How Mega Millionaires Escape Paying Taxes

Max R. Levchin, chairman of the social review site Yelp, sold 3.1 million shares of the company held in his Roth individual retirement account in 2010. He received $10.1 million from the sell, and while most of the amount was profit, he will not have to pay any income tax on those gains because Roth IRA earnings are tax free as long as the owner does not take out money until he reaches age 59 1/2. Levchin’s Roth still holds 3.9 million shares of Yelp, making his retirement account worth at least $95 million. Currently, Congress has put no cap on the amount a Roth IRA can accumulate.

Similarly, Mark Zuckerberg and Dustin Moskovits, cofounders of Facebook, set up grantor retained annuity trusts in 2008. The GRATs will likely allow the two men to transfer a total of at least $185 million gift tax free to future offspring and others. That same year, Moskovits, Zuckerberg, and Sheryl Sandberg, Chief Operating Officer of Facebook, put 14.4 million, 3.6 million, and 1.9 million shares into their GRATs, respectively. Forbes estimates that Moskovitz will be able to transfer $148 million, Zuckerberg will be able to transfer $37 million, and Sandberg will be able to transfer $19 million— all tax free.

For more information on these tax lowering techniques, see Deborah L. Jacobs, How Facebook Billionaires Dodge Mega-Millions in Taxes, Forbes, Mar. 20, 2012.