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Facebook CEO Mark Zuckerberg to Donate Fortune to Charity

Public Companies|Tax

By Michael Darpino

Facebook’s Mark Zuckerberg and his wife, Dr. Priscilla Chan, celebrated the birth of their first child during Thanksgiving week. In an open letter to their newborn daughter, posted on Zuckerberg’s Facebook page, Zuckerberg and Chan announced that, during their lifetimes, they will give 99% of their Facebook shares to “further the mission of advancing human potential and promoting equality by means of philanthropic, public advocacy, and other activities for the public good.”

The Securities and Exchange Commission filing made by Facebook revealed that Zuckerberg owns approximately 4 million shares of Class A common stock and approximately 419 million shares of Class B common stock of the company. The current market value of Zuckerberg’s Facebook holdings is in the neighborhood of $45 billion. He is just 31 years of age.  

The Chan Zuckerberg Initiative, LLC

Zuckerberg and his wife plan to form a new entity, the Chan Zuckerberg Initiative, LLC (the “Initiative”), to fulfill the couple’s charitable pursuits. The limited liability company structure is somewhat unique in the charitable world but offers some distinct advantages over traditional models. By operating as a limited liability company rather than as a nonprofit corporation or foundation, the couple is free to engage in such activities such as for-profit investing and political donations that would otherwise be restricted. Zuckerberg maintains that all money earned by the Initiative will be directed back to charitable efforts. The Initiative’s primary focus areas will be “personalized learning, curing disease, connecting people and building stronger communities.” 

Because the Initiative is an LLC that is not exempt from federal taxation, Zuckerberg will not receive a charitable deduction upon the transfer of the stock to the LLC. If the LLC later sells the stock, Zuckerberg will be subject to capital gains tax. However, in the event the LLC donates the appreciated shares to charity, no capital gains tax will be triggered, and Zuckerberg will be entitled to a charitable deduction for the fair market value of the stock at the time of the donation.     

Donations are expected to begin immediately and to occur gradually over time. Zuckerberg has stated that he plans to sell or gift no more than $1 billion of Facebook stock each year for the next three years. He expects to serve as CEO of the company for the foreseeable future. Nonetheless, Zuckerberg and his wife have chosen to begin their donations at an early age so that they may witness the benefits of their efforts throughout their lives.  

The couple’s pledge follows in the footsteps of legendary philanthropist and Microsoft founder Bill Gates and his wife Melinda, who have committed to donating 95% of their wealth to charity. Zuckerberg has described Gates as one of his childhood heroes and was one of the first to sign the Giving Pledge, a public commitment by billionaires to give more than half their wealth to charitable causes during their lifetimes or at death. Following his announcement, Zuckerberg received praise from Gates and other philanthropic billionaires. In a statement posted to his Facebook page, Gates proclaimed, “As for your decision to give back so generously, and to deepen your commitment now, the first word that comes to mind is: Wow. The example you’re setting today is an inspiration to us and the world.” 

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