How tech billionaires hack their taxes using a philanthropic loophole

Late in 2014, Nicholas Woodman, the founder along with chief executive of GoPro, announced what appeared to be an extraordinary act of generosity.

Mr. Woodman, then 39, had just taken his camera company public, along with was suddenly worth about $3 billion. right now he was giving away much of in which wealth — some $500 million worth of GoPro stock — to the Silicon Valley Community Foundation, an organization based in Mountain View, Calif., in which would likely house the assets of the newly formed Jill along with Nicholas Woodman Foundation.

“We wake up every morning grateful for the opportunities life has given us,” Mr. Woodman along with his wife said in a statement at the time. “We expect to return the favor as best we can.”

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The executive basked in prestige along with gratitude. The Chronicle of Philanthropy named Mr. Woodman one of “America’s most generous donors” in which year, placing him alongside established philanthropists like Bill along with Melinda Gates along with Michael R. Bloomberg.

although four years on, there will be almost no trace of the Woodman Foundation, or in which $500 million. The foundation has no website along with has not listed its areas of focus, along with in which will be not known what — if any — significant grants in which has made to nonprofits. An extensive search of public records turned up just one beneficiary: the Bonny Doon Art, Wine along with Brew Festival, a benefit for an elementary school in California.

Instead, the Woodman Foundation essentially exists as an account within the Silicon Valley Community Foundation, which will be not required to disclose details about how, if at all, individual donors spend their charitable dollars. Mr. Woodman, GoPro along with the Silicon Valley Community Foundation all declined to discuss the Woodman Foundation.

If the benefit to the needy will be difficult to see, the benefit to Mr. Woodman will be clear. After GoPro’s initial public offering, he faced an enormous tax bill in 2014. although by donating via the Silicon Valley Community Foundation, he eased his tax burden in two ways. First, Mr. Woodman avoided paying capital gains taxes on in which $500 million worth of stock, a figure in which most likely would likely have been inside the tens of millions of dollars. He was also able to claim a charitable deduction in which most likely saved millions of dollars more, along with probably reduced his personal tax bill for years to come.

Mr. Woodman achieved in which enticing combination of tax efficiency along with secrecy by using a donor-advised fund — a sort of charitable checking account with serious tax benefits along with little or no accountability.

Donor-advised funds, or D.A.F.s, allow wealthy individuals like Mr. Woodman to give assets — usually cash along with stock, although also real estate, art along with cryptocurrencies — to a sponsoring organization like the Silicon Valley Community Foundation, Fidelity Charitable or Vanguard Charitable. although while donors part ways with their money, they don’t give up control. The sponsoring organizations make grants to hospitals, schools along with the like only at a donor’s request. So while donors enjoy immediate tax benefits, charities can wait for funds indefinitely, along with maybe forever.

For these reasons along with more, D.A.F.s have become one of the most controversial issues inside the charitable world.

Proponents say D.A.F.s have democratized giving, because they are simple to create along with the individuals who use them are more generous than those who establish family foundations. “in which’s a win-win,” said Greg Avis, interim president of the Silicon Valley Community Foundation. “The donor includes a tax benefit, along with the beneficiaries are the nonprofits.”

although to critics, D.A.F.s represent the worst of philanthropy today — a system of guaranteed perks for the rich along with uncertainty for the rest.

Unlike family foundations, which are required to distribute 5 percent of their assets each year along with have historically been the way wealthy donors disbursed their philanthropic firepower, D.A.F.s have no distribution requirements, meaning in which billions of dollars earmarked for charity can sit idle for decades. along with because organizations in which manage D.A.F.s are not required to report which funds give money to which causes, in which will be impossible to know how much money individual donors are giving away to nonprofit organizations.

Their rise will be also part of a broader move by the wealthy along with powerful to shield much of their giving by public scrutiny. Just last month, after lobbying by conservative groups along with donors, the Trump administration said in which would likely stop requiring certain nonprofit organizations to disclose the names of large donors, a change in which will make in which easier for some political groups to hide their funders. along with many conservative donors, including the Mercer family, have used D.A.F.s to obscure their political activity.

“the planet of philanthropy will be becoming less transparent, along with in which’s not a not bad thing,” David Callahan, author of “The Givers,” a 2017 book about big philanthropy, wrote in a recent essay. “Recent years have seen the rapid growth of a shadow giving system in which funnels billions of dollars in gifts in ways in which leave no fingerprints.”

in which D.A.F.s have become so well-known with Silicon Valley billionaires has only added to their intrigue. Society will be still reckoning with the dark sides of social media along with online privacy, along with there will be concern in which D.A.F.s — a dream vehicle for the overnight wealthy — may prove to be another instance of techno-optimists disrupting a system with unintended consequences.

“They’re a fraud on the American taxpayer,” said Ed Kleinbard, a tax professor at the University of Southern California. “They’re a way for the affluent to have their cake along with eat in which, too.”

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