Mark Zuckerberg Isn’t Really “Giving Away” $45 Billion –Truth! and Fiction!
Summary of eRumor:
Critics argue that Mark Zuckerberg isn’t really “giving away” 99% of his Facebook stock (about $45 billion), as he announced in December 2015.
The Truth:
After Mark Zuckerberg announced that he plans to “give away” 99% of his Facebook stock, critics argued that Zuckerberg wouldn’t exactly be “giving away” his fortune because of the business model that Zuckerberg plans to use.
Claims that Mark Zuckerberg isn’t really giving away $45 billion aren’t true or false. The answer falls somewhere in between because of complicated laws that define limited liability companies (LLCs) and 501c3 organizations (non-profit charities). We’ll lay out the facts and let you decide if claims about Mark Zuckerberg’s plans to “give away” $45 billion are closer to truth or fiction.
First, we’ll start from the beginning. Mark Zuckerberg and his wife, Priscilla Chan, announced that they would donate 99% of their Facebook stock (about $45 billion) to “advancing human potential and promoting equality” in a letter to their newborn daughter on December 1, 2015. In a Facebook post, Zuckerberg described the letter as such:
Priscilla and I are so happy to welcome our daughter Max into this world!
For her birth, we wrote a letter to her about the world we hope she grows up in.
It’s a world where our generation can advance human potential and promote equality — by curing disease, personalizing learning, harnessing clean energy, connecting people, building strong communities, reducing poverty, providing equal rights and spreading understanding across nations.
We are committed to doing our small part to help create this world for all children.
We will give 99% of our Facebook shares — currently about $45 billion — during our lives to join many others in improving this world for the next generation.
Thank you to everyone in this community for all your love and support during the pregnancy. You’ve given us hope that together we can build this world for Max and all children.
After Mark Zuckerberg and Priscilla Chan announced that they would giveaway 99% of their Facebook stock, critics came forward to argue that the couple wasn’t exactly “giving away” their fortune. Because Zuckerberg’s Facebook stock will be meted out through a limited liability company (LLC) instead of a 501c3 (non-profit organization),they argue, Zuckerberg will still be able to use the money to invest in private companies, lobby politicians and donate to political campaigns. He’ll also be able to write checks from the LLC to anybody, including himself. Under the LLC structure, there’s also no board of directors to report to, federal disclosure requirements or minimum charitable contributions that need to be made each year, critics argue.
James Kwak, an associate professor at the UConn Law School, called Zuckerberg’s decision to set up an LLC a “$45 billion loophole” in a blog post:
Essentially, Zuckerberg can do everything with the LLC’s money that he can do with his own money. So on the most substantive level, he hasn’t done anything except announce some vague intentions. The “99%” claim made a lot of headlines, but there’s a lot less there than meets the eye. A lot of things that other billionaires do with their own money—like invest in other companies—Zuckerberg can now do with the LLC’s money. The only thing he seems to be saying is that he and his family will restrict their personal consumption to 1% of his fortune (about $450 million), but even that is not entirely clear. He certainly retains the ability to take money back out whenever he wants, and the LLC will almost certainly do some things that really are personal consumption (like political contributions). In addition, whenever the LLC makes a contribution to a real charity, the associated tax deduction will flow back up to Zuckerberg and Chan. So to the extent that they have to sell stock to pay for their consumption, they will never pay tax on those sales. (Put another way, their remaining $450 million, as well as any money they make in the future, is now all after-tax money.)
Mark Zuckerberg responded to the criticism by explaining the decision to set up an LLC rather than a 501c3 nonprofit. In a follow-up Facebook post, Zuckerberg said that he had decided to forgo the tax advantages of establishing a non-profit organization to support charitable causes because an LLC would give him more flexibility to champion causes. Zuckerberg also said that proceeds from the LLC’s investments in private companies would also be devoted to charitable causes, which is another benefit of an LLC:
The Chan Zuckerberg Initiative is structured as an LLC rather than a traditional 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.
What’s most important to us is the flexibility to give to the organizations that will do the best work — regardless of how they’re structured. For example, our education work has been funded through a non-profit organization,Startup:Education, the recently announced Breakthrough Energy Coalitionwill make private investments in clean energy, and we also fund public government efforts, like the CDC Ebola response and San Francisco General Hospital.
In the end, there’s no reason to call Mark Zuckerberg’s announcement that he’ll give away 99% of his Facebook stocks “false.” But it’s not accurate to say that Zuckerberg has already “given away” $45 billion of his wealth to charitable causes yet, either. That’s why we’re classifying this one as “truth and fiction.”