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Comment by jahnu | Hacker News Reader

> I don't know how it works in the US, but in Canada you can use charitable tax receipts to lower taxable income in future years if you don't want to use the whole thing in the year in which you made the donation.

I don't know how this can be a tax-dodge of any significance. Surely you can only offset your tax by the amount you donated anyway so it makes no difference to you in the end.

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You donate your $100M of highly over inflated stock. You know that by the time you could really sell the stock (i.e. various restrictions in the grant terms), you'd get nothing close to $100M. Let's say you expect it to drop to $20M in 24mo.

You just locked in the 'donation' tax write off amount at the peak value of the stock ($100M), but it can sit in your DAF for 2 years until you finally sell it for $20M (an give it to an actual charity). Going forward, you've got $100M your can deduct from your future taxes/income, that was only really worth $20M. You have effectively captured the value of the over inflated stock in the form of not paying any more taxes for a long time going forward.

This is how the rich get out of paying taxes. ;)

Excellent explanation. What a smart technique.

The really smart thing would be to donate[1] it to a "charity" you create and fully control (that your kids will inherit, etc) so it's effectively a tax-free bank account.

1. http://www.nytimes.com/2015/12/02/technology/mark-zuckerberg...

Another doge is you deduct the full value of stock and avoid capital gains. So, you reduce your income more than your net income you would have gotten selling your stock.

AKA Let's say you get 75$ after state and federal capital gains on 100$ in stock ~(25% Tax). You deduct 100$ from your taxes not 75$ and you can deduct that 100$ from earned income which is taxed at ~40% federal + 13.3% state call it ~50$ in tax savings. Net result you donated 100$ to an organization of your choice at the cost to you of (75$-50$) ~= 25$. And don't forget you can call a lot of things charity's.

http://www.fidelitycharitable.org/giving-strategies/tax-esta...

When you donate shares, you offset your tax by the amount you donated pre-tax. The charity pays the capital gains tax, once they sell the shares. You receive a write-off equal to the market value of your shares when you donated it.

So, in this case, it seems like a pretty significant tax-dodge -- on the order of $30MM.

This is a good overview of how the money might be used to influence, and not be a purely altruistic gesture: http://newint.org/features/2012/04/01/bill-gates-charitable-...

You can donate to a "charity" that employs your friends and family, not society at large.

I can create a Betterness Foundation, and donate all my income to it, and you can do, and the Foundation can spend its resources bettering the neighborhood where you and I happen to live, but no one else lives there. This is a scam loophole to avoid Federal taxes that are intended to benefit society at large.

It's not quite that simple. The IRS didn't just fall off the turnip truck.

Yes, there's a large chance that if Mr. X sets up a DAF, you might see people with the last name X doing various work for the DAF etc. Same if Mr. X ran a for-profit business. But there are rules and regs and you can't just blatantly self-deal and loot your foundation; see https://www.irs.gov/irm/part7/irm_07-027-020.html

The truly naive shenanigans don't work and there actually is scrutiny of foundations. Plus, foundations have to distribute 5% of their assets annually, which has actually been sort of a problem lately with low fixed-income returns.

If you want to know the "scam," others above have described quite adequately the two main lines: the tax write-off and the ability to influence what charities benefit. The scam is not that you can set up a "Mr. X's landscaping and Champagne pouring foundation" to privatize all the benefits.

(I mention this not to chastise parent, but because left without any additional color, parent comment could make a reader not versed in how nonprofit stuff works overly cynical.)

I think you understate the extent to which one can use a tax-deductible non-profit organization to benefit oneself. For example selective private schools are all (at least in my area) not-for-profit organizations to which contributions are tax-deductible. So you "give" to these organizations and essentially pay for private school from pre-tax income. There are even country clubs that are non-profits. I think the only thing that really prevents these organizations from being formed are if they have documented written policies of racial discrimination, in which case the IRS will go after them eventually.

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