2/ Back in 1993, the Clinton administration, after lobbying by venture capital and biotech, pushed for something called the Qualified Small Business Stock exemption.

— Jesse Drucker (@JesseDrucker) December 28, 2021

3/ The exemption would provide a break for investors in ‘small’ businesses – assets of $50 million or less – on millions of dollars of capital gains taxes. Today, the first $10 million of capital gains are completely tax-exempt for investments in qualifying corporations.

— Jesse Drucker (@JesseDrucker) December 28, 2021

4/ It wasn’t widely utilized until the 2017 Republican tax overhaul, which dramatically cut the corporate rate and thus made investing through corporations more attractive.

— Jesse Drucker (@JesseDrucker) December 28, 2021

5/ Now, certain investors in companies like Lyft, Uber, Zoom, Pinterest, DoorDash, and Airbnb can qualify -- because, at one point in their lives, those companies were ‘small businesses.’

— Jesse Drucker (@JesseDrucker) December 28, 2021

6/ That might be questionable enough. But that’s not what our story is about. The story is that, through the miracle of tax planning, rich investors can exponentially clone the tax break -- way beyond $10 million.

— Jesse Drucker (@JesseDrucker) December 28, 2021

7/ The cloning takes a few forms. The easiest one: gift the shares to your kids, your in-laws, etc, they get the tax break too.

— Jesse Drucker (@JesseDrucker) December 28, 2021

8/ One tax adviser told me he was helping a family, whose patriarch founded a publicly-traded tech company, avoid paying ANY taxes on more than $150 million in profits by giving shares to more than seven of his children, among other maneuvers.

— Jesse Drucker (@JesseDrucker) December 28, 2021

9/ To repeat: $150 million capital gains but ZERO tax bill for that family.

— Jesse Drucker (@JesseDrucker) December 28, 2021

10/ Our story focuses on David Baszucki, the founder and CEO of Roblox. Through gifts by him and his wife to their 4 kids – along with gifts by his mother-in-law to various relatives – the extended family can avoid taxes on tens of millions of dollars in capital gains. pic.twitter.com/cvUrxLUzV0

— Jesse Drucker (@JesseDrucker) December 28, 2021

11/ This strategy is known as ‘stacking’ – because you stack the tax breaks, one on top of the other.

— Jesse Drucker (@JesseDrucker) December 28, 2021

12/ One lawyer told us: “If you walk down University Avenue in Palo Alto, every person involved in tech stacks.”

— Jesse Drucker (@JesseDrucker) December 28, 2021

13/ Wait, there is more. Even on paper, the break is not limited to $10 million per person.

— Jesse Drucker (@JesseDrucker) December 28, 2021

14/ You can also get an exemption equal to 10 times the “basis” – or cost – of your investment. So tax advisers have figured out ways to expand the value of the tax break by pumping up the basis. This strategy is called “packing.”

— Jesse Drucker (@JesseDrucker) December 28, 2021

15/ One tax lawyer told me he recently used a ‘packing’ strategy to help a pair of clients completely avoid paying a dime of taxes on more than $100 million in capital gains.

— Jesse Drucker (@JesseDrucker) December 28, 2021

16/ Also, some VC’s call these strategies ‘peanut buttering’ – because you spread the benefits around.

— Jesse Drucker (@JesseDrucker) December 28, 2021

17/ There is a lot more. Please read our entire story here: https://t.co/FDR7u2iCNX

— Jesse Drucker (@JesseDrucker) December 28, 2021

By the end of 2018, the 25 richest Americans were worth $1.1 trillion, as much as the combined wealth of 14.3M ordinary wage earners.
The 2018 personal federal tax bill for the 25 richest: $1.9 billion.
The bill for the wage earners: $143 billion.https://t.co/1mPwh3ZYXa

— ProPublica (@propublica) December 29, 2021