
Is the new Zuckerberg fake charity an estate tax avoidance scheme? - zdw
http://blogs.law.harvard.edu/philg/2015/12/03/is-the-new-zuckerberg-fake-charity-an-estate-tax-avoidance-scheme/
======
ilyanep
Man, is anyone else seriously bummed out by how cynically everyone is viewing
this announcement?

There's a rich guy who founded an organization, ostensibly with the hopes of
doing something good with all that money that he owns. Maybe the organization
doesn't go anywhere, or maybe he winds up paying less in taxes. Can't we all
hope for the other side of the coin -- that he does wind up doing good for the
world? Why not wait and see?

~~~
jrcii
Better a 5% chance it does good than a 100% chance it's squandered on
bureaucracy and inefficient solutions to problems other tax dollars went to
creating.

~~~
Sideloader
Fallacious nonsense like this: "[Tax revenue is]squandered on bureaucracy and
inefficient solutions to problems other tax dollars went to creating"

...is today's version of "down with the capitalist dogs; long live the
proletariat and glorious socialism!" of eras past.

Global capitalism taken to its extreme is an ideology that promotes a massive
transfer of power to private individuals and the dismantling of the state.
Libertarianism, in other words. Unfortunately, utopian ideologies have a nasty
habit of becoming tyrannical dystopias when put into real-world practice.

Extreme capitalist ideology paints government as cartoonishly hopeless and
inefficient, maybe even evil, run by inept bunglers that steal our money and
waste it on paperclips and perks for bureaucrats. The solution, they say, is
let private for-profit business take over and watch efficiency skyrocket and
costs plummet. Sounds wonderful...except it's a hopelessly naive utopian
fantasy (or, depending on your outlook, a scam to transfer even more power and
wealth to the world's billionaires).

My own view is that unfettered capitalism taken to its logical conclusion will
result in a feudal society...or violent revolution.

~~~
vixen99
As against unfettered socialism which actually did in the USSR.

------
luckydude
I posted this on a different thread. I think it is tax avoidance.

One way to look at this is that Zuckerberg just robbed the treasury of $45B.
Part of that would have come in through capital gains taxes and the rest
through the estate tax.

What they do with that money is up to them, not the state. It's a pretty
sweeping end run around the taxation system.

Maybe we'll get lucky and he'll use the money to good end like Gates is doing.
And maybe not.

This is a heck of a tax code we've got, it's trickle down on a grand scale.

reply

~~~
erikpukinskis
I don't understand. This is how the tax code works. If you give the money away
to charity the Government doesn't take income tax on it. That is a law that
was passed. The whole point is to get people to give money to charities
because that's a good thing.

~~~
secstate
Eh, but you're assuming that money to charities is always a good thing. There
are a) some pretty terrible charities out there and b) some patently fake
charities that are designed as money laundering schemes.

The tax code works because it was written by people who had huge amounts of
wealth and were pissed that the federal government (the People of the U.S.)
created an income tax.

No other developed country has such crazy laws regarding charity donations as
the U.S.

~~~
lifeformed
So why is everyone already assuming Mark's charity is going to be one of the
terrible ones? I don't see why he wouldn't give an honest shot at improving
the world, as a young idealist. Maybe he won't do a great job at it, but
people should reserve judgement til then.

~~~
zeofig
I'd say you're making the assumption that it will be used for good, when so
many charities are indeed used for tax evasion (and other more nefarious
purposes). When you condition these probabilities on how most charities
actually operate, and on Zuckerberg's past behaviour, a high level of cynicism
proves to be the rational position.

------
ganeumann
Greenspun would read the worst into whatever Zuckerberg did here, as seen by
him starting the post criticizing the timing of Zuckerberg's marriage.

Why not assume the best? Zuckerberg said he planned to give away 99% of his
wealth to help other people. That's a good thing. Why criticize him now? If he
ends up not doing it, criticize him then. If all he was doing was trying to
avoid some estate taxes, he could have done that without any announcement at
all, certainly drawing less scrutiny.

Scrutiny is important here, because the IRS could disallow the application of
the LLC estate planning loophole here just by saying so. The 40% discount for
non-management shares is an accounting judgement, not a law, and not one the
IRS need accept if it believes the sole purpose is to evade taxes.

~~~
bcg1
He didn't say he would give away 99% of his wealth. He said he would use 99%
of their Facebook shares to fund their agenda. And he said they would do that
with 99% of his shares over their lifetime... if they were 'giving away 99% of
their wealth' they could just do that today. As it happens, they can still
realize significant returns from those funds in the meantime, and probably end
up richer than when they started.

The pattern of manipulative billionaires sheltering their legacies like this
is not new; see Rockefeller, Carnegie, Ford, Gates, etc.

~~~
soared
What the fuck? You don't even make an argument with this comment. You just
bashed the rich.

------
onewaystreet
I wonder how many wealthy people are reading all of this criticism of
Zuckerberg and are thinking to themselves: "On second thought, I'll just buy
another boat." Remember how cool it was when Larry Ellison spent $500 million
on that Hawaii island?

~~~
datashovel
Generally speaking I'd say it's far healthier world when we don't think we're
all dependent on billionaires to make the world a better place. Also far
healthier world when billionaires don't actually believe they're responsible
for illuminating the world's path to salvation.

IMO the criticism is warranted, and there is a clear path Zuckerberg could
take to quash all of the bad publicity. While he may be surprised people are
calling him out, I say good for them. Why let anyone pull wool over your eyes
voluntarily?

------
sremani
If it were are tax avoidance scheme, Mr.Zukerberg would have been well served
if it was all kept silent from public. For all his flaws, Mr.Zukerberg seems
to be a guy who cares, and he will have my benefit of doubt until proven other
wise. The vitriolic reaction to his announcement is uncalled for.

~~~
hackerboos
You're mixing the meanings of tax avoidance and tax evasion.

Zukerberg is not breaking the law, he's legally structuring his finances to
avoid capital gains. The fact that these gaping loopholes in the tax code is
combination of incompetence and corruption.

------
Gustomaximus
More generally I've never understood why charity is tax free. When I or others
to give money to charity that is great and I support that. But why do so many
expect they can take from the governments pocket when funding a cause they
believe in? Dont get me wrong, I understand 'the logic' to encourage
charitable giving this is a net positive.

In my home country charities are often abused by business and individuals.
Given increasing sophistication and selfishness of individuals non-profits and
charities should be taxed like any other organisation. Ideally real charities
would have very low tax rates anyway. They typically distribute income to
causes creating expenses against income, basically turning them into very low
margin and subsequently low tax business. And those that abuse this structure
or hoard income can pay tax like any other business. Little bit controversial
I know but I find this tax-free relationship is taken as 'its the way it is'
without further thought.

~~~
steve19
The simple reason, at least in democracies, is that voters want charities to
be tax free. If they did not care, you can be damned sure tax-free status
would be dropped.

I don't think there is any more complex moral reasoning than this.

I for one would never vote for a party advocating taxing donations. As to what
constitutes a charity ... well that is another debate [0]

[0] [http://mentalfloss.com/article/18575/ikea-worlds-largest-
cha...](http://mentalfloss.com/article/18575/ikea-worlds-largest-charity)

------
55555
There's no way to know; only time will tell. He either genuinely wants to
maximize his charitable contribution to the world, or he just wants to avoid
capital gains and estate taxes, and the smart choice of action (that which he
has taken) is the same in either case.

------
peterjlee
I don't think Zuckerberg is trying to avoid estate tax but even if he is and
if he's doing it legally, this is something we should complain to the Congress
for writing bad tax code.

------
stillsut
At issue here is _not_ whether this one instance (Zuck) is a tax coward or a
much needed 21st century philanthropist. Instead this is about whether our
tax-code can raise tax rates on business-owning millionaires and billionaires
to arbitrarily high levels and capture the desired revenue.

Economic historians have documented this type of tax avoidance in previous era
of high taxes. When an executive was taxed 90% of his income, his salary was
greatly decreased and instead got 2-weeks time on the company's (pre-tax)
yacht.

These type of "global charities" are very disturbing at this moment when it is
becoming clear that tax rate will need to be increased substantially in the
future to pay for our growing deficit. Which means it will become increasingly
desirable to be employed or make deals with one of these shell corporations
(zero tax), while all the boring but actually essential things like
construction will face huge tax burdens.

Ultimately, the big fear is that it will become completely rational to spend
more effort trying to game the IRS then it will to do IRL value-add. (see
Michael Lewis's piece on Greece in the run-up to '08 to see what this looks
like)

------
csmajorfive
It would be pretty strange to tell the IRS that he's discounting the transfers
40% after publicly stating "we receive no tax benefit from transferring our
shares."

If you believe in the government's ability to allocate money, you should
probably believe in its ability to collect it, too.

------
tim333
Estate tax avoidance scheme? They've got about 60 years before they hit estate
tax and giving away 99% of your money is a crap avoidance scheme.

------
zkhalique
Somehow from what I know of Mark Zuckerberg, he's not exactly looking to sit
on all those billions. The motives the article is imputing to him are wrong.

------
punee
Okay, so now I'd like someone honest to read this whole thread and tell me
with a straight face that Hacker News is "full of libertarians", as I read
here from time to time.

I mean, there's someone here who doesn't understand why some people try to
lower their tax bill by "taking from the government's pocket", and it goes
completely unnoticed.

I can't be the only one to find this hilarious?

------
ricksplat
There probably is a sneaky aspect to all this, but having seen the benefits of
private philanthropy up close (to whit: Gates Foundation providing otherwise
unaffordable HIV medication in southern Africa) I'd be slow to dismiss
outright. It's not ideal, but for the people to whom this matters it makes not
a jot of difference.

------
necessity
If it is, good on him. Estate tax is just tax on something that has already
been taxed.

~~~
kspaans
The money you use to buy stuff also (usually) pays consumption taxes. Yet that
money was income that you've already paid income tax on. Should consumption
taxes be abolished?

~~~
necessity
If it were possible, yes. It is actually a big problem, specially on countries
that heavily depend on it (such as Brazil), since the poor can't escape it and
it affects them badly. The poor are the ones who pay more taxes proportionally
because of that, in Brazil[1], whereas whoever owns a business (small or big)
can usually avoid some taxes.

[1] [http://noticias.r7.com/record-news/video/populacao-de-
baixa-...](http://noticias.r7.com/record-news/video/populacao-de-baixa-renda-
paga-mais-impostos-no-brasil-4defa15db51a597468aec95b)

------
gopi
Foundation or LLC, when Mark dies only 1% of his wealth will be passed to his
kids...If this is not Generosity i don't know which is

------
tzs
> The letter to our daughter works pretty well as comedy, e.g., “ _Medicine_
> has only been a _real science_ …” (emphasis added).

I'm not sure what the author is trying to say here. He cut out important
context. The "..." was "for less than 100 years". While one might quibble with
the exact number, Zuckerberg was reasonably in the ballpark.

> It also works pretty well as a dictionary example of “optimism”, with
> Zuckerberg imagining that a $1 billion annual budget is going to move the
> needle (NIH spent $31 billion in 2010, according to Wikipedia, and the drug
> companies keep telling us that they are spending some of their Irish dough
> on research)

The Gates Foundation spends about $4 billion a year, spread over many
different kinds of initiatives. Their health spending is "only" about $1
billion a year, and they move the needle there. I see no reason the
Zuckerbergs can't move the needle at $1 billion per year as long as they don't
spend in too many disparate areas.

Here's an article from NPR that explains why it can be more effective to do
charity and activism through an LLC instead of through a non-profit
foundation: [http://www.npr.org/2015/12/03/458276386/facebook-founder-
to-...](http://www.npr.org/2015/12/03/458276386/facebook-founder-to-give-away-
his-fortune-through-for-profit-company)

Some excerpts:

    
    
        "A foundation itself is not allowed to do what the
        Internal Revenue Code defines as lobbying," he says.
        "If you're trying to achieve a social end through
        advocacy, you're going to find yourself very
        constrained, whereas if you're just paying it out of
        your own pocket if you're a company or an LLC, there
        are really no constraints at all, at least imposed
        by the tax code."
    
        In a public letter to their newborn daughter, Chan
        and Zuckerberg said about their philanthropic goals,
        "We must participate in policy and advocacy to shape
        debates."
    

and

    
    
        Mollie Cullinane, who runs a law firm that
        specializes in philanthropic giving, says creating
        an LLC instead of a nonprofit looks like a move by
        Chan and Zuckerberg "to get more deeply involved in
        advocacy and promotion of certain causes that other
        charities and foundations can't speak out about as
        loudly."
    

and

    
    
        But beyond politics, there are other ways an LLC
        will give the couple philanthropic flexibility.
    
        "There's a whole new area opening up, so-called
        impact investing, where you invest in a for-profit
        organization that has a social mission," Brest says.
    
        So the couple might invest in clean energy
        companies, for example, and could make money off
        those investments. Foundations can do some of that.
        But, Brest says, "you are freer from any
        restrictions if you simply do it through a private
        company."

~~~
punee
Someone in the comments section of the blog links to an interesting article
w.r.t. your first point:

[http://www.nature.com/news/registered-clinical-trials-
make-p...](http://www.nature.com/news/registered-clinical-trials-make-
positive-findings-vanish-1.18181)

The snark in the original article makes the author sound like a total idiot.

But let's not get in the way of HN's Two Minutes Hate?

------
zatkin
Has there ever been a multi-billionaire/millionaire that did the same thing?

------
umaguma
A letter apologizing for his wrongs, announcing that Facebook will no longer
collect personal information and that it will exist for users not advertisers,
as well as promising to refrain from ever using the word "hacker" again to
refer to himself or anyone at Facebook.

"Move fast and break things." Privacy: broken.

Won't fix. Sorry.

~~~
Aloha
Facebook is not, nor has ever been a charity for its users benefit - anyone
presuming you can operate a business (or a successful anything) with no cash
flow is deluding themselves, advertising is a free and easy way to get cash
flow.

The users freely give their personal information to Facebook for the benefits
they obtain from it, its well disclosed what Facebook is going to do with that
information, and Facebook gives you a modicum of control over how that
information is presented to the general public.

I don't know what more people expect.

------
logicallee
no, next question.

------
facebookcia
> The letter is a significant addition to the literature of comparative
> American victimhood: “Can we truly empower everyone — women, children,
> underrepresented minorities, _immigrants_ and the unconnected?”

Expect FWD.us and similar outfits to be showered with cash.

------
x5n1
$45 billion dollars for me. $0 for the US government. Why did they give me
this tax avoidance loophole? Same reasons those "dumb fucks" gave me all their
personal information, I guess. It's good to be King.

------
gizi
Wait a second. Mark did not steal his money. It is his money. Hence, he does
what he likes with it. If you believe the estate tax department should have
his money, let them set up a Facebook project. What is stopping them from
creating similar value? Are they really waiting until someone else does it, to
leech from him?

~~~
objclxt
That is one truly crazy argument.

You seem to be suggesting there should be no taxes. After all, "it's your
money" Quite how government then functions is beyond me, but I'm sure there's
some libertarian argument I'm missing here.

I am sure you will disagree though, seeing as you think taxes are "leeching"
people's money. I suppose on ethical grounds you don't take advantage of any
government services of any kind.

~~~
gizi
Political verbiage is no match to executable technology. If you don't like
something, write source code that will make a difference, and if you can't,
you lose. That is why the libertarian argument will always win.

~~~
fucking_tragedy
Poe's law at work.

