Shortly after Facebook CEO Mark Zuckerberg announced that he and his wife Priscilla Chan pledged to give away 99 percent of their shares in the company to support charitable causes, he was accused of attempting to dodge billions in taxes.
That’s because Zuckerberg chose to pour his funds into a limited liability corporation (LLC) instead of a nonprofit. That means the Chan Zuckerberg Initiative can avoid triggering taxes by donating its appreciated shares to charity.
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Unlike a nonprofit, an LLC can invest in other companies, earn a profit, lobby for causes and donate to political candidates’ campaigns. That gives the Chan Zuckerberg Initiative the power of influence, which it wouldn’t have otherwise.
Zuckerberg took to Facebook to clarify why he chose to structure his new organization as an LLC rather than a foundation.
This enables us to pursue our mission by funding non-profit 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. Any net profits from investments will also be used to advance this mission.
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.
Zuckerberg added that the initiative will first focus on “personalized learning, curing disease, connecting people and building strong communities.”
Whether the Chan Zuckerberg Initiative is subject to oversight or not, you can be sure that the whole world will be watching its every move.
➤ Mark Zuckerberg [Facebook]