However philanthropic the intentions of Mark Zuckerberg, he isn’t required to give a penny of his $45 billion to charity despite his announcement Tuesday.
In a widely publicized letter to his newborn daughter, Zuckerberg with his wife, Priscilla Chan, said they would give 99 percent of their Facebook Inc. shares to “advance” various missions, including promoting equality and curing disease.
Although this step has been widely interpreted as Zuckerberg and Chan pledging their fortune to charity, they didn’t announce the establishment of a nonprofit group or a charitable foundation. Instead, they will set up a limited liability company. That’s right, an ordinary company.
The vehicle can donate to charity, but it doesn’t have to give away some every year, as a foundation would. It can also make investments and participate in “policy debates.” That means it could turn a profit and make donations to political candidates and pay lobbyists.
“This is not a charitable foundation,” said Victor Fleischer, a tax law professor at the University of San Diego. What they’ve done “is essentially nothing more than a promise to give some money to charity in the future. But the structure somewhat resembles a family office, used both for investment and charitable purposes. The level of activities in the charitable versus investment and political pieces isn’t specified.”
Zuckerberg, 31, and Chan believe the goals of the new company will be served through a combination funding nonprofit organizations, making private investments and participating in policy debates, said Facebook spokeswoman Rachael Horwitz. Any charitable donations would be eligible for tax deductions, she said in a statement.
“The bottom line is that the ultimate impact of the funds deployed will be the driving force for their decisions,” Horwitz said.
Zuckerberg and Chan won’t derive any tax benefit this year.
The swirl of attention around Zuckerberg’s announcement has also largely missed another important point: the tax code allows the wealthiest to sidestep ever paying any income taxes, gift taxes, estate taxes or capital gains taxes. Although Zuckerberg has twice sold Facebook shares -- in 2012 and 2013, for about $3.4 billion -- he won’t owe capital gains tax on the massive appreciation in his remaining stake unless he sells more shares.