Mark Zuckerberg defends his charity LLC from criticism

7 Dec 2015 | Author: | No comments yet »

Chan Zuckerberg Initiative Savvy Enterprise for Fb’s Founder.

Facebook CEO Mark Zuckerberg has answered critics who said his massive donation of wealth to a charitable fund was less was not as heartfelt and philanthropic as it may have originally appeared. Mark Zuckerberg and his wife Priscilla Chan marked the birth of their daughter Max by promising to donate 99 per cent of their Facebook shares during their lifetimes to support good causes.With a picture on his Facebook page of a car seat, a stroller and his dog, Mark Zuckerberg announced last month that he’d be taking two months of parental leave. It wasn’t a huge surprise: The first millennial chief executive of a Fortune 500 company, Zuckerberg is part of a generation of men who place more value on work-life balance and taking time off with their children.

However, some said that because the Chan Zuckerberg initiative is a Limited Liability Company (LLC), there will be far less oversight over how the money is spent and the billionaire will pay less in taxes on the sum. He did, however, display his savvy in navigating a dizzying tax code and has potentially set himself up to do plenty of good while receiving substantial charitable tax deductions down the road. His company offers four months of paid leave to both male and female employees, and workers can take their four months at any time during the child’s first year.

The couple said they set up the initiative with the mission to “advance human potential and promote equality in areas such as health, education, scientific research, and energy,” according to its Facebook page. “Zuckerberg is not ‘giving away’ 99% of his FB wealth. His chief operating officer is none other than “Lean In” maven Sheryl Sandberg, who advocates not only for more women in leadership but also for more dads doing diaper duty. He’s ‘donating’ his FB shares to an LLC that he controls, for minimizing taxes,” Twitter user wrote. “And b/c Zuckerberg’s thing is an LLC, he can give to political organizations, SuperPACs, all that stuff, w/money that was never taxed,” tweeted ProPublica reporter Jesse Eisinger. “A charitable foundation is subject to rules and oversight. Still, it was a huge milestone — both in the national discussion about parental leave and in the ongoing debate over the gender gap and how to solve it. However, Zuckerberg said on Facebook on Thursday that ‘any net profits from investments will also be used to advance this mission’ and that he would pay capital gains tax on any shares sold.

But despite the idealistic rhetoric that accompanied his message, the founder of the world’s largest social media network never used the word “charity” in describing his and Chan’s new venture. The new Zuckerberg LLC won’t be subject to those rules and won’t have any transparency requirements,” Eisinger explained in a piece published in the New York Times. “The donation has been characterized a little too simplistically as an outright charitable donation of 99 percent of his wealth,” Robert Willens, one of the country’s foremost corporate tax experts, told CBS News. “Certainly it could wind up being that if he directed all of the LLC’s funds to charity,” Willens added, noting that such charitable arrangements are becoming common among wealthy people. “But the jury is still out regarding what percentage of his wealth will be directed to charity.” “The Chan Zuckerberg Initiaitve is structured as an LLC rather than a traditional foundation.

He said that the structure ‘enables us to pursue our mission by funding non-profit organizations, making private investments and participating in policy debates’, citing recent gifts to a non-profit in education and money given to Centers for Disease Control efforts against the Ebola virus. With his $45 billion (Dh165.2 billion) fortune, the Silicon Valley prodigy could have frittered a thousand lifetimes on sun, sex and sangria and invested the change in a cure for mortality. If no giving, or impact or social purpose investing ever came of this LLC, I think people would pay attention to that.” In the Facebook post Tuesday first announcing his plans, Zuckerberg said the Initiative will focus on “promoting equality,” an objective that Gabriel Zucman, an economics professor at the University of California, Berkeley, found commendable — and ironic. “Promoting equality starts with paying one’s taxes,” Zucman said in an email to CBS News, while noting that Facebook shifts billions of dollars of profits to zero-tax locales like the Cayman Islands. “If billionaires are free to choose how they contribute to society, why shouldn’t I? Another advantage of an LLC is that if it is sued then Zuckerberg and Chan will only be liable for what is invested in the company, not the rest of their fortune.

When observers realized the social media maven was not, in fact, funneling his shares into a charity, he was lambasted – even though he never actually said he was starting a charity in the first place. “The LLC is simply a business vehicle that, by virtue of the state law statutes that enable it, has a great deal of flexibility to pursue either for-profit or nonprofit activities, or some blending of those activities,” says Elizabeth Miller, a professor and LLC expert at Baylor Law School. Why do I have to pay taxes?” asked Zucman, who criticized the stance taken by Zuckerberg and other Silicon Valley billionaires as harming the social contract and very goals he “pretends to pursue in his letter.” Like other U.S. multinationals, Facebook has used a range of accounting techniques to minimize its taxes. It seems unlikely that he’ll be completely out of touch from Facebook (though neither are many professional women who step away for a few months to take care of a new child). Zuckerberg may have decided to set up an LLC after his experience in New Jersey in 2010 where he donated $100million to improve its public schools but the money had little impact on education. He said in his Facebook post that the LLC will be focused on ‘personalized learning, curing disease, connecting people and building strong communities.

Though they’re hardly new or uncommon, LLCs are provided a degree of financial and legal protection under U.S. law that have been employed in the past for less than noble intentions. There has been an arcane, technical conversation brewing about whether going the LLC route is more selfish than creating a foundation or making donations outright. Zuckerberg previously signed , joining an elite group of billionaires like Warren Buffett, Bill Gates and Richard Branson in declaring he would give away more than half his fortune over his lifetime. The has said that some types of LLCs have been used “for money laundering and other financial crimes” because of the flexibility and protection they offer their operators. Research from Boston College’s Center for Work & Family found in 2011 that 76% of fathers are back to work within a week of a child’s birth or adoption; 96% return within two weeks.

It is relatively new for philanthropy, but it is being used by eBay founder Pierre Omidyar, Laurene Powell Jobs, widow of the late co-founder of Apple, and others. And the once described LLCs as entities that “may also be vulnerable to misuse because they can be managed anonymously as there is no public disclosure of the members’ identities.” There’s even that some people in the U.S. without the proper documentation have used LLCs to work legally in the country without tipping off the government. Bureau of Labor Statistics data show that only 13% of U.S. full-time employees had access to paid family leave in 2012 — much of which probably was maternity leave. From the microprocessor to the global positioning system and the computer mouse to the search engine, Silicon Valley owes its key breakthroughs to US public research.

He added on Friday that his organization would be able to invest in long-term initiatives that may not be profitable for other companies, such as research on cures for diseases. That’s starting to change, of course, as more companies — even those outside the cushy confines of Silicon Valley — add more paid leave for fathers or come up with innovative solutions.

Whether it is magnetic resonance imaging or Viagra, America’s health industry has piggybacked off innovations either developed by federal research agencies or heavily subsidised by government. Other billionaire-inspired charities, like the 501(c)(3) classified Bill and Melinda Gates Foundation, don’t have such freedom. “The LLC gives him the chance, though, to go beyond just giving money away as a 501(c)(3) but actually influence policy.

Their billions can make waves. “Is a status update enough for the scale of the influence they will have on all of these spheres?” asks Janet Camarena, director of transparency initiatives at the Foundation Center, which collects philanthropy data. “There is no regulated transparency there.” Such benefits serve two functions: They help attract employees, particularly younger ones, who are more interested in sharing parenting responsibilities and improving work-life balance. If it makes other investments that didn’t qualify as charitable donations, then the tax features of that would flow through individually.” So basically, Zuckerberg gets no added benefit for transferring his shares over to the new LLC, but whenever this new entity makes a charitable donation, the billionaire is treated to a tax deduction. We will do our part to make this happen, not only because we love you, but also because we have a moral responsibility to all children in the next generation. Indeed, for ventures that succeed — a new form of tablet-based “personalised learning”, say, or a breakthrough in data forecasting of epidemics — the more commercially viable the better.

He has ensured that he will pay no tax on transfer of his estimated $45 billion in wealth while being showered with accolades for “giving it all away”. Today, most people die from five things — heart disease, cancer, stroke, neurodegenerative and infectious diseases — and we can make faster progress on these and other problems. In his letter to Maxima, he says every citizen should have the right to “basic health care” and every child should have “equal opportunity” to a great education. But over the long term, seeds planted now will grow, and one day, you or your children will see what we can only imagine: a world without suffering from disease. Promoting equality is about making sure everyone has access to these opportunities — regardless of the nation, families or circumstances they are born into.

Instead of repaying royalties on the public innovations they have commercialised, Silicon Valley hires lawyers to find clever ways to avoid paying taxes on their earnings. Buffett, who came up with the original pledge that billionaires should give away at least half of their wealth, has already proposed that the very rich should pay a minimum tax on their income. Of course it will take more than technology to give everyone a fair start in life, but personalized learning can be one scalable way to give all children a better education and more equal opportunity.

The internet is so important that for every 10 people who gain internet access, about one person is lifted out of poverty and about one new job is created. By partnering with schools, health centers, parent groups and local governments, and by ensuring all children are well fed and cared for starting young, we can start to treat these inequities as connected. I will continue to serve as Facebook’s CEO for many, many years to come, but these issues are too important to wait until you or we are older to begin this work.

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