First Mr. Zuckerberg attempted to back peddle the LLC.
Mark Zuckerberg Defends Structure of His Philanthropic Outfit
By VINDU GOEL The New York Times, Dec 3, 2015
SAN FRANCISCO — Mark Zuckerberg wrote a post on Facebook on Thursday to defend his plans to transfer 99 percent of his family’s Facebook stock to a limited liability company that would pursue various community projects.
Mr. Zuckerberg, the chief executive and controlling shareholder of Facebook, said that he and his wife, Dr. Priscilla Chan, were channeling their wealth through an L.L.C. instead of a more traditional foundation to give themselves maximum flexibility “to pursue our mission by funding nonprofit organizations, making private investments and participating in policy debates — in each case with the goal of generating a positive impact in areas of great need.”
In his post, he addressed concerns that the structure was a way to avoid taxes on the $45 billion block of stock. “In fact, if we transferred our shares to a traditional foundation, then we would have received an immediate tax benefit, but by using an L.L.C. we do not. And just like everyone else, we will pay capital gains taxes when our shares are sold by the L.L.C.,” he wrote.
Limited liability companies have been used by some other wealthy philanthropists to give themselves more control over how their money is used. Because they are tax-exempt, traditional nonprofit organizations and foundations face restrictions on for-profit endeavors and political activity — two areas in which Mr. Zuckerberg and Dr. Chan have pledged to be active.
Mr. Zuckerberg and his wife have previously used limited liability companies for some of their other community-oriented endeavors. For example, in September, they invested $5 million in MasteryConnect, an education measurement company, through Zuckerberg Education Ventures L.L.C. Mr. Zuckerberg’s latest explanation met immediate skepticism.
On the very post in which Mr. Zuckerberg, the Facebook co-founder, defended his plans, one Australian man commented, “just another way to get your billions tax-free.” Mr. Zuckerberg quickly responded, “This isn’t correct and the link you shared has a bunch of false information. We will pay tax just like everyone else when the Chan Zuckerberg Initiative sells our Facebook shares.”But the blowback continued and the reality is that Silicon Valley is not any different than any of the crop of mainstream oligarchs they are simply younger.
They are just more interesting as they speak code and that language has yet to become mainstream. But the reality is that they are just a duplicitous and publicity seeking as their older peers.
How Mark Zuckerberg’s Altruism Helps Himself
The Trade By JESSE EISINGER PRO PUBLICA
DEC. 3, 2015
The New York Times
Mark Zuckerberg did not donate $45 billion to charity. You may have heard that, but that was wrong. Here’s what happened instead: Mr. Zuckerberg created an investment vehicle. Sorry for the slightly less sexy headline. Mr. Zuckerberg is a co-founder of Facebook and a youthful megabillionaire.
In announcing the birth of his daughter, he and his wife, Priscilla Chan, declared they would donate 99 percent of their worth, the vast majority of which is tied up in Facebook stock valued at $45 billion today. In doing so, Mr. Zuckerberg and Ms. Chan did not set up a charitable foundation, which has nonprofit status.
He created a limited liability company, one that has already reaped enormous benefits as public relations coup for himself. His P.R. return-on-investment dwarfs that of his Facebook stock. Mr. Zuckerberg was depicted in breathless, glowing terms for having, in essence, moved money from one pocket to the other.
An L.L.C. can invest in for-profit companies (perhaps these will be characterized as societally responsible companies, but lots of companies claim the mantle of societal responsibility). An L.L.C. can make political donations. It can lobby for changes in the law. He remains completely free to do as he wishes with his money.
That’s what America is all about. But as a society, we don’t generally call these types of activities “charity.” In a video released by Facebook, the company’s chief executive, Mark Zuckerberg, and his wife, Dr. Priscilla Chan, explained why they have decided to devote nearly all their wealth to charity. What’s more, a charitable foundation is subject to rules and oversight. It has to allocate a certain percentage of its assets every year.
The new Zuckerberg L.L.C. won’t be subject to those rules and won’t have any transparency requirements. In covering the event, many commentators praised the size and percentage of the gift and pointed out that Mr. Zuckerberg is relatively young to be planning to give his wealth away.
“Mark Zuckerberg Philanthropy Pledge Sets New Giving Standard,” Bloomberg glowed. The New York Times ran an article on the front page. Few news outlets initially considered the tax implications of Mr. Zuckerberg’s plan. A Wall Street Journal article didn’t mention taxes at all. Nor did they grapple with the societal implications of the would-be donations. So what are the tax implications? They are quite generous to Mr. Zuckerberg.
I asked Victor Fleischer, a law professor and tax specialist at the University of San Diego School of Law, as well as a contributor to DealBook. He explained that if the L.L.C. sold stock, Mr. Zuckerberg would pay a hefty capital gains tax, particularly if Facebook stock kept climbing. If the L.L.C. donated to a charity, he would get a deduction just like anyone else. That’s a nice little bonus. But the L.L.C. probably won’t do that because it can do better. The savvier move, Professor Fleischer explained, would be to have the L.L.C. donate the appreciated shares to charity, which would generate a deduction at fair market value of the stock without triggering any tax.
Mr. Zuckerberg didn’t create these tax laws and cannot be criticized for minimizing his tax bills. If he had created a foundation, he would have accrued similar tax benefits. But what this means is that he amassed one of the greatest fortunes in the world — and is likely never to pay any taxes on it. Anytime a superwealthy plutocrat makes a charitable donation, the public ought to be reminded that this is how our tax system works.
The superwealthy buy great public relations and adulation for donations that minimize their taxes. Instead of lavishing praise on Mr. Zuckerberg for having issued a news release with a promise, this should be an occasion to mull what kind of society we want to live in. Who should fund our general societal needs and how?
Charities rarely fund quotidian yet vital needs. What would $40 billion mean for job creation or infrastructure spending? The Centers for Disease Control and Prevention has a budget of about $7 billion. Maybe more should go to that. Society, through its elected members, taxes its members. Then the elected officials decide what to do with sums of money. In this case, it is different. One person will be making these decisions. Of course, nobody thinks our government representatives do a good job of allocating resources. Politicians — a bunch of bums!
Maybe Mr. Zuckerberg will make wonderful decisions, ones I would personally be happy with. Maybe not. He blew his $100 million donation to the Newark school system, as Dale Russakoff detailed in her recent book, “The Prize: Who’s in Charge of America’s Schools?”
Mr. Zuckerberg has said he has learned from his mistakes. We don’t know whether that’s true because he hasn’t made any decisions with the money he plans to put into his investment vehicle. But I think I might do a good job allocating $45 billion. Maybe even better than Mr. Zuckerberg. I am self-aware enough to realize many people would disagree with my choices.
Those who like how Mr. Zuckerberg is lavishing his funds might not like how the Koch brothers do so. Or George Soros. Mega-donations, assuming Mr. Zuckerberg makes good on his pledge, are explicit acknowledgments that the money should be plowed back into society.
They are tacit acknowledgments that no one could ever possibly spend $45 billion on himself or his family, and that the money isn’t really “his,” in a fundamental sense. Because that is the case, society can’t rely on the beneficence and enlightenment of the superwealthy to realize this individually. We need to take a portion uniformly — some kind of tax on wealth.
The point is that we are turning into a society of oligarchs. And I am not as excited as some to welcome the new Silicon Valley overlords.