Did he use the mega-backdoor contribution thing, or did he grow it from a tiny amount?
Then used the proceeds from that to invest in variety of things, including an early (angel?) investment in Facebook.
It's all detailed in the Propublica story where they described his Paypal investment as a "sweetheart deal".
Thiel bought his shares at $0.001/share in the same round where the company was valued at $0.20/share. At very least, he should've been capped at 10,000 shares in the IRA but instead he contributed 1.7 million ($2k/year IRA contribution limit at the time).
It's like describing a software bug as a non problem since it only lead to two intrusions.. that you know of.. that cost your company a ton of money.
The strike price and the "fair market value" are often different so there's nothing exceptional or even unique there. Odds are, half the people reading this thread have had the same situation in their careers. The difference is that this company (Paypal) ended up working so those shares became valuable.
If you or I did it, we'd pay the strike price, it'd be reported to the IRS at the FMV, and we'd pay the tax on the difference. In this case, it would be some percent (22? 25?) of 1.7M*(0.20-0.001) or ~$338k.
Of course, from there you get into the "unrealized gains" battle that screws over people with illiquid shares.