the
death of the last spouse and estate tax will be levied at 40% on that value.

Please, someone, tell me how this is a tax dodge.

~~~
adventured
There's no scenario under which this is a tax dodge. A charitable foundation
would have been superior when it comes to limiting taxes. People ignorant of
LLCs and the tax code are the only ones claiming this is a tax dodge, it's an
easy smear because so few understand said tax code.

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jcsnv
Its sad to see how these comments are going focus on this being a tax dodge.
He is doing SOMETHING with 99% of his money for the greater good.

~~~
amalag
Not necessarily. He has just moved it around. He is ANNOUNCING he will do
something good. He could use all the money to bankroll candidates or invest in
for-profit companies. Nothing has changed yet except that he can avoid estate
taxes. He however has said he will do something "good".

~~~
jayess
As far as I understand, he wouldn't avoid estate taxes. Whoever dies last
would still own the LLC as an asset and the estate is taxed on the value of
that asset. With their combined estate tax exemption, about $10.5 million, any
value over that would be taxed at 40%. Unless he remains true to his word and
he expects to spend it all before he dies.

The only "avoidance" of taxes happening here is during the initial transaction
of transferring the Facebook shares to the LLC's ownership. Of course as the
LLC sells shares that have gained value, the capital gain would be taxed, as
would any dividends or growth from any other investments the LLC makes.

~~~
amalag
I don't want to be totally negative on Zuckerburg. Maybe he will do good with
the money. However:

An estate would not be taxed on the value of the LLC, the same way one he is
not taxed on the value of his stock. It is taxed when sold. If he assigns
family members as owners there would not be additional taxes when he passes
away if the LLC's money continues to grow.

>11\. Limited Liability Company (LLC) and Family Limited Partnership (FLP)
FLPs and LLCs let you reduce estate taxes by transferring assets like a family
business, farm, real estate or stocks to your children now, and still keep
some control. They can also protect the assets from future lawsuits and
creditors.

>Here's how they work. You and your spouse can set up an LLC or FLP and
transfer assets to it. In exchange, you receive ownership interests. Though
you have a fiduciary obligation to other owners, you control the LLC (as
manager) or FLP (as general partner). You can give ownership interests to your
children, which removes value from your taxable estate. These interests cannot
be sold or transferred without your approval, and because there is no market
for these interests, their value is often discounted. This lets you transfer
the underlying assets to your children at a reduced value, without losing
control.

[https://www.estateplanning.com/Understanding-Estate-
Taxes/](https://www.estateplanning.com/Understanding-Estate-Taxes/)

~~~
jstalin
That's not true. The estate would be taxed at 40% for any value of the LLC
over about $10.5 million (today's estate-tax exemption).

Family LLCs can work for reducing the estate tax if you transfer ownership
interests during your lifetime at a reduced valuation, owing to the fact that
the membership interests are not marketable, giving them a lower value than
the market value of whatever the LLC holds.

The only way you avoid the estate tax is if you transfer an asset to an
irrevocable trust or your family members before the asset gains significant
value. If you own, directly or indirectly, an asset that has significant
value, it is taxed at death.

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eachro
Can we all just reserve judgement until Zuckerberg does something with the
money? I'm hoping he'll be able to do something along the lines of what Bill
Gates and the Gates Foundation have done/are doing.

~~~
wpietri
No, we can't and shouldn't. He made a public announcement of a major action
while talking about the public consequences, so public critique is
appropriate.

When he actually does something with the money, I'm sure they'll talk about
it, so we can talk about it again then.

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DanielBMarkham
I don't know Mark and can't comment on his essay or this article.

I can, however, note that on at least 3 different occasions in the last year
or so I've read a heartfelt essay on somebody making sacrifices for the common
good -- only to later realize they were just setting up a tax dodge.

I do not think these things are mutually exclusive. You can both work for the
common good while trying to legally avoid paying taxes. Heck, I'd rather smart
people actively and passionately manage their money for the greater good,
especially people with a track record of doing great things. More power to
them. But I can relate that as a reader, once I finally figured it out what
was going on, I was very disappointed. It was not a pleasant experience.

~~~
ceras
If you're trying to do as much good as possible for the world, and you don't
think government taxes are used for much good, taking advantage of legal tax
write-offs is really important to achieve your goal.

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matt-attack
I thought it was impossible to donate money (in a tax deductible manner) if
you the donor had any direct control of how the money was spent. This was
supposed to prevent folks from, say, donating their money to a charity which
then sends their own child to college.

~~~
dnautics
That's not entirely true. I run a 501(c)(3) and I can donate to it and deduct
it from my income. But I also don't pay myself out of it (or anyone really),
and I have to be careful not to make purchasing/leasing etc. deals with
relatives (not a problem in my case). The issue is not control, but
disbursement of funds. Giving is fine, its how you use it that is scrutinized.

Think of it this way: let's say the nonprofit needs pens from office depot. I
could also just as easily have paid out of pocket and not donated to the
(c)(3) and claimed it as a business expense, with the same net effect and less
paperwork

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whatok
I don't blame him after what happened in New Jersey.

~~~
outside1234
What happened in New Jersey was that Mark was naive.

~~~
DanielBMarkham
For those interested, here's a link (I looked it up):
[http://www.businessinsider.com/we-now-know-more-about-how-
ne...](http://www.businessinsider.com/we-now-know-more-about-how-newark-
schools-partially-squandered-mark-zuckerburgs-100-million-donation-2015-10)

~~~
lacksconfidence
Any accounts of what happened? This used a whole lot of words to say almost
nothing. It basically says it didn't work, but didn't go into any details of
why beyond a high level complaint about beurocracy

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gotothrowaway
This is interesting only because Mark didn't address it head on from the
start, but honestly it's not all that surprising.

Private foundations have something called "expenditure responsibility" which
makes giving funds to a taxable entity (a grant) tremendously annoying. Any
misstep makes you liable to some massive surcharges, public scrutiny, and
potentially major headaches. It's the antithesis to Mark's "move fast and
break things"

There's some argument he should push for a public charity instead. There,
expenditure responsibility isn't expressly required, but you're still expected
to see that the money you grant is used for our charitable purpose, and still
subject to audit.

I'm expecting them to write quite the essay in response. On it's face, I don't
think people should fault this decision. I'm fully expecting a strong effort
to use this money efficiently, which is no easy task with such a massive sum.
Check out GiveWells recent post about trying to "give away" Dustin Moskiwitz
and Cari Tuna's money - which I believe is an order of magnitude less in
volume, but still very challenging.

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dragonwriter
This article has the issue completely wrong from the first sentence. LLC and
corporations are both organizational structures; either an LLC or a
corporation can be a regular, tax-exposed operation, or a tax-exempt non-
profit under the tax code (including a tax-exempt charity under 501(c)(3)).
The fact that the Chan Zuckerberg Initiative is an LLC _does not_ distinguish
it from a non-profit; the fact (if it is a fact, and I can't really see
drawing a strong conclusion on that on the basis of an article that starts out
from a premise that confuses organization structure with tax-exempt non-profit
status -- but the other discussion in the article from other sources seems
consistent with it being an LLC that is _not_ intended as a tax-exempt non-
profit) that it doesn't comply with any of the categories for tax exemption
and hasn't applied for recognition as a tax-exempt non-profit would.

Really, a non-tax-exempt entity (whether LLC, corporation, or any other
organizational structure) makes sense to coordinate philanthropic activities
if you want to have flexibility that a 501(c)(3) wouldn't have and, since the
funds are all coming from you, you don't need the incentive to donors that the
tax-deductibility of donations to a 501(c)(3) would provide. If its a
disregarded entity for tax purposes (which it can be with a sole owner or,
IIRC, co-owners who are a married couple who file jointly), then anything the
LLC donates to a 501(c)(3) has the same effect on the taxpayers liability as
if the taxpayer had donated directly to the 501(c)(3). The same person could
even establish one or more 501(c)(3) entities -- again, of any organizational
structure, including LLCs -- through which to which the non-exempt LLC would
donate funds for purposes that are within the scope of what is permitted for a
501(c)(3).

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sethd
Good for them, why shouldn't they retain control over how their money is
dispersed?

A LLC also has the advantage of being structured by a custom operating
agreement, that can allow the members to cover all kinds of different
scenarios to insure their vision is executed they way they intend.

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known
I'll give $300 million for [https://www.change.org/p/independent-nation-
for-300-million-...](https://www.change.org/p/independent-nation-
for-300-million-india-s-untouchables)

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6stringmerc
Did anybody see the part in the letter to the daughter that went into detail
as to why the family made the decision to structure the legacy into an LLC
instead of a traditional charity or trust? No? Wonder why they left that part
out.

