[HN Gopher] Peter Thiel turned a Roth IRA into a $5B tax-free pi...
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Peter Thiel turned a Roth IRA into a $5B tax-free piggy bank
Author : giuliomagnifico
Score : 329 points
Date : 2021-06-24 11:20 UTC (11 hours ago)
(HTM) web link (www.propublica.org)
(TXT) w3m dump (www.propublica.org)
| Tycho wrote:
| The negativity here is misled. Thiel made investments in
| companies which he thought might one day be of enormous value to
| society. Their current valuations, and the size of his IRA, prove
| him right. We can thank early investors like Thiel for bringing
| this potential to fruition. And not only that, but Thiel has not
| consumed any of this well-earned wealth, instead leaving it
| untouched, hasn't converted it into scarce goods and services,
| presumably because he didn't see virtue in the gross materialism
| that consuming it would entail. These investments are heroic acts
| by Thiel.
| steve_adams_86 wrote:
| > heroic acts
|
| I don't understand - can you elaborate on why exactly this is
| heroic?
| Tycho wrote:
| In the sense that he developed his business acumen and
| foresight to an exquisite degree and was then able to take
| well-informed risks with his own resources that in the end
| produced a great outcome for society (and himself). Many
| people fail to develop their talents, or squander them, or
| are too over-cautious to use them, and they and society are
| the worse for it.
| verall wrote:
| Yup, no companies are quite as valuable to society as Paypal
| and Palantir. I can think of few companies that have done more
| _good_ for more people, and Thiel deserves every dime of that
| $5B for ratfucking the populace.
| calkuta wrote:
| Good. What's wrong, the government doesn't have enough money?
| oxymoran wrote:
| He's a quasi libertarian that doesn't trust the government with
| his tax money. What was expected? Further, if you know that's
| what he think and it's within the law, what are we doing here
| with this expose? It would be one thing if he was critical of
| other people for working within the law to avoid taxes and you
| caught him being a hypocrite but this is not that. If we are
| going to be critical here, it should be of whatever loop holes
| allow this.
| mywittyname wrote:
| He has no problem taking the government's money though. If he
| didn't trust the government, I would expect that he'd refuse to
| work with them on the grounds of not being able to trust them.
| missedthecue wrote:
| I believe that the parent is implying that Thiel doesn't
| trust the government to use his money prudently, not that the
| government is liable to cheat him out of a contract.
|
| That's not really a double standard any more than taking a
| paycheck from google while using duckduckgo on your PC at
| home is a double standard.
| w0mbat wrote:
| Headline could be "Person uses retirement account to save money
| for retirement."
| shanecleveland wrote:
| ... in ways that are not accessible to the everyday person.
| xkjkls wrote:
| The fact that someone used a vehicle that limits your yearly
| contribution to $5500 a year to amass $5 billion is worth
| investigating. The investment return needed for that is close
| to 60% annually, an inconceivably high rate of return for any
| long period of time.
| seafoam wrote:
| "an inconceivably high rate of return"
|
| I don't think that word means what you think it means
| medvezhenok wrote:
| I mean, considering no-one has achieved that rate of return
| (in the public markets) with compounding ever, that's
| probably a fair observation. The closest was the Medallion
| Fund, but that's a non-compounded return at $10B AUM.
|
| But also somewhat irrelevant as the main point of the
| article focuses on that first investment ($2K -> $33M in
| 2-3 years via private Paypal shares).
| gravypod wrote:
| I have no skin in the game but "in the public markets" is
| a very key part of this discussion. If he did purchase
| his stock allocations from founding PayPal (regardless of
| of if this was legal) this would have _not_ been in the
| public market. This is an extremely high risk time and
| money investment that could have been worth $0 the next
| day. This is why a lot of people end up trying to start a
| startup. To get huge financial gains for themselves.
| jppope wrote:
| Yes... the investment return from Facebook
| _jal wrote:
| Why not? Similarly, another of today's headlines could also be
| 'Property damage inconveniences some in Florida'.
| [deleted]
| crispyambulance wrote:
| > "Person uses retirement account to save money for
| retirement."
|
| ... with a few extra "twists" that utterly subvert the
| intention of the Roth IRA, making it possible to accumulate an
| astronomical dynastic fortune without having to pay taxes on it
| like normal people.
| sushid wrote:
| The intent of the article is to point out how the rich truly
| take advantage of existing tax laws/loopholes to stay even more
| rich.
|
| No one is claiming Thiel did anything illegal. But it does seem
| a bit preposterous that billionaires can amass $5B Roth IRA
| accounts.
| ne0flex wrote:
| I'm curious how he was able to get a Roth IRA in the first
| place. Apparently Roth IRA began in 1997 and there's a
| contribution limit if you make above a certain amount.Given
| that Thiel started "Thiel Capital Management" in 1996, I'm
| willing to bet he was above the earning limit.
| lordnacho wrote:
| Says in the article he was below the limit.
|
| If you're reasonably wealthy and you start a firm, there's
| no problem just taking a smaller salary. It's a little bit
| surprising that the rules don't address this though. Why
| not just say Roth IRA is for people with net worth under
| some figure? Or as mentioned in the article, put a cap on
| the amount of tax exempt money?
| hammeiam wrote:
| Anybody can have a Roth IRA. Even if you're over the income
| limit for a Roth, you can still convert a traditional to a
| Roth IRA after you pay taxes on the amount. These
| conversions are pretty common and well known.
| xkjkls wrote:
| Probably by a traditional IRA to Roth IRA conversion.
| anonAndOn wrote:
| Like every other SV startup, he was paid a decent salary
| with lots of stock and thus qualified under the income
| limits.
| jppope wrote:
| The intent of ProPublica's entire series of articles is to
| imply that wealthy Americans are immorally building their
| wealth. They are taking advantage of the fact that the public
| doesn't have basic financial literacy to turn the public
| against wealthy Americans and some of our most important
| systems in America (Entrepreneurship, Joint-stock companies,
| etc).
|
| Thiel bought a lotto ticket in his Roth IRA, after which he
| invested the earnings into other high-risk ventures which
| also worked out.
| FabHK wrote:
| I have basic financial literacy, and found that article
| insightful and alarming. Maybe your political views
| coloured your dismissal of the article series and "the
| public".
|
| I don't think tax shelters for retirement accounts were
| designed to let financiers such as Thiel and Romney buy
| undervalued promising lottery tickets from themselves or
| their buddies, or should be used as such.
| medvezhenok wrote:
| The big argument was whether it was a true lotto ticket
| (say buying Bitcoin at 1 cent, where everyone accepts it's
| valued at 1 cent), or whether it was actually self dealing
| (real best-estimate value of shares was maybe $0.10 a
| share, and he bought in IRA for $0.001 a share). That means
| the true value of his IRA "contribution" becomes $170,000
| instead of $1,700, which is clearly tax evasion.
|
| Still a lotto ticket, but that first transaction becomes a
| lot less innocent.
| nickpp wrote:
| It is fascinating how the ProPublica articles are
| redistributed in mainstream media (BBC, CNN, etc) even
| though they are obviously wrong, biased and even based on
| stolen private data.
|
| It's almost as if someone is having an agenda...
| NonEUCitizen wrote:
| He wasn't a billionaire when he started the IRA account.
| SamReidHughes wrote:
| This is based on stolen personal data.
| scop wrote:
| Indeed. I'm surprised this is not a main part of the HN
| conversation. It concerns me that the IRS leaking personal
| financial information is not the main story.
| [deleted]
| giantg2 wrote:
| I'd love to even double my IRA. Sadly, I dont think this article
| will be helpful to me.
| bawana wrote:
| Another example of fine financial engineering. Money from
| financial instruments (interest income, capital gains, etc)
| should be restricted in its use. That money should only be usable
| in purchasing real goods (not options) real products and real
| labor. By allowing investment gains to be used for further
| investment, we allow increasing demand for financial instruments
| to drive up their prices and attract even more money. Instead of
| building roads, schools and paying our teachers, we are using our
| money to 'buy more money', an abstraction that does not really
| benefit us.
| [deleted]
| suyash wrote:
| That's a genius move, we should all learn from this and take
| advantage. Nice job Peter!
| arbitragy wrote:
| 1.7m shares of Paypal at .001 is worth 5B at the current share
| price of 295.
|
| Obviously debatable whether you can mark shares of your own
| company / PE firm sponsor equity / etc at near zero in a tax
| sheltered vehicle. But if Thiel held shares in a personal account
| and borrowed against them he wouldn't have owed tax either, as
| unrealized capital gains are not taxed.
|
| Buffett, Musk, Bloomberg, etc. all have the vast majority of
| their wealth in businesses they founded, and have subsequently
| paid de minimuis taxes relative to their net worth.
|
| All have arguably made significant contributions to society and
| world at large, magnitudes higher than their net worth and taxes
| paid.
| vineyardmike wrote:
| > All have arguably made significant contributions to society
| and world at large, magnitudes higher than their net worth and
| taxes paid.
|
| Very arguable. I would take up that argument. I don't believe
| this too be true.
| breck wrote:
| The data here is super interesting. The tone and editorializing
| are idiotic.
|
| That being said, ultimately lawmakers are at fault.
|
| We need to start thinking of law as code. We want to minimize the
| complexity of law, just like you want to minimize the complexity
| of code.
|
| I have a new way to do that:
|
| https://github.com/treenotation/research/blob/master/papers/...
|
| 2D Languages will be the future of the law and democracy.
| quickthrower2 wrote:
| What is a 2D language?
| breck wrote:
| A language that can be near completely specified by a stack
| of 2D grammars of increasing abstraction.
|
| Binary notation is a general purpose syntax in 1 dimension.
| There exists a 2D general purpose syntax, where you not only
| have columns but all rows, and from there you can build
| abstractions from binary to numeral systems to letters to
| words to structs to systems.
| vmception wrote:
| All the "rich people tax" articles have an idiotic tone as if
| they've found a smoking gun of .... something
|
| They really prey on ignorance
| rglover wrote:
| As well as envy and greed, though, they'll never admit it.
| MomoXenosaga wrote:
| The lawmakers are quite literally the same people who advise
| rich people on taxes.
|
| The funniest thing I ever saw was an African civil servant who
| had gone private now telling foreign companies how to fuck the
| government he used to work for.
| [deleted]
| cannabis_sam wrote:
| Tax is a joke to rich people, and that's the exact reasons
| economic inequality is a problem..
| missedthecue wrote:
| In the USA, the top 1% make 20% of the income but pay almost
| 40% of the taxes. That seems very progressive, not a 'joke'.
| tomjakubowski wrote:
| Careful. The top 1% pay 40% of federal income tax, not of all
| taxes. Federal income tax is around half of total federal tax
| revenue.
|
| I also wonder, is that "20% of all income" figure 20% of all
| taxable income, or all declared income?
| richwater wrote:
| > figure 20% of all taxable income, or all declared income?
|
| Since we're baselessly speculating, it might be 100!
| listless wrote:
| > Yet, from the start, a small number of entrepreneurs, like
| Thiel, made an end run around the rules: Open a Roth with $2,000
| or less. Get a sweetheart deal to buy a stake in a startup that
| has a good chance of one day exploding in value. Pay just
| fractions of a penny per share, a price low enough to buy huge
| numbers of shares. Watch as all the gains on that stock -- no
| matter how giant -- are shielded from taxes forever, as long as
| the IRA remains untouched until age 59 and a half. Then use the
| proceeds, still inside the Roth, to make other investments.
|
| What? Am I missing something or is that a horrible explanation of
| how this works? I still don't understand how he used a Roth to
| shield 5 billion from taxes. I'm much more alarmed that he gets
| deals on startups that nobody else does. That hardly seems fair.
| maxk42 wrote:
| Utterly astounded and dismayed to see this much of HN's audience
| completely fail to comprehend what they've read here and paint
| this as some sort of sinister theft.
|
| This is the law functioning as intended. Thiel's case is a one-
| in-100-million+ event. He may have the only Roth IRA in existence
| that's valued at over $5 billion. But he didn't do it by
| exploiting some sort of "loophole" or paying high-priced
| accountants to shield his assets in foreign entities offshore. He
| put his investments in a Roth IRA just like any of you can do.
| The only difference is his investments were in the top 0.0001% in
| terms of performance. That's generally how people get to be
| billionaires.
|
| And that's not even to mention that the assets in a Roth IRA are
| essentially worthless to him - he's not old enough to make
| withdrawals or take distributions tax-free and you can't borrow
| against a Roth IRA. The funds are essentially unavailable to him
| for years to come unless he wants to pay taxes and penalties.
|
| Again - this isn't a tax dodge. This is someone who used the law
| exactly as intended without any illegal or shady dealings and
| happened to be incredibly fortunate.
|
| The whole article is a hit piece designed to get whip people into
| a furor. And lately I've been noticing propublica publishing a
| lot of those.
| onlyfortoday2 wrote:
| this is a forum for programmers. they know nothing about
| finance
| hyperpape wrote:
| You're right that this is legal, and that it does not seem to
| involve any trickery. It's not clear that it's even a loophole
| per se.
|
| But that is not the same as intended, which is a stricter bar.
| Arguably a provision capping the tax-exempt returns to a mere
| 10000% (just spitballing, surely there are better ways to write
| such a provision) would have been more in keeping with the
| intent of the law.
| vmception wrote:
| A stricter bar because?
|
| What issue do you have with people having post tax dollars? I
| don't really understand this sentiment, it seems to be at
| odds with even the government's goals.
| hyperpape wrote:
| You misinterpret. I mean a stricter bar for interpretation.
|
| My own opinion on taxes is irrelevant--the parent poster
| cannot say "it's legal, so it's the intent of the law".
|
| This is true whether it's a good or a bad law.
| eplanit wrote:
| > The whole article is a hit piece designed to get whip people
| into a furor. And lately I've been noticing propublica
| publishing a lot of those.
|
| Yes. The story is shaped and told to feed "Capitalism and
| Wealthy People are Bad" narrative.
| vmception wrote:
| From what I can tell, people don't want to learn, they have a
| warped view of taxes at all which drives their furor
|
| I disagree about the Roth IRA being unavailable to him though.
| He listed it as an asset on his New Zealand citizenship
| application and it didnt hurt. If push comes to shove he can
| take any amount out of it and pay the "penalty" which is income
| tax + 10%, so worst case in this country is around 60% on the
| portion taken out if the tax residency - that specific year -
| was in a high tax state instead one of the many zero income tax
| states where it would just be 47% or so. Some European
| countries have it worse at relatively low amounts.
| tomdell wrote:
| PayPal shares were purchased by the CEO at fractions of a penny
| - an obviously fraudulent valuation - effectively turning
| Thiel's $2k fund into a multimillion dollar fund overnight in
| actual fact and circumventing the intent of the law.
| aeturnum wrote:
| I think you're missing the thrust of ProPublica's reporting.
| This is not an article claiming that laws have been broken. It
| is pointing out the difference in intent and reality for a part
| of our financial law. It is not that Thiel is getting huge
| windfalls from this account now (he is a billionaire, he does
| not need them), it's that this is another example of a
| billionaire getting abnormally large absolute benefits from a
| financial instrument.
|
| The message is not that Thiel has committed some crime, but
| that he has cleverly and successfully used an instrument
| designed for the 'middle class' to shelter billions in
| earnings. The implication is that we should _reform these tax
| vehicles so that the ultra-wealthy cannot use them_ - not that
| Thiel is cheating the system as it exists. The lines which talk
| about contribution limits to Roths are to emphasize that _this
| was not intended to shelter this kind of wealth_.
|
| > _This is someone who used the law exactly as intended_
|
| I 100% agree Thiel has broken no crime and I think you should
| be *embarrassed* to say that the people who created the Roth
| intended this. There is no evidence of that. We should
| recognize that this Roth IRA is sheltering more money than
| people expected and make (or refrain from making) regulatory
| changes in response.
| marris wrote:
| If they intended something else, then why didn't they write
| the rules to reflect "else"? The truth is that they didn't
| think that any Roth IRA investor would be as successful as
| Thiel. He showed that he can be. Good for him.
| TaylorAlexander wrote:
| The law is an evolving code as we discover new scenarios.
| This reporting is exploring one of those unexpected
| scenarios so we can understand the need to change the law.
| lefrenchy wrote:
| Not to mention that rich people can pay the smartest
| legal scholars and financial gurus to find workarounds
| and engineer ways to make more money.
| aeturnum wrote:
| > _If they intended something else, then why didn 't they
| write the rules to reflect "else"?_
|
| If the web server didn't intend to allow a buffer overflow
| on POST requests, why did it improperly allocate memory?
|
| I agree with you that we have a choice: should this be
| allowed? If not, how do we transition? If yes, do we want
| to place any limits on it in the future?
| marris wrote:
| When you create a tax shelter, someone _always_ asks
| "what if someone uses this to create an enormous amount
| of wealth"? This is not just true for the US tax code,
| but has been true for probably every tax code in history.
| When that question is raised, the first thing to
| contemplate is how likely it is to occur. And if it is
| not considered likely, then this risk is accepted.
|
| Fuzzing may be a good analogy. Fuzzing can be used to
| test POST request processing when the logic is too
| complicated to validate via more formal means. We try a
| large sample of inputs. If they pass, then the test
| passes, even though we cannot be confident that the code
| will handle every input string correctly.
| aeturnum wrote:
| Right, but like - if you later find a buffer overflow
| that the fuzzing missed - you'll fix it right?
| marris wrote:
| Sure, if you can reproduce the input and if you agree
| that it is misuse. This is a scenario where we don't know
| the formula to create $5B, and and there is no consensus
| that it ("making an extremely successful investment in a
| tax shelter") is misuse.
| beaner wrote:
| Why wouldn't it be allowed? If my investments into my
| Roth IRA performed so we'll i became a billionaire, I
| wouldn't want to be treated differently. And I wouldn't
| want my mom or my neighbor to either. They essentially
| got lucky, they're not taking anything from me in being
| so fortunate.
|
| The "problem" in this case is that Thiel was already a
| billionaire to begin with, and such luck on top of
| existing wealth is what irrationally bothers people.
| aeturnum wrote:
| We have a progressive tax system, which generally taxes
| higher incomes at greater rates. Maybe we do want the
| Roth to be an unlimited shelter, but that has generally
| not been the approach we have taken.
|
| > _The "problem" in this case is that Thiel was already a
| billionaire to begin with, and such luck on top of
| existing wealth is what irrationally bothers people._
|
| This isn't how I feel and I don't actually think that is
| the case ProPublica is making. Tax breaks can also be
| understood as payments - is it in the interest of the US
| to pay Thiel to put his money in a Roth? How much should
| the US pay? How many of your tax dollars would you want
| to go to funding tax breaks for Thiel?
|
| I am sure people are vindictive as well, but the tax
| questions seem both meaningful and work asking to me.
| marris wrote:
| > Is it in the interest of the US to pay Thiel to put his
| money in a Roth? How much should the US pay? How many of
| your tax dollars would you want to go to funding tax
| breaks for Thiel?
|
| I submit that yes, it is in the interest of the US to do
| this, provided that Thiel is creating value for the US
| (and to some extent the world) with that money. $5B is
| approximately one day of US government spending (maybe
| less now). Letting Thiel invest $5B may not be the _best_
| investment decision that the USG has ever made (e.g.
| Internet funding, Telsa support), but it is way higher
| than the mean decision.
| noodle wrote:
| The difference is also that the investments your mom or
| your neighbor put into their Roth IRA are going to be
| publicly traded companies and similar. Thiel, an
| accredited investor, sold himself shares of his own
| company at a very low price to put into his white glove
| managed Roth IRA.
|
| The average person does not have the ability to do this.
| jychang wrote:
| Are you seriously trying to say that lawmakers can't write
| buggy code with edge cases they didn't consider?
| marris wrote:
| Sure they can.
|
| Here, I think some lawmakers probably thought (a) "if
| someone can use this tool that well, then more power to
| him", or (b) I don't like it, but it is so unlikely, and
| I can probably live with it.
|
| I don't think it was a scenario of someone failing to
| "consider the case."
| jupp0r wrote:
| I think you are missing the point of GP. There is nothing
| billionaire specific about what Thiel did. You could have
| done the same with the same Roth contributions. If the law is
| changed it will not only limit Peter Thiel from doing this
| but also you and me.
| mediaman wrote:
| It's clear that the IRA system was created to encourage
| saving for retirement through tax deferral.
|
| It was not intended for billionaires, because for them it
| serves no purpose in encouraging them to save for
| retirement. (Financial security in retirement is not
| something billionaires worry about.)
|
| The idea that there is no way the law could exclude this
| sort of benefit while not hurting the middle class is
| absurd. There are any number of ways to do it: for example,
| any plan with more than $10 million in capital gains could
| have gains above that amount lose their tax-exempt status.
| lotsofpulp wrote:
| >It's clear that the IRA system was created to encourage
| saving for retirement through tax deferral.
|
| It is not clear to me that IRAs were created for this
| reason. As far as I can tell, they seem to exist only to
| provide plausible deniability (and poorly at that) for
| 401ks giving an advantage to big businesses that can
| afford to implement them (pre Vanguard/cheap passive
| investing days) over smaller businesses that could not
| afford to implement 401ks.
|
| Otherwise, I see no reason why people who work for
| employers that can afford to offer 401ks should have a
| leg up in tax advantaged retirement savings over people
| who do not and have to rely on IRAs (which have
| drastically lower contribution limits).
|
| >It was not intended for billionaires,
|
| It would have been simple to write in a limit for maximum
| amount of tax free gains in Roths.
| et-al wrote:
| There is actually something _millionaire_ specific about
| what Thiel did. He was an accredited investor that was able
| to buy private shares that the general public cannot buy.
|
| If IRAs were only allowed to purchase publicly-listed
| stock, this wouldn't have happened.
| Scoundreller wrote:
| Which also gives the accredited investors another
| advantage: with less capital available, the valuations
| are inherently depressed.
| [deleted]
| ska wrote:
| > If the law is changed it will not only limit Peter Thiel
| from doing this but also you and me.
|
| That obviously not necessarily true. One can imagine a
| change in law that limits tax sheltering of this type for
| any individual to say, 10mm. A tiny fraction of the
| population would be affected.
| tablespoon wrote:
| > That obviously not necessarily true. One can imagine a
| change in law that limits tax sheltering of this type for
| any individual to say, 10mm. A tiny fraction of the
| population would be affected.
|
| Or limit the types of assets that can be held in an IRA
| to those that are publicly traded and can be bought on
| the open market. It seems like an important part of this
| scheme was Thiel basically got to set the price of some
| shares he sold himself, because they weren't publicly
| traded at the time.
| s1artibartfast wrote:
| Then you are limiting what people can do with their money
| 2 inflating stock prices of giant companies. What if I
| want to invest in a friend's business or buy a rental
| property. Are you saying it should be illegal for me to
| do that with my IRA?
| walshemj wrote:
| Your being very optimistic here and changes will make the
| existing v poor US pensions system worse.
|
| edge cases make bad law eg using the small number of
| social security cheats to reduce entitlements to all or
| the tiny tiny number of cases of elector fraud to
| disenfranchise the poor and BAME.
|
| Dunblane and the Dangerous dogs act in the UK are
| related.
|
| This is the sort of thing that fringe "hobbyist"
| activists do assuming they aren't paid agent
| provocateur's
| ska wrote:
| > Your being very optimistic here
|
| I'm not being optimistic or pessimistic, just pointing
| out a logical fallacy.
| aeturnum wrote:
| "The law, in its majestic equality, forbids rich and poor
| alike to sleep under bridges, to beg in the streets, and to
| steal their bread."
|
| I think there are about 4 billion billionaire-specific
| things Thiel is getting out of this arrangement that aren't
| accessible to me (or, I suspect, to you).
| markdown wrote:
| That's the point. It should limit temporarily embarrassed
| billionaires like you and me from doing this if we regain
| our riches.
| peytoncasper wrote:
| What is your limit on how much money should be "sheltered" by
| a Roth IRA?
|
| At the time Thiel was not an ultra-wealthy billionaire. From
| the article.
|
| "I said, 'If you really think this is going to be big, you
| know, you might want to consider this new Roth,'" recalled
| Anderson
|
| The Roth IRA is intended to be a retirement vehicle for
| people to make contributions too with the intention of it not
| being touched till after retirement. As a perk, it is not
| taxed.
|
| Maybe its not within the "spirit" of the law, but I hardly
| see how trying to create incredibly granular restrictions on
| start up founders or people that believe they have a better
| investing strategy is the right approach.
|
| What about making it easier for normal people to have access
| to the same IPOs that Thiel had access to?
| aeturnum wrote:
| > _What is your limit on how much money should be
| "sheltered" by a Roth IRA?_
|
| This is what I am saying the article is raising!
|
| I'd limit it to $10m myself. Seems like that would be
| enough to retire on. Probably tie it to inflation?
|
| What number would you pick?
|
| > _What about making it easier for normal people to have
| access to the same IPOs that Thiel had access to?_
|
| I would be fine with that but it seems like a separate
| issue?
| manigandham wrote:
| I wouldn't pick a number. Who are you to decide how much
| wealth someone else has?
| unstatusthequo wrote:
| How about freedom and no limit? Why limit?
| peytoncasper wrote:
| I'm not sure I would pick a number if I am honest, but I
| can understand that a number probably exists.
|
| If this wasn't Thiel but rather someone else who made
| 60k/yr or 120k/yr, I don't think this would even be a
| conversation. So what if they turned their Roth IRA into
| 100 million.
|
| In my opinion that is encouraging the right behavior and
| the intent. Investing 2,000 per year of their wages and
| trying to be somewhat forward thinking about their
| retirement.
|
| Now there is the open question of if an average person is
| able to truly analyze such investments, but I think that
| is a separate issue as well.
| sp332 wrote:
| And Roth IRAs are funded post-tax. That means he paid taxes
| on the income already, before he put the money into the
| IRA. That's why it's "tax-free".
| peytoncasper wrote:
| I think that's fair, although, and correct me if I am
| wrong. Its his current income tax, so it's highly likely
| that his income tax bracket is lower than the cap gains
| tax that would normally be applied on investments like
| this.
|
| That being said, I tend to agree. Its to prevent double
| tax in which you're trying to promote a better
| investment. Your long term health and retirement.
| pontifk8r wrote:
| I'm correcting you: Unless he makes less than $40,000 in
| salary, the capital gains tax rates are going to be lower
| than the tax rate for ordinary income. The chart in this
| article reveals more:
| https://www.investopedia.com/articles/personal-
| finance/10151...
| lend000 wrote:
| > successfully used an instrument designed for the 'middle
| class' to shelter billions in earnings
|
| A Roth IRA is beneficial if positions are being changed
| (taxable events), because those taxes are deferred. For very
| long term holding, the benefit caps out at 20% in exchange
| for tying up the assets for decades.
|
| He will eventually benefit, if the company is still valuable
| when he comes of retirement age, by avoiding the single long
| term capital gains hit he would otherwise pay. It'll be more
| of a story, then, if the stock is near an all time high
| value, but frankly, this is not a scalable investment
| strategy for the wealthy sheltering their wealth (which would
| be a more interesting story). This only worked because he has
| been an exceptionally successful investor. This wouldn't be a
| good strategy for every startup founder, because even if the
| startup was mega-successful, the founders would not be rich
| until retirement.
| birken wrote:
| He has been constantly changing his positions and using the
| proceeds to invest in other companies. The benefit isn't
| one time, it is compounding over time, because he gets to
| keep investing the 20% of extra money he would have had to
| pay in capital gains, over and over again, as he shifts his
| money between investments.
|
| He also doesn't have to keep all of his wealth in this Roth
| IRA, just a percentage. It clearly is a scalable strategy
| because lots of people are doing it.
| SavantIdiot wrote:
| This reminds me of Trump supporters who said, "Because he beat
| the IRS and paid zero taxes means he's smarter than the
| system."
|
| Your argument is along the same lines: Theil followed the law,
| ergo nothing "sinister" happened.
|
| Which is the same as: "It isn't sinister because there is no
| law."
|
| Yet, where did laws come from? Oh right, from people who have
| ethics. Because our ethics do not come from laws; our morals
| do, but not our ethics. Morality is an invented extension of
| ethics, which is codified into law when people think something
| shitty is happening (well, that's how it SHOULD happen... but
| that's the School-House-Rock version)
|
| IMHO, and many others (sadly, to your "dismay") Theil is being
| a greedy pig exploiting vagaries of the law for his MASSIVE
| gain, and there needs to be laws to prevent this kind of
| behavior because it is only available to the super wealthy, and
| it makes the elite class even more untouchable (plus a thousand
| other second-order effects).
| bpodgursky wrote:
| This isn't some complicated double-dutch tax sheltering
| scheme though. It's functionally the same as using your Roth
| IRA to buy a lottery ticket and winning. The vast majority of
| startups fail.
|
| It's just a super simple investment that succeeded because
| his startup won.
| SavantIdiot wrote:
| Again: I have a problem with someone investing in their
| startup using a government tax-protected shelter, and then
| making a killing off of it: that is double dipping, and
| scum-baggy.
|
| Simple law: you cannot invest in your own company in your
| own Roth IRA because it is blatantly unfair to other
| investors who don't have similar insider trading abilities.
|
| Done.
| nrmitchi wrote:
| I mean, you're already not allowed to use a Roth to
| invest in a company that you're an officer of, major
| shareholder in, etc (with many other restrictions), so
| I'm not sure how adding a new law would have changed this
| (since the existing ones appear to have just been
| ignored)
| cscurmudgeon wrote:
| > Simple law: you cannot invest in your own company in
| your own Roth IRA because it is blatantly unfair to other
| investors who don't have similar insider trading
| abilities.
|
| Why can't other investors create their own startups and
| invest their money similarly?
|
| Startup founders take a lot of risk. There is a big
| chance his investment could have been zero. It is strange
| that ProPublica does not understand this basic concept.
|
| Where is their report on millions of Roth accounts that
| went to zero?
| SavantIdiot wrote:
| > It is strange ProPublica not understand this basic
| concept.
|
| One could ask how you demonstrably cannot understand the
| conflation of two unrelated concepts?
|
| Concept A: taking a risk to create a startup that you
| hope becomes a profitable company by executing to its
| core competency
|
| Concept B: investing in your own company through a tax
| vagary with an investment device that has nothing to do
| with startup (or a particular startup)
|
| Seems clear as day to me.
|
| https://www.youtube.com/watch?v=BPX-wuplDvc
| diob wrote:
| The paltry amount he invested was hardly a risk. Had it
| not panned out, he would have been out basically zilch.
| chrisseaton wrote:
| > That's generally how people get to be billionaires.
|
| I think generally they inherit?
| hyperpape wrote:
| I believe that this has been true at some points in the past,
| but is not true for the majority of the current slate of
| billionaires, most of whose wealth comes from activities
| during their lifetime.
|
| It's a robber baron period, not a dynastic wealth period.
| chrisseaton wrote:
| > but is not true for the majority of the current slate of
| billionaires, most of whose wealth comes from activities
| during their lifetime
|
| Huh you're right. I guess that's a source of hope!
| [deleted]
| outside1234 wrote:
| Uh huh - I think we will need a full accounting on what exactly
| happened here in an IRS audit to confirm that - I'm pretty
| dubious.
| DantesKite wrote:
| The US government is pretty aggressive about getting their
| tax dollars (no matter who it is).
|
| See John McAfee, Al Capone.
| DoreenMichele wrote:
| I'm pretty sure Al Capone was not about aggressive tax
| collecting but was instead about putting him away on the
| one thing they could actually prove and make it stick.
| diob wrote:
| They're gone on record saying they only go after the small
| fry though. The big ones hold them up in litigation.
| nrmitchi wrote:
| Really? IF the US is that aggressive about their tax
| dollars, what was the full fallout of the Panama Papers
| again?
|
| I'm not going to say anything about McAfee at at this time,
| but your other example was not really a target for
| inditement based _solely_ on his tax crimes.
| mapt wrote:
| That was before 40 years of billionaires largely
| controlling the agenda of government, with the past 15
| years in particular seeing audit rates for this class drop
| below audit rates for waitresses.
| 1-more wrote:
| > Again - this isn't a tax dodge. This is someone who used the
| law exactly as intended without any illegal or shady dealings
| and happened to be incredibly fortunate.
|
| To quote Daniel Ellsberg: the scandal isn't that they're
| breaking the law, the scandal is that what they're doing is
| legal.
| sida wrote:
| I don't think that's true right. Peter Thiel purchased shares
| in Paypal at $0.001 per share, which is far below fair market
| value.
|
| The "theft" here is the undervaluation of the shares with which
| he purchased at
| onlyfortoday2 wrote:
| waffle talk
| concreteblock wrote:
| Who sold him those shares?
| sida wrote:
| It is in the article "Mr. Thiel purchased his founders'
| shares in PayPal through his Roth IRA during PayPal's
| formation"
|
| I am willing the venture a guess that the initial valuation
| was far greater than 0.001 per share. And this was all an
| accounting trick to exploit IRA
| throwaway5752 wrote:
| I'd guess $.001 is the par value and there was no 409A
| valuation. The initial basis doesn't really matter if it
| is essentially zero or $1 or $5 in this case. The implied
| current price on the founders shares is approximately
| $2500.
|
| I agree with Propublica's take
|
| _Yet, from the start, a small number of entrepreneurs,
| like Thiel, made an end run around the rules: Open a Roth
| with $2,000 or less. Get a sweetheart deal to buy a stake
| in a startup that has a good chance of one day exploding
| in value. Pay just fractions of a penny per share, a
| price low enough to buy huge numbers of shares. Watch as
| all the gains on that stock -- no matter how giant -- are
| shielded from taxes forever, as long as the IRA remains
| untouched until age 59 and a half. Then use the proceeds,
| still inside the Roth, to make other investments._
|
| I also think that there should be a cap on tax free
| distributions sheltered by Roths, and they should not be
| transferable upon death.
| nerfhammer wrote:
| The key is knowing exactly which startup to put your
| $2000 in.
| tablespoon wrote:
| > The key here is that if you have to reliably identify
| exactly which startup to put your $2000 in.
|
| No. Theil was _already_ making a risky startup bet, so
| the "reliably identify" point is moot. All this maneuver
| did was let him avoid all the taxes he'd owe if it paid
| off.
| marris wrote:
| I disagree with ProPublica's take. If it was as simple as
| "pay just fractions of a penny per share... watch as all
| the gains..." then we would all do it. Not just with Roth
| IRAs, but with our _entire portfolios._ The reason we don
| 't all do this is because startups are very very risky.
| Some people will succeed and walk away with windfalls.
| Other people will lose their shirts. If there was
| arbitrage, there would be a an "app for that" and there
| would be more billionaires walking around.
| lordnacho wrote:
| What they seem to be suggesting is that a fair valuation
| (well reasoned given all information) of the shares would
| have put the investment at millions of dollars, but due
| to a peculiarity of historical accounting, they could be
| put at worth $2K because that was the creation price and
| the last print.
|
| For instance, it might be that a funding round was about
| to happen. This is never a sure thing, so you could claim
| that the shares are not worth the full price (and in any
| case the only trade was at 2K), while privately thinking
| "hmm, my shares are now worth x millions".
|
| You then sell the shares to the Roth, thinking yourself
| that you're putting x millions in the vehicle while
| reporting 2K.
|
| Doesn't sound illegal to me, but it also doesn't sound
| like things are supposed to work this way.
| Scoundreller wrote:
| Or just exclude private shares from Roth IRAs.
|
| Most people are non-accredited investors and therefore
| ineligible to buy them.
|
| Startups won't miss out on the $2000/yr from the few that
| are eligible.
| bpodgursky wrote:
| Forcing all IRA investment through publicly listed
| companies sounds like exactly the law a hedge fund would
| write. Why allow people to invest in assets you can own
| without going through a Wall Street investment bank?
|
| Regulatory capture is forcing the entire economy through
| your cartel in the name of nominal protection.
| doggosphere wrote:
| Publicly listed companies are equally available
| opportunities for anyone participating in the
| contribution rate-limited game of Roth IRA maximization.
|
| Private share contributions give huge asymmetric upside
| to private investors/founders. Yes they take risk in that
| their shares still have to end up being worth something
| one day, but clearly the upside tax advantages are
| ridiculously unbalanced against the middle class because
| not everyone has access to early stage investments.
|
| So, even the playing field by:
|
| - Letting anyone invest in early stage companies (this
| has many other implications)
|
| Or
|
| - Only allow cash contributions to IRAs
| Scoundreller wrote:
| You can buy publicly traded companies without going
| through brokers/stock exchanges.
|
| What can be assured is that the exchange can be booked at
| a market value, which can never be guaranteed in a
| private sale in an opaque market, risking shenanigans to
| shift value beyond the contribution limit.
|
| (You can say a corp's initial shares have zero value, but
| we can all agree here that a Corp formed to execute on a
| startup team's plan/idea absolutely does have value).
| woah wrote:
| Are you saying that Peter Thiel should have known that he
| would turn PayPal into a multibillion dollar business,
| and because of this, the shares were not really
| worthless?
|
| EDIT: That was sarcastic, but re-reading, that basically
| is what the article is saying:
|
| > Get a sweetheart deal to buy a stake in a startup that
| has a good chance of one day exploding in value.
|
| 20-20 hindsight
| vmception wrote:
| it's honestly no wonder that the masses assumes
| inaccessibly expensive accountants are necessary to
| simply think clearly
| ajju wrote:
| All shares issued at founding have a near-zero cost
| because, while you technically need to buy the shares,
| the company (by definition) is worth $0 on the day you
| start it.
|
| There is no tax gimmick involved in that part. If you
| require entrepreneurs to buy shares of their own company
| for large sums of money on the day they start the
| company, it would dissuade many entrepreneurs. On the day
| I incorporated my company in Delaware, my debt exceeded
| my assets and the startup was going to be my only
| profession.
| machinebun wrote:
| Sure - there's no problem with valuing those shares at
| $0.001 in general, because there's not much that
| valuation matters for in the short term (eventually you
| will pay different taxes depending on the end result of
| your company).
|
| However, Roth IRAs specifically are a tax shelter and
| have contribution limits, so valuations matter a whole
| lot for them (difference in $0.01 per share vs $0.001 per
| share would be a difference of $500M vs $5B today).
| That's why I think illiquid (or non-market cleared)
| securities should not be allowed in Roth IRAs.
| ska wrote:
| > That's why I think illiquid (or non-market cleared)
| securities should not be allowed in Roth IRAs.
|
| That + a cap on tax shelter would solve the issue, if it
| needs solving.
|
| Perhaps also prohibit equity from any source where you
| aren't arms length.
| Scoundreller wrote:
| > the company (by definition) is worth $0 on the day you
| start it.
|
| Is it?
|
| If Elon Musk forms a corporation tomorrow, its market
| value is more than $0 before he does a single thing with
| it.
|
| And that's all the IRS should care about for Roth
| contribution limits: market value.
|
| If I buy 1000 shares of PayPal from my mom for $2000 (mkt
| value: a lot more!) and put that into my IRA and tell the
| IRS that $2000 is the price we agreed (in the marketplace
| of the dinner table).
| vmception wrote:
| Its still surprising to me that you got this backwards.
| There is no reason to ever choose a higher par value than
| that then when forming a company.
| tylermenezes wrote:
| When the company is formed the valuation is genuinely
| very small because it has no assets, customers, etc.
| Buying some of your shares in a Roth IRA at this point is
| relatively common, enough so that I've heard multiple
| people suggest that founders do it.
| Scoundreller wrote:
| Yeah, I doubt Thiel came up with this himself. Was
| probably recommended by accountants whom should all be
| familiar with Roth IRAs.
|
| But the possibilities of windfall tax-free profits made
| sure everyone kept quiet about it.
| enahs-sf wrote:
| As a founder you can grant yourself options or shares at
| essentially infinitesimally small values in the very early
| days of the company and pay virtually no tax.
| bcrl wrote:
| Other countries only allow shares of publicly traded
| companies to be added to tax shelter savings accounts.
| This seems like a reasonably fair way to prevent people
| with significant resources from taking advantage of the
| system in ways the general public cannot. Someone getting
| returns in excess of hundreds of thousands of percent
| should be able to afford paying a few percent in tax to
| help pay for the infrastructure society has provided to
| make success in industry possible.
| walshemj wrote:
| The UK doesn't there are a number of schemes that allow
| this.
|
| Everyone in the private company I work for has EMI
| options that trigger on change of control.
| enahs-sf wrote:
| Forgive my ignorance but I was under the impression this
| was startup founders standard operating procedure.
|
| 1. Form a C Corp
|
| 2. Grant founders shares at $0.000x/share
|
| 3. Early exercise all of said shares at basically nothing
|
| 4. Make 83(b) election to IRS
|
| 5. Take advantage of long term cap gains and qsbs
|
| I'm sure plenty of folks in this forum have done similar
| things, the only difference is mr. thiel put it into his
| Roth account, essentially betting on himself and it paid
| off big time.
| maxk42 wrote:
| That's not how it works. When you incorporate, the
| corporation has shares split among the founders. The
| founders themselves determine the "par" value of each share
| - essentially its intrinsic worth.
|
| You have to pay this amount of money to acquire the shares
| upon incorporation. (Each state does it a little
| differently.) So it's generally made a very low value
| between $0.0001 and $0.01. You'd pay the same amount if you
| were to incorporate a new business. That's it. He put some
| of his founding shares in Paypal in the Roth IRA when he
| founded the company and he got incredibly lucky. Nothing
| sinister happened.
| phonon wrote:
| Except if these were founder shares, he would likely be
| disqualified. "Disqualified person...an officer, director
| (or an individual having powers or responsibilities
| similar to those of officers or directors), a 10 percent
| or more shareholder, or a highly compensated employee
| (earning 10 percent or more of the yearly wages of an
| employer)" (2)Disqualified person
| For purposes of this section, the term "disqualified
| person" means a person who is-- (A)a fiduciary;
| (B)a person providing services to the plan; (C)an
| employer any of whose employees are covered by the plan;
| (D)an employee organization any of whose members are
| covered by the plan; (E)an owner, direct or
| indirect, of 50 percent or more of-- (i)the
| combined voting power of all classes of stock entitled to
| vote or the total value of shares of all classes
| of stock of a corporation, (ii)the capital interest
| or the profits interest of a partnership, or
| (iii)the beneficial interest of a trust or unincorporated
| enterprise, which is an employer or an employee
| organization described in subparagraph (C) or (D);
| (F)a member of the family (as defined in paragraph (6))
| of any individual described in subparagraph (A),
| (B), (C), or (E); (G)a corporation, partnership, or
| trust or estate of which (or in which) 50 percent or more
| of-- (i)the combined voting power of all classes of
| stock entitled to vote or the total value of shares of
| all classes of stock of such corporation,
| (ii)the capital interest or profits interest of such
| partnership, or (iii)the beneficial interest of
| such trust or estate, is owned directly or
| indirectly, or held by persons described in subparagraph
| (A), (B), (C), (D), or (E); (H)an officer, director
| (or an individual having powers or responsibilities
| similar to those of officers or directors), a 10
| percent or more shareholder, or a highly compensated
| employee (earning 10 percent or more of the yearly
| wages of an employer) of a person described in
| subparagraph (C), (D), (E), or (G); or (I)a 10
| percent or more (in capital or profits) partner or joint
| venturer of a person described in subparagraph
| (C), (D), (E), or (G). The Secretary, after
| consultation and coordination with the Secretary of Labor
| or his delegate, may by regulation prescribe a
| percentage lower than 50 percent for subparagraphs (E)
| and (G) and lower than 10 percent for
| subparagraphs (H) and (I).
|
| https://www.law.cornell.edu/uscode/text/26/4975
| ghufran_syed wrote:
| You realize that when forming a company, the number of shares
| you issue is arbitrary, right? If three founders each put in
| $1 capital, and each get 1 share, then the price per share is
| $1. If instead the founders get 1 million shares each, then
| each share is worth 1 millionth of a dollar. What economic
| difference does it make?
|
| Or are you claiming that on the day that he paid $0.001 per
| share, someone else paid more per share? If that didn't
| happen, there is NO WAY to determine after the fact what the
| "true" market value was on that date.
| Scoundreller wrote:
| > Or are you claiming that on the day that he paid $0.001
| per share, someone else paid more per share
|
| I suspect this was the case. Hypothetical example: Class A
| shares were available for $100 each, and Class B shares for
| $0.0001 each, but you could only get a B share by buying an
| A share. With the implicit (or explicit?) promise to merge
| the share classes together eventually to cause the prices
| to converge and massively inflate the Roth IRA side of the
| investment where you stashed the B shares.
|
| So the $0.0001 shares all cost you $100 each to buy, but
| that $100 comes from outside your $2000 contribution limit.
| vmception wrote:
| You don't need two classes of shares for this you are
| over complicating things
| Scoundreller wrote:
| Yeah, could just do the share issuance in 2 stages: the
| first at $0.000001 then later at >$1 to raise useful
| capital.
|
| But multiple share classes often exist anyway for various
| reasons (different preferences upon liquidation,
| different voting polices, different retraction policies,
| different dividend policies, etc)
| vmception wrote:
| Yes
|
| I believe Bain Capital used separate share classes to
| pump their employees 401ks
|
| That level of collaboration and financial engineering
| should be encouraged
| cdolan wrote:
| The true theft is the thousands of private documents on private
| citizens stolen from the IRS and provided to ProPublica
| justanotherguy0 wrote:
| Yeah this vigilantism from careerists in the federal
| bureaucracy must be punished.
|
| We're never going to hear about the ins and outs of their
| darlings like AOC and Sanders (whose wife defrauded and
| destroyed a college she was put in charge of).
|
| Instead this is a hit on people they dislike or disagree
| with.
|
| Edit: y'all can downvote me all you want. I used to work in
| DC and I know the difference between a law, signed off on by
| elected officials who represent you, official rules, that go
| through a rule making process, and guidance, which is being
| routinely abused.
|
| I also know that activists and bureaucrats are actively
| conspiring to push policy without winning a single election.
|
| Everybody loves when people they agree with bend the rules,
| but what we've seen over the last several decades is a
| warping and poisoning of our policy infrastructure.
| kyrra wrote:
| Per their about page[0]:
|
| > We dig deep into important issues, shining a light on
| abuses of power and betrayals of public trust -- and we stick
| with those issues as long as it takes to hold power to
| account.
|
| As you said, the "abuse of power" here is someone (likely) at
| the IRS leaked these documents. Someone with the power over
| others taxes chose to share that info. Then ProPublica is
| then using this information to push a tax story that they
| want.
|
| [0] https://www.propublica.org/about
| FabHK wrote:
| - "Ah, Mr Thiel, I see you're holding some shares there of a
| precious little company. Would you want to sell me some to put
| in this here tax shelter maybe?"
|
| - "Why, yes, Mr Thiel, I'd love to sell you some of my shares
| here for your fine tax shelter there, let's say, hmm, 1.7
| million shares."
|
| - "Aye, let's do it then, Mr Thiel. Mind you though: you can
| only sell yourself up to $2000 worth, Mr Thiel, per year. Now
| say, Mr Thiel, how much are those shares there worth, you
| reckon, Mr Thiel?"
|
| - "Well, Mr Thiel, I'll write you receipt over $0.001 per
| share. What do you say, Mr Thiel?"
|
| - "Very well, Mr Thiel, that sounds about right. $1700, of
| course, Mr Thiel, just under the $2000 limit, what a happy
| coincidence, Mr Thiel. You're so savvy in valuing shares!"
|
| - "Of course, Mr Thiel, thank you, always eager to help, Mr
| Thiel."
|
| - "The pleasure is all mine, Mr Thiel. We are so fortunate, are
| we not?"
| vmception wrote:
| These are the exact conversations I have with myself even
| doling out shares to my self directed 401k and private
| foundation
|
| Here nothing abnormal or discounted occurred with the share
| price
|
| The par value at formation time would have been that
| Aunche wrote:
| This was my first reaction as well, but on second thought, this
| seems like a flagrant abuse of the Roth IRA. I'm not saying
| Thiel should be punished, but something is clearly wrong here.
| Let's say I invest in a freelancing company that only employs
| myself, and buy 100% of the equity for $500, which I use to buy
| a work laptop. I only take 1/3 of my income as salary and then
| leave the rest of the money in the freelancing company, which
| invests it in stocks. Combine this with a Double Irish
| arrangement, and I could basically avoid paying taxes
| completely.
| walshemj wrote:
| You'd be trading as an investment company then
| [deleted]
| dustingetz wrote:
| you "withdraw" by getting a bank line of credit with the IRA as
| collateral
| ska wrote:
| That's not allowed.
|
| I expect if you have enough there, you could use the same
| sorts of schemes as other illiquid wealth.
| maxk42 wrote:
| It's explicitly prohibited for Roth IRAs.
| [deleted]
| [deleted]
| gravypod wrote:
| I don't think you are allowed to borrow _against_ a Roth IRA.
| You are able to borrow _from_ an IRA in a very small set of
| situations. I think they are mainly buying your first house,
| going to college, becoming disabled, or adopting a child.
|
| I am not a lawyer so take it with a grain of salt and I am
| very probably wrong.
| seventytwo wrote:
| Of course it's all legal. That's not the point.
|
| The point is that this is one more example of how the wealthy
| and powerful have more opportunity than others, even given the
| same laws.
|
| This is no different in that aspect than the problem of rich
| people being able to hire the best lawyers to defend
| themselves, while the poor receive overworked public defenders.
| Everything equal, the wealthy have more opportunity.
|
| If we want a society that is _equal opportunity_ , our laws and
| regulations need to account for the natural emergent properties
| of wealth. Our progressive tax system is a narrow, feeble
| attempt at doing that, but it's certainly not enough.
| [deleted]
| tablespoon wrote:
| > This is the law functioning as intended. Thiel's case is a
| one-in-100-million+ event. He may have the only Roth IRA in
| existence that's valued at over $5 billion. But he didn't do it
| by exploiting some sort of "loophole" or paying high-priced
| accountants to shield his assets in foreign entities offshore.
| He put his investments in a Roth IRA just like any of you can
| do. The only difference is his investments were in the top
| 0.0001% in terms of performance. That's generally how people
| get to be billionaires.
|
| No. Roth IRA's have contribution limits, and at a minimum I'm
| sure he exploited some loophole to get his adjusted gross
| income down below $110,000 so he could make that $2000
| contribution in 1999 (https://www.irs.gov/pub/irs-prior/p590--
| 1999.pdf). Look at his work history:
|
| > https://en.wikipedia.org/wiki/Peter_Thiel: He then earned his
| J.D. from Stanford Law School in 1992.[7] After graduation, he
| worked as a judicial law clerk for Judge James Larry Edmondson
| of the U.S. Court of Appeals for the Eleventh Circuit, as a
| securities lawyer for Sullivan & Cromwell, as a speechwriter
| for former-U.S. Secretary of Education William Bennett, and as
| a derivatives trader at Credit Suisse. He founded Thiel Capital
| Management in 1996. He co-founded PayPal in 1999, serving as
| chief executive officer until its sale to eBay in 2002 for $1.5
| billion.
| vmception wrote:
| Its per year. Founders often are not taking salary or much of
| one for several years.
|
| You can have millions of liquid assets and not have any
| income and be eligible for income related thresholds.
|
| You dont need to be taking advantage of net operating losses
| or charitable deductions for any of this.
| jeremy_k wrote:
| It's called Backdoor Roth Contribution [1]. It only really
| works if you don't have any normal IRA accounts.
|
| 1 - https://www.investopedia.com/terms/b/backdoor-roth-
| ira.asp
| marris wrote:
| He could have saved it up from prior years of work. Starting
| salaries can in fact be lower than $110K.
| tablespoon wrote:
| The OP said he made the contribution in 1999, after he did
| things like work as a securities lawyer and founding a
| hedge fund.
| kolbe wrote:
| Just as "they" are being presumptuous about how he got that
| much money in there, so are you. He may very well have made an
| extraordinarily good investment with his Roth IRA, but he may
| have transferred tens of millions of dollars worth of stock
| into it at below market rates.
| maxk42 wrote:
| The article explicitly states: "Mr. Thiel purchased his
| founders' shares in PayPal through his Roth IRA during
| PayPal's formation."
|
| That's literally the market rate.
| machinebun wrote:
| > purchased his founders' shares in PayPal through his Roth
| IRA during PayPal's formation."
|
| > That's literally the market rate.
|
| That's not a market rate, that's a price-fixed rate. A
| market rate involves actual buyer and seller transactions
| and an actual market (a couple of people shuffling stock
| amongst themselves does not a market make)
|
| If he had put Bitcoin in there at $0.01 back when it was
| trading at $0.01 - that would be a market rate transaction
| (since there was a market for Bitcoin at the time). That
| would have been much less problematic than what actually
| happened (and there would be no "substantial control"
| problems either with the Bitcoin investment).
| lukeschlather wrote:
| > And that's not even to mention that the assets in a Roth IRA
| are essentially worthless to him - he's not old enough to make
| withdrawals or take distributions tax-free and you can't borrow
| against a Roth IRA
|
| I don't think that's remotely true. For a normal person with
| tens of thousands or even a few hundred thousand in an IRA that
| money is basically useless.
|
| But for someone with billions in an IRA? He can almost
| certainly start a public company and use a maze of shell
| companies to let him do whatever he wants with the money.
| tzs wrote:
| > And that's not even to mention that the assets in a Roth IRA
| are essentially worthless to him - he's not old enough to make
| withdrawals or take distributions tax-free and you can't borrow
| against a Roth IRA. The funds are essentially unavailable to
| him for years to come unless he wants to pay taxes and
| penalties.
|
| If he took all of that money out now he'd be looking at losing
| half of it to taxes and penalties, leaving him with about $2.5B
| which is several of orders of magnitude more than he put into
| it. That's far from "essentially worthless".
| throw0101a wrote:
| Method:
|
| > _Yet, from the start, a small number of entrepreneurs, like
| Thiel, made an end run around the rules: Open a Roth with $2,000
| or less. Get a sweetheart deal to buy a stake in a startup that
| has a good chance of one day exploding in value. Pay just
| fractions of a penny per share, a price low enough to buy huge
| numbers of shares. Watch as all the gains on that stock -- no
| matter how giant -- are shielded from taxes forever, as long as
| the IRA remains untouched until age 59 and a half. Then use the
| proceeds, still inside the Roth, to make other investments._
| patentatt wrote:
| I also wonder if they can borrow against it. It would seem a
| pretty low risk loan for a banker to make, and it would allow
| people to access the money arbitrarily, negating the one
| downside or limitation. So yet another way that the rich can
| basically avoid paying any taxes. Does anyone know of any
| limitations or rules restricting what you can invest the
| contents of an IRA in? Can you set up a business, sell your IRA
| shares of the business, then borrow against that value?
| Basically a foolproof way to avoid paying any taxes ever. The
| best part is the interest rate just has to be lower than the
| tax rate, not even the rate of return, right? Incredible. I
| think Romney was roasted for doing the same thing with his IRA.
| Seems like any wealthy person could and should be doing this.
| HWR_14 wrote:
| Roths are bad collateral in general, because they are a
| special asset that survives bankruptcy (up to a certain
| level). Now, Thiel would actually care about his Roth getting
| chopped to only a few million, so in this case we'd have to
| look at what laws prevent that, which I don't know.
|
| Edit: Using a Roth as collateral is apparently prohibited
| under IRS rules 4975(c)(1)(B)
| nickpp wrote:
| > buy a stake in a startup that has a good chance of one day
| exploding in value
|
| Sounds easy and straightforward.
| dehrmann wrote:
| > Open a Roth with $2,000 or less
|
| You need a MAGI of less than $139,000 to do that. That includes
| dividends and capital gains, so it's unlikely post-Paypal Thiel
| ever made that little. Pre-Paypal Thiel might have.
|
| > Get a sweetheart deal to buy a stake in a startup that has a
| good chance of one day exploding in value.
|
| This might happen for post-Paypal Thiel. Definitely not pre.
| This is way easier said than done unless you have good access
| to deal flow (he does) and founders willing to pay for the
| privilege of having you as an investor vs. some random VC.
|
| > Pay just fractions of a penny per share
|
| You're not paying fractions of a penny per share for something
| that has a "good chance of one day exploding in value." This
| investment doesn't exist.
|
| I'd love to see his specific investments. I have a feeling a
| handful from a specific time window made up the bulk his his
| returns.
| junar wrote:
| As reported in the article, Thiel's income was below the
| income limit in the year of contribution, and he only needed
| one year's contribution to execute the strategy.
|
| Also, income doesn't matter nowadays. Because Congress
| removed the income limit on Roth conversions (also reported
| in the article), anyone is free to make a nondeductible
| traditional IRA contribution and convert it to Roth, which
| achieves a similar effect.
| temp_praneshp wrote:
| > > Open a Roth with $2,000 or less > You need a MAGI of less
| than $139,000 to do that.
|
| Is there a reason trad -> roth doesn't work in this scenario?
| didibus wrote:
| > This might happen for post-Paypal Thiel. Definitely not
| pre. This is way easier said than done unless you have good
| access to deal flow (he does) and founders willing to pay for
| the privilege of having you as an investor vs. some random
| VC.
|
| He purchased shares of PayPal at 0.001 when he first founded
| it using his Roth IRA, it's all explained in the article.
|
| > You're not paying fractions of a penny per share for
| something that has a "good chance of one day exploding in
| value." This investment doesn't exist
|
| That's where the article alludes to something maybe slightly
| fraudulent, for him to have his PayPal startup at the
| beginning sell shares to himself at 0.001$, as a special
| declared "employee discount rate".
|
| He then managed to make 28 million in his Roth IRA from the
| IPO of PayPal which he paid no taxes on, because his private
| PayPal shares were all in the Roth IRA. Then he took that 28
| million and reinvested it in Facebook, his Hedge Fund, his
| other startup Palantir and others, and those investment
| further did not get taxed, because the whole pool of money
| was all in the Roth IRA from this point on.
| mywittyname wrote:
| I hope a law is passed that hits this kind of behavior with
| stiff penalties. Thiel isn't the first to do something like
| this. It is incredibly common. The letter of the law is that
| annual contributions are capped, and the spirit of that law is
| that this is done to keep these accounts from becoming tax-
| free, judgement-proof shelters for insane amounts of wealth.
|
| Perhaps caps on Roth the value of Roth IRAs and a limit of the
| type of assets held in them to certain bonds and publicly
| traded stocks. Somewhere between $1MM and $10MM with an annual
| CPI adjustment is probably a fair cap amount.
| prpl wrote:
| Not the first but there's not a ton of people who can
| squirrel away $5B in a Roth IRA, so likely the most
| egregious.
| nostrademons wrote:
| They're not squirreling away $5B in a Roth IRA, they're
| squirreling away $2000 and putting it in an asset whose
| value grows from $2000 -> $5B. In theory someone who put
| Dogecoin in their Roth IRA in 2014 could do the same.
|
| It would make sense to limit Roth IRAs to publicly-traded
| assets. If you're investing in securities that you need to
| be an "accredited investor" for (> $1M liquid net worth),
| that's not really a tool for the middle class.
| lotsofpulp wrote:
| It would make more sense to get rid of all
| deductions/credits/exemptions, so that there would be no
| unintended consequences.
| ajmurmann wrote:
| The harm here isn't that he invested in startups, but
| that it's become such an insanely high profit that's now
| entirely shielded from taxes. What would preventing
| startup investments accomplish that a simple cap on
| shielded gains (let's say 10 or 20 million) wouldn't?
| NonEUCitizen wrote:
| What is the harm?
| [deleted]
| megaman821 wrote:
| All the money coming into the Roth IRA is post tax money,
| whether it was cash or IRA conversion. Once in the Roth
| IRA, you can sell for a profit and rebuy different stocks
| without paying tax on that profit. Outside the Roth IRA
| selling for a profit would be a taxable event. Trading
| stale stocks for fresh new winners without paying the tax
| inbetween is an incredible advantage to growing your
| wealth.
| nostrademons wrote:
| That's the intended benefit of Roth IRAs though, even for
| middle-class investors. That you can buy & sell within
| them without paying capital gains tax.
|
| It's not usually a huge problem in the public markets
| because they're extremely liquid, with generally
| symmetric information across all participants, and that
| liquidity makes it hard to generate extremely excessive
| investment returns except by luck. But private companies
| are illiquid, oftentimes with huge asymmetries of
| information, and that lets you generate 10,000%+
| investment gains by happening to have an opportunity to
| invest in a rocket ship that other people can't get into.
| ajmurmann wrote:
| I'm not sure if it's bad that he invested in startups with
| that money. It's quite risky and if discourage it for that
| reason. If we implemented your proposal of capping the amount
| of shielded returns the problem would be gone. Most of this
| problem word be gone even with a very high cap in the tens
| millions.
|
| On the other hand, are we optimizing for an edge case that
| gets media attention but is ultimately insignificant? Edge
| cases often make bad laws.
| mywittyname wrote:
| This isn't an edge case though. This is a common case. And
| it's frankly, a common _abuse_ case. This stuff is famous
| for the being used by the Mitt Romneys and Pete Thiels of
| the world, but I know people who 've bragged about doing
| the same thing on a much smaller scale. It just happens to
| work better the more money/influence one has.
|
| All you need is a tax attorney and enough money to found a
| business to exploit this cheat. Start a business worth
| $5000, and move it into a Roth. Then shovel other
| investments into this new business and viola, you have a
| several million bucks parked in a tax-free, judgement-proof
| vehicle that can be passed onto your kids and grow until
| the end of the USA.
|
| The longer we wait to fix this, the more it's going to
| distort our economy.
|
| An asset cap is a simple solution and it hurts nobody who
| using this as an actual retirement vehicle. But there are
| other solutions as well that, again, don't hurt people who
| intend to take distributions in retirement but prevent
| abuse like this (minimum required distributions, like 401ks
| have); dissolution of the Roth upon transfer due to death
| of the owner, etc.
| Chris2048 wrote:
| There is no "spirit of that law", law is as written. If there
| is a spirit that the letter excludes, then it is the fault of
| the lawmakers - why shouldn't _they_ face penalties instead?
| ABCLAW wrote:
| There are many legal traditions in the world, and most of
| them (both by number, volume of territory, amount of people
| governed, etc) take the opposite approach.
|
| Only a very narrow English line of black letter law that
| ascribes to the black letter above all else... and even in
| that system a completely twinned system of courts allowed
| for ethical adjustments to law through the courts of
| equity.
|
| Most continental systems of law and currently standard
| constitutional constructions provide very clear, very
| codified release valves for situations in which the written
| law is bullshit. Which is often.
| vmception wrote:
| I do this with my 401ks and IRAs and Roth products too and unlike
| my non-profit entities in the 501 tax section the big trouble
| with the 400 tax section is that you cant do in-kind
| contributions
|
| So you cant contribute assets you have to contribute cash and
| then buy the assets, whereas with nonprofits you can also
| contribute assets directly
|
| This is just a small administrative hurdle, when you have
| contractual authority over an organization you can write options
| agreements and other grants that your 400 section tax deferred
| entity can afford. Self directed 400 section entities are
| typically formed as trusts, so it is easy to interact with them
| as distinct investors even if you are signing both sides of every
| contract.
|
| I think its funny in the article where the person quoted said
| they were "in favor of change" to the tax code. Add in kind
| contribution to tax deferred products like 401ks and IRAs!
| nickpinkston wrote:
| I can't really blame Peter for taking advantage of the law.
|
| We should mostly blame our lawmakers for allowing our pro-
| oligarchy legal/financial system to exist.
| papito wrote:
| I am sweating here the fact that I am making more than is allowed
| in order to contribute. Fidelity lets me, so I do, but someone
| like Thiel, of course, can find ways.
|
| How in the f*k do you invest into startups with something that is
| not publicly traded anyway? Was PayPal over the counter? Why was
| it so cheap?
| NonEUCitizen wrote:
| Did you read the article? It mentions he used Pensco, an IRA
| custodian that allows alternative investments. Pensco is now
| Pacific Premier Trust.
| caseysoftware wrote:
| > _How in the f_ k do you invest into startups with something
| that is not publicly traded anyway? Was PayPal over the
| counter? Why was it so cheap?*
|
| He was one of the founders of Paypal. At that stage, the strike
| price of the shares would have been fractions of a cent. More
| importantly, the "fair market value" of the shares of a non-
| public company is what the board says it to be which pre-
| funding is whatever they choose. Post-funding, there's usually
| a floor set because outsiders (aka investors) have done some
| analysis.
|
| Normal people pay X% tax on the difference between strike and
| FMV. (X varies based on a bunch of things.)
|
| That's all Stock Options 101.
|
| Normal people can take advantage of the situation by executing
| as soon as they have the strike price. That makes the
| difference $0 so any % of that is still zero. The risk is that
| the actual value of the shares could go to zero too.
|
| The "loophole" with Thiel is doing it all with an IRA.. which
| legally anyone can do _BUT_ it 's complicated and requires a
| specific process.
|
| I've followed RocketDollar the past few years because they help
| with that and document all of it properly.
| HWR_14 wrote:
| You can invest in many asset classes in a Roth. You can buy a
| house. What I'm interested in is if Theil offered to invest
| $100 from his Roth at a $1,000 valuation with a handshake that
| he would then invest $1,000,000 at a $100,000,000 valuation. Or
| numbers that make more sense.
|
| Of course, if you're not an accredited investor, you cannot
| invest in startups. The idea is you could not recover from a
| loss. So I have no idea why a Roth should be allowed to invest
| as an accredited investor.
| missedthecue wrote:
| The accredited investor rules irk me. Not because investing
| in startups is a good way to accumulate wealth, but because
| of the double standard. The government happily separates
| literally tens of billions of dollars from poor people every
| year through the lottery, why can't we let those people
| crowdfund interesting new ideas if they want to?
| Retric wrote:
| Due to the long history of investment scams. The lottery
| takes large sums in aggregate, but doesn't use high
| pressure sales tactics or let people easily place their
| life savings in it. Aka, it would take significant effort
| to buy 500,000$ worth of lottery tickets.
| jdavis703 wrote:
| The lottery gives players a moment to fantasize about what
| it'd be like to be rich. I see no difference to buying a
| beer for a few moments of entertainment.
|
| Obviously people can overdo gambling, but the same goes for
| beer.
| nceqs3 wrote:
| Look at the SPAC boom. Letting retail in creates many
| problems. There are too many scam artists in the world.
| manicennui wrote:
| Thanks to Regulation Crowdfunding, people can. Sites like
| Wefunder make it easy to do so.
| throwaway803453 wrote:
| There is a secondary benefit in that it influenced people
| like me to save, invest, and work very very hard to get
| that status. I invested in one YC startup after achieving
| it and that felt like a major personal win.
|
| However, the financial goal posts were set 20+ years ago
| should have been periodically updated for inflation.
| mywittyname wrote:
| Blame scam artists. Before these rules were in place,
| scammers were taking people's life savings through shoddy
| investments. This happened often enough that people asked
| the government to step in to protect these people. And the
| "Accredited Investor" was born.
|
| Maybe things would be better today if they revoked the
| rules. Or maybe they would be worse. But either way it
| exists for a reason.
|
| And to be honest, $1MM is not a huge hurdle to overcome.
| Anyone looking to invest in risky ventures would be wise to
| accumulate a meaningful amount of wealth in order to shield
| them from the loss of capital they will very likely incur.
| Plus, there are ways around this in certain situations.
|
| A better approach would be to address the reporting
| requirements that are preventing startups from going public
| earlier. Startups used to IPO a few years after founding,
| but now they are going for 10+years.
| ajmurmann wrote:
| Fortunately, you can now also become an accredited investor
| by taking a class rather than meeting income or wealth
| requirements.
| iammisc wrote:
| This is the right approach IMO.
| jb775 wrote:
| Do you have any info on where to take this class?
| ajmurmann wrote:
| Unfortunately, I don't. Here is more about it though:
| https://www.investor.gov/introduction-investing/general-
| reso...
|
| I also have seen that some Angel Investment firms will
| pay cost of accreditation from your fees to them.
| toephu2 wrote:
| How can I put a Single Family House I buy in my Roth IRA?
| NonEUCitizen wrote:
| I think you can have houses that are bought for investment
| (e.g. rented out to others) but not a house you live in.
| You need IRA custodians that allow alternative investments.
| twostorytower wrote:
| You should be very careful. There is another way to do this,
| it's called a backdoor Roth. Despite the sketchy name, it's
| perfectly legal and used in practice by millions of people. A
| simple way is to contribute $6,000 of post-tax money into a
| traditional Roth, then submit what is called a Roth conversion
| to convert the $6,000 into a Roth IRA account. Do this through
| the proper channels so all the documentation is there.
|
| This is not financial advice.
| greyface- wrote:
| > Fidelity lets me, so I do
|
| This is inadvisable. There is a legal way to do this.
| https://en.wikipedia.org/wiki/Roth_IRA#Traditional_IRA_conve...
|
| If you're making direct Roth contributions over the limit,
| those are disallowed and may come back to bite you. It may be
| possible to recharacterize your already-done disallowed
| contributions as Traditional IRA conversions; I would talk with
| Fidelity or a tax advisor.
| lotsofpulp wrote:
| I am curious as to what compels someone to admit in writing
| to committing fraud.
| papito wrote:
| I push a button that says "Contribute", and it's fraud.
| Donald Trump buys land in New Jersey for $2 million to
| develop a golf course, the golf course is deep sixed by the
| town, he writes "$100 million loss because that is what it
| is worth in my opinion", and it's fine.
|
| God forbid I make a few thousand dollars tax-free, let
| alone by accident.
| lotsofpulp wrote:
| But you just wrote you did it on purpose, not by
| accident.
| papito wrote:
| I realized after the fact that I have been contributing
| above my income level - I was sort of aware I might have
| been out of the range but I never paid attention. The
| screens are nagging you about being at $0 contributions.
| lotsofpulp wrote:
| So now that you have acknowledged it, you have to take
| steps to fix its. Otherwise, it is fraud.
| astrange wrote:
| Turbotax will yell at you when you report it and make you
| unwind (recharacterize) the transaction.
|
| There is a proper way to do it though. Contribute to a
| traditional IRA and immediately convert it.
| [deleted]
| papito wrote:
| The last time I did it I got totally torched on taxes. You
| can only convert from scratch - not after the fact.
| incogitomode wrote:
| I wonder why the Roth didn't include any sort of cap or maximum
| exemption? It seems like that would have been an easy safety to
| build in, like a stop-loss for the government to avoid
| intentional and unintentional abuse leading to tax shortfalls.
| The federal gift tax has a limit of $11.7 million, seems like a
| gift to your older self might be considered similarly.
| xkjkls wrote:
| I think they just never expected someone could use it to amass
| this much money. A $5500 a year contribution limit seems
| incredibly limiting.
| pjfin123 wrote:
| How has all this information form the IRS leaked? ProPublica
| seems to have accessed many of the richest American's tax data.
| Is this something one person could do? How many people have that
| kind of access?
| nullc wrote:
| Based on their claims of how they validated it by comparing the
| data with 60 some persons whos tax filings were public (e.g.
| politicans) it would be reasonable to assume that ProPublica
| received detailed tax records on a considerable fraction of all
| Americans. Certainly whomever collected the data had access to
| that.
| [deleted]
| gwern wrote:
| An IRS insider leaked it, obviously. Super illegal and against
| the IRS culture, but now it's out there.
|
| What's puzzling is how apparently selective the leaked material
| all is. ProPublica has all these very specific memos and tax
| return info about Thiel's Roth IRA, and yet, they are only
| aware _of_ Thiel 's long IRS mega-audit (and that he won 100%),
| and don't know that it was in fact all about auditing his use
| of the Roth IRA trick? (Or that Fortune reported about the
| Paypal mafia's use of the Roth IRA back in like 2009?) Very
| odd.
| astrange wrote:
| Why do they have info about his Roth IRA anyway? That
| wouldn't be part of a tax record. Maybe it's from the audit?
|
| (Similar issues came up when people wanted to see Trump's tax
| returns to find out "if he was really wealthy". They wouldn't
| show that. Of course they might show a lot of other things.)
| NonEUCitizen wrote:
| Part of the article mentioned the IRA was disclosed in his
| application for New Zealand residency. So does NZ publish
| residency applications? Or was that also leaked?
| ghufran_syed wrote:
| " buy a stake in a startup that has a good chance of one day
| exploding in value."
|
| the propublica people must be rich, if they can reliably identify
| these kind of startups - everything is easy in hindsight. They
| also missed the bit where thiel _paid tax_ on the $2000, that he
| invested. The whole idea of retirement accounts is that you
| either pay the tax at the beginning, or you pay at the end.
| systemBuilder wrote:
| Any IRA owner with more than 50 years of average family income
| ($3.5m) should be required to liquidate it. These are not tax
| shelters for the rich!
|
| But seriously this is no different than if he owned the stock
| shares outright and he just chose never to sell those shares for
| 50 years he would pay no tax! It's how the rich have break to the
| system to favor Capital over labor!
| exabrial wrote:
| Good for him. I don't think this is a problem for a lot of
| reasons. First he didn't break any laws, second, US taxes are a
| waste anyway. They'll either be used to fight pointless wars,
| sent to special interests (See Pelosi's family), or used to fuel
| racial injustice with militarization of police. The only way out
| to is to stop feeding the beast.
| adolph wrote:
| I guess in 7-10 years Ryan Holiday will have another fun book to
| write about a news outlet going under via a "this is not kayfabe"
| lawsuit.
|
| https://www.goodreads.com/book/show/36681909-conspiracy
| [deleted]
| ajaimk wrote:
| Since when is being smart and successful a crime? I definitely
| would expect this from ProPublica but not Hacker News?
|
| "Hacker" News!
| anm89 wrote:
| Wow they sure try to sledgehammer the fact that thiel has a lot
| of money here with the first 3 paragraphs and visuals making sure
| that you understand that 5 billion is in fact a lot of money.
| HWR_14 wrote:
| That's five billion reasons for the IRS to comb through the
| transactions looking for prohibited self-dealing.
| anm89 wrote:
| Sure, I absolutely think they should pursue it. I'm just
| saying, say the guy is rich once. You didn't even need to say
| it once, 95% of everyone reading knows very well that he is
| rich as hell. I don't need a visual to explain to me that 5
| Billion is more than 30k
| NonEUCitizen wrote:
| They did not write about people who used their IRAs to invest in
| startups that went belly-up and lost money.
| creddit wrote:
| The propublica tax leak is monstrously fucked up and I'm
| constantly shocked at how little anyone seems to question the
| validity of using personal IRS records for reporting.
| [deleted]
| throwaway2048 wrote:
| im shedding a single tear for thiel's billions
| jdminhbg wrote:
| The good news is there's no way this total lack of privacy
| controls at the IRS will ever be used against non-
| billionaires.
| nrmitchi wrote:
| "I'm constantly shocked at how little anyone seems to question
| the validity of using self-reported evidence that shows our
| one-sided the US tax system is for reporting"
| Chris2048 wrote:
| Thiel then used the wealth amassed in his Roth to invest in other
| startups
|
| How? I thought the whole point is you can't touch this money? Did
| he take on loans, promising to pay them back once he was 60?
| In 2004, he provided Facebook's first large outside cash
| infusion, investing $500K. His Facebook shares would grow tax-
| free in his Roth.
|
| I'm not sure I understand. Did he invest in FB _and
| independently_ purchase shares (less than 2k pa) in his Roth? So
| the 500K was not the private purchase of shares?
| fastball wrote:
| You buy 2000 shares with your Roth IRA for $1 per share.
|
| They appreciate in value to $1,000 per share.
|
| You sell the shares, now there is $2,000,000 cash value in your
| Roth IRA, which you can use to make other investments.
|
| Repeat ad infinitum without those transactions incurring any
| sort of tax burden, as long as you don't withdraw any of that
| money until you're 60.
| misiti3780 wrote:
| How did he buy non-public-ally trade FB shares in his Roth?
| missedthecue wrote:
| With a self-directed IRA, you can make all kinds of
| investments, including real-estate and private companies.
| s1artibartfast wrote:
| What do you mean by can't touch the money in a Roth?
|
| It stays in the roth account, but you can buy and sell assets
| as often as you want with the money you put in.
| naturalauction wrote:
| It's possible he already had 500k in his Roth by 2004.
| boringg wrote:
| One of the thing that sucks about all these billionaires running
| end run around the tax system (outside of the obvious pay your
| fair share) is that they then have a bigger and bigger war chess
| to splash around. Anyone else who is competing the investment
| arena has to either play by the same rules or can't compete. It
| inherently makes more people have to buy into these end-run tax
| scenarios or risk being left behind. In this case it looks Peter
| Thiel just went all in on the ROTH IRA beyond what anyone else
| did.
|
| Its not to dissimilar from the Countrywide CEO saying he was in a
| forced situation to get into subprime even though he had not
| interest and though it was a bad investment. If he didn't the
| board would vote him out. Recognize it is different but its kind
| of not unless the rules of the game change (which they may be in
| real time if this propublica billionaire take down works).
| rs999gti wrote:
| > One of the thing that sucks about all these billionaires
| running end run around the tax system (outside of the obvious
| pay your fair share)
|
| How is what Thiel did an end around? He paid taxes on his
| contributions - https://www.hrblock.com/tax-
| center/income/retirement-income/...
| boringg wrote:
| I don't disagree - I would say that he definitely leaned in
| on the letter of the law and leaned away from the spirit of
| the law. $5B in untaxed gains is frankly both impressive in
| that he generated those returns and also feels a bit unfair
| to the rest of us who have to pay cap gains on all our
| smaller wins.
| gist wrote:
| > One of the thing that sucks about all these billionaires
| running end run around the tax system
|
| It's not an 'end run around the tax system'. It's either legal
| or it's not. If illegal they run the risk of getting caught. If
| legal it's legal. Period. Nothing also to prevent a regular
| person from doing something somewhat similar other than they
| don't know how to or don't know it even exists to use or
| exploit. Now you can say 'oh well the rich can hire people who
| know' but there (in this day and age) nothing to prevent a
| regular person from taking the time to research and come up
| with their own schemes using online research and help from
| others readily available. Of course if you don't have money to
| be taxed what's the point of that? If you do that takes effort
| and most people just want to assume what is being done is wrong
| because someone has or has access to information and
| importantly knowledge they don't have.
|
| People who are wealthy have many things that regular people
| don't have.
| boringg wrote:
| I would say that tax evasion isn't as black and white as you
| make it out to be (tax attorneys will take aggressive and
| passive stances on their interpretation of the law). As well
| there is the letter of the law and the spirit of the law.
|
| Agree I could also have set up a roth IRA like that. What I
| don't have access to is the deal flow and the ability to
| structure the deal on my terms (supposedly i.e. shares for
| pennies). That's something only power/money and access can
| get you.
| dcolkitt wrote:
| I think the central fallacy is that you're assuming more money
| makes it easier to achieve higher returns. For the vast
| majority of finance, you get diminishing returns to scale.
| There are many investment strategies that have limited
| capacity, and as you get bigger you either have to dilute or
| take increasingly risky positions.
|
| The phenomenon's pretty ubiquitous among hedge funds. Tons of
| funds produce stellar returns at $100 million AUM, then use
| that track record to grow to a $1 billion+ and all of a sudden
| put up mediocre results.
| xkjkls wrote:
| More untaxable money definitely makes it easier to achieve
| higher returns.
| jklein11 wrote:
| Can you explain how?
| boringg wrote:
| You simply have more investible dollars to use. Therefore
| any losses can be spread across a larger base, or,
| alternatively, you have potentially more gains available
| to you as a result of more exposure.
|
| It's similar to leverage.
| IG_Semmelweiss wrote:
| more investments over a greater pool of assets, chasing
| returns, also increase your surface area of error.
| Examples abound.
|
| There's a reason its easy for funds to get big with a
| small LP commitment round, and there's also a reason most
| funds close after hitting certain numbers, increasing the
| AUM means increased complexity, and thus, potential
| implosion.
|
| The real world bears many examples of growing AUM
| portfolio that blew up past a certain size.
|
| There's no counterexample that I know of , of a fund with
| a consistent growth pattern that started small, hit size,
| and then increasing further their size with the same
| trajectory from having more investment dollars to use.
| boringg wrote:
| I think you have two things confused. % vs total returns.
|
| Larger funds have a tougher time finding high returns.
| However if you are getting dollars on a lower cost basis
| (i.e. untaxed vs 0.8 taxed dollars) you have more money that
| can be exposed. Therefore allowing for more upside and
| alternatively any losses can be spread across a larger base.
|
| In no world does not having more money allow for more money
| to be gained. In venture it also means you have more money
| you can burn at a loss.
| prezjordan wrote:
| I miss the days when the unfathomably rich would at least build a
| university or a park or something. The future is just so boring.
| hardtke wrote:
| From wikipedia: Billionaire Peter Thiel, a co-founder of PayPal
| and current Facebook board member, paid $10 million to help
| finance lawsuits against Gawker Media, including the Bollea
| lawsuit. He called his financial support of Bollea's case "one
| of my greater philanthropic things that I've done."
| FanaHOVA wrote:
| The Thiel Fellowship allowed Vitalik to drop out of school and
| work full time on ETH. And that's just one of the recipients.
| knz_ wrote:
| That's not a positive. Ethereum is a premined scam coin.
| gaze wrote:
| why is that a good thing?
| fastball wrote:
| Seems fairly equivalent to funding a new building at a
| university that is already mostly populated by rich kids,
| who by and large are doing things less useful to society
| than building a decentralized computing platform used
| around the world.
| dnautics wrote:
| Although I'm a pretty huge skeptic of the performance of
| the thiel fellowship (knowing some fellows personally and
| also knowing some of the showrunners), I don't think
| calling it a rich kid's club is fair, with the exception
| of Austin Russel.
| fastball wrote:
| I was calling universities a rich kid's club (esp. the
| ones that get the most gifts from the megarich). Trying
| to make the point that, while the Thiel Fellowship may
| not be objectively "good", it seems at least as good or
| better than the OC's suggestion that it is preferable for
| the megarich to fund things like universities.
| dnautics wrote:
| Sorry, I misread.
| gaze wrote:
| ah yes the two things you can do with lots of money --
| giving it to a university and doing the thiel fellowship
| arkitaip wrote:
| Because building for the privileged is the only thing the
| filthy rich can do. That or funding a shitty
| decentralized platform.
| [deleted]
| Afforess wrote:
| That's like saying the foundation supported a scientist
| working on building more coal-fired power plants. ETH, along
| with crypto in general, is harmful to society. Weird flex.
| dnautics wrote:
| The electric grid, too, started on coal fired plants;
| perhaps we should label it as "harmful to society"
| whydoibother wrote:
| The grid actually produced something useful though.
| pitaj wrote:
| Usefulness is subjective.
| quickthrower2 wrote:
| If you are going to make a point against Ethereum, I
| recommend this: It encourages scams, gambling addiction,
| people losing money accidentally, and the usual criminal
| activity associated with crypto.
| j_walter wrote:
| ETH will be POS soon, and like any invention in the
| beginning there are issues that need to be worked out to
| prevent more harm than good.
| misiti3780 wrote:
| POS?
| sokoloff wrote:
| Proof-of-stake (rather than the more energy intensive
| proof-of-work).
|
| https://www.investopedia.com/terms/p/proof-stake-pos.asp
| xkjkls wrote:
| I've been hearing ETH will be POS for 3 years. When is
| this actually going to occur.
| hanniabu wrote:
| It's already in transition with the beacon chain and is
| expected to full PoS end of this year or Q1 next year.
| fastball wrote:
| That's your opinion, which is not shared by a great many
| people.
| whydoibother wrote:
| Most people are barely aware of crypto, let alone the
| negative effects of it. Once people become more informed,
| hopefully more and more people will see what a plague on
| society it is.
| Bayart wrote:
| The people who have that specific stance on crypto are
| usually those who know just enough to have to form an
| opinion but not enough to realize how little they know.
| prezjordan wrote:
| I don't think it's necessary to debate ETH as a public good
| but... Vitalik is by far the most impactful recipient of the
| fellowship grant so "just one of the recipients" is doing a
| lot of work here.
| [deleted]
| missedthecue wrote:
| The founder of Ocean Cleanup, a nonprofit that engineers
| technology to clean the oceans is one recipient.
|
| https://en.wikipedia.org/wiki/The_Ocean_Cleanup
|
| Founder of Figma is another.
|
| https://en.wikipedia.org/wiki/Figma_(software)
| quickthrower2 wrote:
| $100k for him is a punt. Like me spending $10. In return
| he possibly gets reciprocity from future successful
| businesses.
| gravypod wrote:
| Wow, Figma is one of the best UI/UX design tools I've
| ever used. That's very interesting.
| xkjkls wrote:
| What else has the Thiel Fellowship created other than Vitalik
| and ETH? I'm not sure we can judge the success of it on it's
| single most impactful result.
| dnautics wrote:
| The fellowship did not create vitalik and eth; he was
| giving talks about it on the crypto circuit before he
| accepted a fellowship.
| fastball wrote:
| Here is a list:
| https://en.wikipedia.org/wiki/Thiel_Fellowship#Recipients
| programmarchy wrote:
| There's quite a few impressive fellows. Founder of Figma is
| probably one you've heard about.
| nickpp wrote:
| Am I missing something? He didn't seem to do anything illegal.
|
| This is the second article from ProPublica which:
|
| - accuses people of doing something that is perfectly legal
|
| - singles out one or two such people and exposes their private
| matters
|
| Is that ok just because they are rich? There is another comment
| thread going on right now where people are absolutely furious
| that they are tracked for _targeted ads_. How would they feel if
| their tax info was displayed online for all to see?
| NonEUCitizen wrote:
| and blames people for following the law instead of congress for
| writing the law as such.
| medvezhenok wrote:
| There is an argument whether investing in securities that are
| non-public and have no official price (especially ones you have
| a controlling stake in) should be illegal (even if it isn't
| right now).
|
| I think that's what the article is about. If he contributed
| $5000, bought bitcoin at 1 cent and had the same amount of
| money now, it would be a non-issue.
| ve55 wrote:
| What seems most unfair here is how difficult dealing with private
| equity is as a normal person; the entire purpose of the Roth IRA
| is that you do not pay any taxes afterwards, and that is how it
| functions for everyone, whether you are rich or not. On the other
| hand, the same cannot be said about the ability to purchase,
| find, and work with private equity. I understand many
| publications may dislike certain people (as one can note from who
| they choose to mention the most), but I don't see a reason why he
| would decline using tax-advantaged accounts just because he has
| attained significantly larger wealth and roi than most others
| using them.
| didibus wrote:
| I agree about access to private equity, but did you read the
| whole thing?
|
| He purchased shares of his own startup at 0.001 cents, way
| below market rate.
|
| To me, that's clearly not the intent of Roth IRA. This means
| any startup founder can simply put their ownership shares into
| their Roth IRA and never be taxed on their company growth.
|
| It also doesn't seem they singled out Thiel, he has the biggest
| Roth IRA they know off, seems logical to discuss him the most.
| technotony wrote:
| Their claim that the shares were below market value doesn't
| stack up. They did this when they founded the company, the
| company has no value at formation so it's fair priced. Just
| because they raised money a few months later doesn't mean it
| was worth anything at formation.
| FabHK wrote:
| That very same year, there were two or three funding
| rounds, according to the article, for $0.5m and $4.5m. Yet
| at the end of the year, the shares in the Roth were
| reported to be worth less than the initial $1700.
| bklyn11201 wrote:
| If you have knowledge that people want to inject money into
| your startup (and thus raising the value), then stuffing
| shares into a Roth IRA before a raise (that you know will
| happen) would surely be skirting the idea of fair-market
| value.
| throwkeep wrote:
| > He purchased shares of his own startup at 0.001 cents, way
| below market rate.
|
| How do you know that was below market rate? Startups
| generally begin with shares worth almost nothing.
| [deleted]
| ve55 wrote:
| I did, but I'm not sure I have enough information to conclude
| if what was done should be illegal/allowed or not, since this
| is based on various sections of leaked documents, but it's
| quite possible some bad things were involved. (One may remark
| that turning small investments into the many billions quickly
| clearly is a sign that foul play was involved, but recall
| that his original 10% stake in FB would be worth almost $100B
| today in less than 20 years. I do think he sold most of the
| stake long ago, though.)
| lotsofpulp wrote:
| > He purchased shares of his own startup at 0.001 cents, way
| below market rate.
|
| Source?
| garmaine wrote:
| TFA. Although I think they're wrong on this account. It
| doesn't matter that the stock was worth more mere months
| later when the cashed their investment checks.
|
| But what is an issue is the self-dealing of buying shares
| in a company he holds a major role in the management of.
| vmception wrote:
| Why don't you think that was the intent of the Roth IRA, or
| more specifically within the intent.
|
| The intent of Roth products were to give money to a broke
| government up front. The government created Roth products for
| that specific reason and there is no further intent. They
| made the contract with the people and some of the people
| actually read it. All tax exempt and tax deferred products
| can invest in and hold whatever they like with prohibitions
| generally being on level of control or debt financing. Simply
| having a prohibition on some kind of property ownership
| doesn't make sense and I would probably challenge it on
| constitutional grounds.
| [deleted]
| caseysoftware wrote:
| > _He purchased shares of his own startup at 0.001 cents, way
| below market rate._
|
| The proper term is "fair market value" and before a company
| is publicly traded, the FMV is set by the Board and whatever
| investors have evaluated it and determined it to be.
|
| In this case, it _looks like_ it was before any investors had
| put in their money so the Board was simply the founders. At
| that stage, the Board normally sets the strike price (what
| you get the shares for) the same as the fair market value
| (what they 're "worth") and you pay taxes on the difference.
| Fractions of a cent are common at that stage.
|
| The risk is that the fair market value will never go higher
| and is likely to be zero (aka failed).
| [deleted]
| fastball wrote:
| How is there a market rate if his startup was not publicly
| trading?
|
| The nominal value of the shares in my startup are PS0.01.
| Sure, that's not what we've sold shares for, but the price we
| _have_ sold them for was purely what the buyer was willing to
| pay for them.
| GordonS wrote:
| So, I was reading into this a bit recently after getting an
| equity offer (also in the UK). The "fair market value" is
| open to interpretation, but if the inland revenue come
| calling, you need to be able to explain it. For a startup
| with no assets that has not previously sold shares, PS0.01.
| Is just fine. But if you've got assets, or you've
| previously sold shares as more than that, then quite
| clearly the market value is more than a penny.
|
| I mean, what better definition of "fair market value" is
| there than "what the buyer was willing to pay for them"?
| FabHK wrote:
| Funding rounds constitute a valuation.
| fny wrote:
| > that's clearly not the intent of Roth IRA
|
| Would you say the same if someone used a Roth to buy Bitcoin
| when it was trading at pennies or Gamestop before it blew up?
|
| What's wrong with having the right to invest in your own
| company? That company pays corporate income taxes. You pay
| income tax as an employee.
|
| Also, everyone seems to forget Peter Thiel was part of the
| middle class when he did this...
| DeRock wrote:
| Thats not the right analogy. This would be more akin to
| selling your own bitcoins to yourself (into an IRA) for
| pennies on the dollar.
| mullen wrote:
| The Roth IRA is not suppose to be a tax shelter for people
| to get super rich off their own creations. You are not
| getting a reduced priced Bitcoins or Gamestop stock. You
| are gambling with your own funds based on information that
| everyone else has and paying the same price as anyone else.
| If you get Bitcoins and/or Gamestock at a reduced price,
| then you are abusing the Roth IRA and the IRS should stop
| and fine you.
| lotsofpulp wrote:
| Did that happen? Even ProPublica does not claim it.
| medvezhenok wrote:
| Would Thiel have been willing to sell his shares to
| someone else at $0.001 at the time he put them into the
| IRA? Because that's ultimately what market value is
| about.
|
| It's also one of the valuation proposals for people
| playing valuation games with illiquid assets. You can
| declare them at whatever value you want (and pay tax on
| that value), but you are forced to sell if someone
| offered you that value for the asset (if you claim your
| house is worth $1M, we'll let you pay property tax on
| $1M, but if someone offers you $1.1M for your house,
| you're forced to sell). That would cut down on people
| inflating/deflating asset valuations to game tax codes.
| lotsofpulp wrote:
| I am not interested in what would have, could have, or
| should have happened. I am trying to find out what did
| happen, and any evidence to support it.
|
| You have an interesting proposal for valuations though,
| although, it seems to have a few logistic hurdles that
| cross my mind.
| machinebun wrote:
| What happened was Thiel buying 1.7M shares of stock in
| his own startup at a value of $0.001 per share in 1999 in
| his Roth IRA (and then cashing out for $30M+ in 2002).
| It's debatable whether it was legal (because he was an
| officer/director of the company and that law is on the
| books), but the better question would be - should it have
| been illegal, and the answer to that, in my opinion, is a
| resounding yes.
|
| I believe non-public investments should be banned from
| Roth IRAs (and that we should close all of the backdoor
| loopholes to them as well). They were meant for a certain
| group of people at the outset and were then twisted
| around in knots to provide more tax-breaks for the well-
| off (which should be rolled back). I think mega backdoor
| Roth should not be a thing, rollover Roth IRA should not
| be a thing - bring Roth back to it's original vision.
| lotsofpulp wrote:
| >It's debatable whether it was legal (because he was an
| officer/director of the company and that law is on the
| books)
|
| I am interested in finding out the answer to this, as
| others have posted in this thread the text of the law
| which makes it seem like he should not have been able to,
| and what reasoning could possibly have made it legal.
| labcomputer wrote:
| > Would Thiel have been willing to sell his shares to
| someone else at $0.001 at the time he put them into the
| IRA? Because that's ultimately what market value is
| about.
|
| Well... no. (Can't believe I'm defending Peter F-ing
| Thiel)
|
| I might own some AAPL shares that I think are worth
| $1000/share--so I'm not willing to sell my AAPL shares
| for less than $1000 each. The market (today) thinks they
| are worth $133/share. Who is right?
|
| Thiel might have _really truly_ believed that his 2M
| shares would be worth a few billion dollars one day. But
| if you can 't find anyone who is willing to _buy_ them
| for that price, then it doesn 't matter. The "fair market
| value" (what the IRS cares about) of those shares is not
| a few billion dollars. It doesn't become a FMV until you
| can find an arms-length buyer who is willing to buy the
| shares for that price.
|
| You could pay someone to create an independent valuation
| of the shares--but for a brand new company that has no
| employees and no assets, not even IP, why would you
| expect the valuation to come back at much more than $2k?
| xkjkls wrote:
| Also, if you aren't trading public stocks, it seems much easier
| to get around size limitations. When you spend $5500 buying the
| SPY, the government is incredibly certain that is the amount of
| money your investment was valued at. If you buy $5500 of stock
| in a startup? Who is to say? The opportunity to buy that stock
| might have been worth 10x that amount the moment that
| transaction occured, and there's no real way for the government
| to actually determine that.
| nielsbot wrote:
| I don't think it's a dislike of certain people or blaming them
| for doing these (legal) investment moves. It's about changing
| the rules to provide more financial equality in our society. I
| think it's now too easy for the rich to get richer and too hard
| for the poor to come up. I'm not suggesting banning rich
| people, and we can debate over matter of degree of equality
| that's good.
|
| (edit: typo)
| ve55 wrote:
| Generally agree; I mention it since from my point of view, I
| would have spent most of the article criticizing the rules
| and policies politically and finding ways to improve them,
| rather than constantly going on about the personal lives of
| some that have exploited them (although it does seem like it
| cannot be helped sometimes).
| hamburga wrote:
| Is this practice -- putting founder shares in a Roth IRA when
| they are worthless -- sort of standard practice? Is everybody
| doing it and Thiel just did it most successfully?
| maerF0x0 wrote:
| IMO the only thing he did "wrong" was to make excellent returns
| within the bounds of a tax vehicle and with investment classes
| that most of us are typically excluded (accreditation, VC
| exclusivity)
|
| If we should be mad about anything it's that it's so difficult
| for the general public to get a good slice of diversification
| including the asset classes that turn 1000s into millions.
|
| Yes we can go work at a startup, but that is all the eggs in one
| basket. Better to spread that risk around 10+ investments like
| VCs do
| [deleted]
| r00fus wrote:
| If what he did was legal, I dare you do do the same. I bet you
| any financial/tax advisor would strongly suggest you don't.
|
| What he did wasn't actually legal. He just got away with it.
| jgalt212 wrote:
| I think the fraud to be found here is whether or not the
| purchases these IRA's made were made at fair value. Given the
| astronomical rates of return realized by some, not all, of
| these mammoth IRAs, you can probability establish such facts.
| Similar to Madoff's eternally steady fund returns being
| impossible.
|
| A good litmus test would be, what is the rate of return of a
| person's investments made outside an IRA vs inside the IRA.
| kova12 wrote:
| are you sure you are not plain jelaous he's good at making
| money and you are not?
| dane-pgp wrote:
| "When I was poor and complained about inequality they said
| I was bitter; now that I'm rich and I complain about
| inequality they say I'm a hypocrite. I'm beginning to think
| they just don't want to talk about inequality."
|
| -- Russell Brand
| [deleted]
| rajup wrote:
| I agree. All the annoying animations and hyperbole in the
| article notwithstanding, it does not seem as malicious as the
| article tries to portray it. It is rather disappointing that
| there are barriers to some of these investments but I think
| without these barriers you would open the gates for all sorts
| of malicious actors taking advantage of unsophisticated
| investors.
| jppope wrote:
| They actually are opening up to unaccredited investors, you
| just need to have a CFP or CPA or something like that (not
| sure of the actual requirements, I just know that they
| recently changed them)
| astrange wrote:
| The change is that having one of those certs now makes you
| an accredited investor.
|
| You don't have to be accredited to invest in something like
| a VC fund anymore using something like Wefunder. However
| it's extremely risky and generally painful to even find out
| if the thing you invested in 3 years ago even still exists.
| maerF0x0 wrote:
| I wonder if there are good VC firms that would let people
| participate in funds around the $1000 threshold? Like if I
| could give Garry Tan $1000 to just participate, no questions
| or interaction required just fill out the forms sign the
| check, see you in 10yrs... I know part of the issue is that
| many VCs have a high touch process for the people signing
| $100k checks, but maybe if they made it more streamlined they
| could generate more diverse investor base and just say to
| them "You wont hear from us, no you cant help, see you in
| 10yrs" kind of mentality.
| MandieD wrote:
| I cannot put any money at all into a Roth IRA, despite making a
| decent but non-astounding IT salary (below the caps), because I'm
| an American living abroad who had the temerity to marry a
| foreigner and am stuck in "married, filing separately". I cannot
| use similar retirement plans in the country I live in, because no
| brokerage here wants to deal with non-rich people who are US
| citizens or have US income tax obligations (why I do _not_ file
| jointly - at least one of us needs to be able to keep paying into
| a retirement account here!)
|
| Words cannot express my contempt for Thiel, who is apparently
| still a citizen of the country I live in. I'm pulling for the
| Finanzamt, however they can swing it.
| dmoy wrote:
| They really should replace 401k (and 415(c)(1)(a)), 403b, 457,
| IRA, etc with just TSP-for-everyone. Don't make it contingent
| upon employer, and don't allow additional employer-sponsored tax-
| advantaged space.
|
| The fact that someone working at a large tech company can put
| away around $70,000/yr into tax advantaged accounts is kind of
| insane. Not even including the crazy edge cases that come with
| private equity like this Thiel instance.
| misiti3780 wrote:
| This is off subject, but given that someone illegally leaked
| these tax returns on the richest, is anyone else not surprised we
| have heard zero about Trump's taxes? (I assume they are riddled
| with stuff like this)
| vineyardmike wrote:
| they leaked a few years ago.
| misiti3780 wrote:
| ya that is true, the NYT did that big expose, I forgot about
| that.
| jb775 wrote:
| Not his fault the tax rules are broken for the ultra-rich. They
| always have been throughout history...so I don't expect any
| changes.
|
| If we tried, it would require regulation on how politicians can
| be compensated for the rest of their lives after taking office.
| Need to close the revolving door where politicians help out rich
| people/corporations while in office, then are compensated
| indirectly after leaving office.
| gameswithgo wrote:
| Sure it is, not his alone, but the ultra rich bribe the
| government to make sure the rules are broken. They are all at
| fault. Any attempt to fix these things is stopped by the ultra
| rich. They have even put their own people on the supreme court!
| (see comments by the Koch brothers stating this explicitly)
| drzaiusapelord wrote:
| >Not his fault the tax rules are broken for the ultra-rich.
|
| This isn't some accidental software defect. The rich write
| these laws to their benefit. He's part of the class whose fault
| it absolutely is and considering his political position as a
| conservative, he advocates and helps keep up the corrupt system
| he benefits from directly, even if he didn't lobby for this
| specific tax regulation.
| nrmitchi wrote:
| What I don't understand about this whole maneuver is that Roth
| transactions must be made at arms length; ie, "Transactions must
| be made at arm's length and not involve the IRA owner or a member
| of his or her family."
|
| An example of this is that if you use a Roth to invest in
| property, you are not allowed to use it personally, not allowed
| to manage it or do maintenance yourself, etc.
|
| Prohibited transactions risk tainting (and thus exposing) the
| entire account.
|
| How is Thiel investing in _his own company_ not considered a
| prohibited investment?
| marris wrote:
| I can think of two reasons: (1) It was not his own company when
| the IRA made the investment. That is, the IRA invests alongside
| other investors at the founding. Anyone who wants to buy shares
| at 0.01 is able to do so. He is not dictating some special
| price that only he gets. (2) If some investors create an SPV to
| invest in PayPal (e.g. to limit liability), then his IRA
| becomes an investor in that SPV. He loses management control
| over that portion of the investment, but when the SPV sells its
| PayPal shares, it distributes the cash to all investors,
| including to the IRA.
| ABCLAW wrote:
| >"How is Thiel investing in his own company not considered a
| prohibited investment?"
|
| It should be, but the IRS doesn't catch every cheat, and as
| with most other white collar crime, the responsibility can be
| laundered through a number of accountants and other
| professional staff, resulting in fines rather than jail time.
|
| So a lot of rich people make a lot of questionable calls
| regarding how their assets are categorized and if they get
| caught out they generally just pay what they're supposed to
| have paid, or sometimes slightly less (some countries have
| legislation prohibition tax authorities from accepting
| settlement offer at under-assessed amounts, but there are ways
| around that too). If they're particularly risk-averse and
| ballsy, they'll ask for an advance ruling certificate or
| another pre-emptive ruling on their filings to confirm they're
| correct beforehand. You can bake those too, if needed.
| [deleted]
| fny wrote:
| 1. Thiel was not rich when he did this. He was 32 with $2K
| tucked away in a Roth, maybe more in a standard IRA.
|
| 2. What he did was in no way illegal. He did not cheat the
| system. The IRS would have come down on him with a hammer
| already, and they haven't managed to figure out how to do it
| for the last decade.
| ABCLAW wrote:
| >The IRS would have come down on him with a hammer already
|
| Part of my work is in financial investigations. The
| finances of large, multi-entity organizations are expensive
| to create, difficult to parse, and require extensive
| periods of time of trained, expensive staff to understand.
|
| Assuming that 'things would have been caught' flies in the
| face of the fact that they almost never are. Accounting
| rules change frequently, software systems for logging
| information is changed, and records are lost. Emails have
| to be read in tandem with entries to understand the
| intentions.
|
| Even in cases where we have confessions that someone has
| embezzled money, we often need to spend multiple weeks
| tracking down records to isolate when/where/how it
| occurred.
|
| Even during audits, requests for records can be baked.
| 'Random' samples of given entries can just exclude the
| questionable ones.
|
| I've appeared in front of federal tax courts in my
| practice, the game isn't fair - don't base your reasoning
| on the idea that it must be.
| abra0 wrote:
| Sorry, what does "bake a request for records" mean?
| s1artibartfast wrote:
| 1. Thiel was not Mega rich, but he had money, he had worked
| as a lawer for a few years and managed his own venture
| capital firm. Either way, this is irrelevant as he met the
| income requirements to contribute to an IRA.
|
| 2. It very well may have been illegal, as mentioned in the
| top level post. The purchase price was the legal value, but
| using an IRA as a vehicle to invest in _your own company_
| appears be prohibited by IRA regulations. At the time, it
| was a purchase <$2000, and may not have been reviewed. If
| paypal was someone else's company, there would be no legal
| issue.
| Taniwha wrote:
| essentially it seems that his venture capital firm IS his
| Roth IRA - and it was making the investments - definitely
| not hands off
| avelis wrote:
| It is IMO but who is going to actually enforce that?
| vmception wrote:
| Thats not the issue here
| [deleted]
| fny wrote:
| Easy. He doesn't own the company, shareholders do, and he
| happens to be a shareholder. If you work for Microsoft, can you
| buy Microsoft shares in your IRA? Yes. This is why the IRS
| can't do squat about this. It's completely legal. If he owned a
| controlling interest (>50%) things would have been different.
|
| If you bought the property as part of an incorporated entity,
| it would be entirely legal for you to do work or be contracted
| by that entity.
| runako wrote:
| It appears this transaction would invalidate the IRA under
| today's law because he was an officer of the company.
|
| (Unclear whether the original law was written that way or
| whether this loophole was closed sometime after.)
| fny wrote:
| It's still completely legal. These disqualifications only
| kick in when you own a controlling interest (more than 50%)
| of an entity.
|
| [0]: https://www.irafinancialgroup.com/learn-more/self-
| directed-i...
| runako wrote:
| Keep reading the disqualified persons section:
|
| https://news.ycombinator.com/item?id=27621342
|
| It specifically sweeps in classes of people with
| responsibilities that are held by typical active co-
| founders: "(H) an officer, director (or an individual
| having powers or responsibilities similar to those of
| officers or directors), a 10 percent or more shareholder,
| or a highly compensated employee (earning 10 percent or
| more of the yearly wages of an employer) of a person
| described in subparagraph (C), (D), (E), or (G)"
|
| Very difficult to a) be a cofounder with meaningful
| equity b) not do any work so this provision doesn't
| trigger c) keep your equity and d) have it be worth
| anything.
| jklein11 wrote:
| Oh that is interesting. This must get very complicated
| for officers or directors of companies in the S&P 500.
| Could you not buy index funds that hold shares of the
| company you work for?
| runako wrote:
| They probably just have to buy the shares in taxable
| accounts.
|
| Edit: misread this. I would be surprised if index/mutual
| funds are subject to the same rules because holders of an
| index fund don't own shares in any of the underlying
| securities.
| jklein11 wrote:
| But then what do they hold in their tax advantaged
| accounts? Can they not invest in index funds there?
| nrmitchi wrote:
| I have to assume you're just feigning naivete here.
|
| First, officers or directors of S&P500 companies are
| almost definitely above the income level to open a new
| Roth IRA.
|
| Second, you're really grasping at straws here trying to
| trace a relatively minuscule investment through mutual
| fund in order to defend Thiel here.
|
| Someone is saying "Bank robbers are bad because they
| steal other people's money" and you're sitting over here
| saying "Well technically when I pick up a penny on the
| ground, it's not mine. So it's basically the same thing.
| We have to find a solution that solves both problems at
| the same time".
| ProjectArcturis wrote:
| He put the shares in when it was still a private company.
| fny wrote:
| So what? You can use your Roth IRA to invest in private
| companies, buy gold, houses, whatever too.
| joshfraser wrote:
| My guess is he used a self-directed IRA that he converted into
| a Roth.
| vasilipupkin wrote:
| did he place the shares into IRA before any outside round
| though? because otherwise, he would have violated
| contribution limits?
| lotsofpulp wrote:
| I would assume he did, unless there is any proof otherwise.
|
| ProPublica specifically omitted this information, so
| assuming that it was all kosher seems reasonable.
| joshfraser wrote:
| He would have deposited them at company formation when
| they were essentially worthless.
| vasilipupkin wrote:
| right, but then how did he convert them to roth? roth has
| contribution limits, right? Ah, there are no limits for
| backdoor conversion.
| lotsofpulp wrote:
| Right, so this is an example of journalism that reduces
| people's trust. Or at least it did mine with regards to
| ProPublica, which I had previously held in higher regard.
| nrmitchi wrote:
| You're also not allowed to put ISOs or anything "earned"
| into a Roth IRA (or buy it from yourself).
|
| The problem here is that this was clearly a prohibited
| transaction, but the IRS state of limitations is
| effectively 3 years for stuff like this (unless you have
| really pissed someone off). It's likely that by the time
| the stock was worth enough (in terms of 409A guesstimate)
| to look in to, or there was any kind of reportable
| transaction showing a gain, the time frame on investigating
| the initial transaction was long past.
| lotsofpulp wrote:
| > The problem here is that this was clearly a prohibited
| transaction
|
| I have been unable to find any source for this claim.
| Even ProPublica, the people with the original documents
| and the most incentivized to break the news, do not claim
| this.
| nrmitchi wrote:
| ProPublica making a public claim of a tax crime is much
| more likely to be considered libel than an insignificant
| person on HN doing the same.
| lotsofpulp wrote:
| So people claiming that he committed fraud are just
| making up stuff.
| nrmitchi wrote:
| OR they read the basic rules, regulations, and
| restrictions about contributing to a Roth IRA and came to
| a logical conclusion.
| TAForObvReasons wrote:
| > IRS records show that in 1999 Thiel purchased 1.7
| million shares of his startup, which would soon become
| PayPal, for just $1,700 -- a tenth of a penny per share
|
| > Even though Thiel's startup received millions in
| funding within months, Pensco still told the IRS these
| founders' shares were worth less than $1,700 at the end
| of 1999.
|
| Under certain circumstances, there is no statute of
| limitations. If Pensco did knowingly misrepresent the
| value of the shares, and if the funding round did imply a
| wildly different valuation, IRS could still pursue the
| case.
| nrmitchi wrote:
| Yes, that is true.
|
| But I cannot fathom the cries of "IRS Pursuing
| Investigation against a single Tax Transaction from 20
| years ago against vocal Trump supporter" would go over
| well.
| wizzwizz4 wrote:
| That's not the IRS's problem.
| [deleted]
| onetimemanytime wrote:
| All is OK, until they take a closer look (and IRS, I assume
| will now)
| vmception wrote:
| IRAs can be shareholders in anything. They can be 100%
| shareholders as well. They can even form their own companies
| from the beginning.
|
| Being a minor shareholder in a corporation isn't a prohibited
| transaction or run afoul of self dealing regulations.
|
| Even in circumstances that they would, you having less than X%
| of voting shares mitigates that, the X depending on what type
| of tax deferred or exempt entity is in question. _SOME_ tax
| deferred /exempt entities have stricter self dealing
| regulations and even they wouldnt have had an issue here as
| Peter Thiel was one of several co-founders.
| klipt wrote:
| But if you work for a company owned mostly by your Roth IRA,
| that's easily abused.
|
| Suppose you're a consultant and your one-person consulting
| company is owned by your Roth IRA. You could deliberately
| draw a very small taxable salary, so that most of your work
| goes towards increasing the company's untaxed value in your
| IRA.
|
| You're basically making your earnings tax free.
|
| Obviously, your Roth IRA's company employing you at below
| market rate isn't a fair, arms length transaction.
| s1artibartfast wrote:
| The problem would be buying the company with the roth, not
| the wages afterwards.
|
| It is completely legal to own a company and pay yourself
| below market rate, or even not at all. In fact, it is how
| many small business work.
|
| In your example, the company still has to pay corporate
| tax, even though it is owned by the IRA.
|
| The only tax advantage to your consulting scheme would come
| at the time you sold it to someone else, or liquidated it.
| bklyn11201 wrote:
| It is not legal to own an USA S-Corp and pay yourself a
| below market rate.
| s1artibartfast wrote:
| That is a good point. S-Corps are an exception, because
| the corporations do not handle income tax the way a
| C-corp would.
| vmception wrote:
| Okay. Don't mess it up.
| jklein11 wrote:
| >But if you work for a company <i>owned mostly by your Roth
| IRA</i>, that's easily abused.
|
| As I understand it, you can't own a company that you(or a
| relative) own a controlling interest in with your IRA. I
| can see the sense in this because if own 20% the
| person(people) who own the other 80% have an incentive to
| make sure I'm not playing any kind of games with the
| finances.
|
| In the case of Thiel, it seems like he took $2000 and made
| a moonshot investment in Paypal. At that point his
| investment could have just as easily went to $0 as it was
| to hit $5 billion. He took the risk, why shouldn't he have
| gotten the reward?
| vkou wrote:
| > He took the risk, why shouldn't he have gotten the
| reward?
|
| And he should get the reward, minus capital gains tax.
|
| This country provided an environment for that investment
| to turn into five billion. He couldn't have done the same
| thing in Somalia, or Vietnam, or Greece. Why shouldn't it
| reap its share?
|
| Nearly everyone else pays their fair share of taxes.
| exporectomy wrote:
| > Nearly everyone else pays their fair share of taxes.
|
| It seems the whole point of these Roth IRA is so people
| don't have to pay their fair share of taxes. I'd blame
| the government for creating that.
| jklein11 wrote:
| He invested a tax advantaged $2000. If he had invested
| that $2000 in the S&P 500 in 1995 he would have a tax
| advantaged $25,000. He would have been out that tax
| advantaged $25,000 if paypal didn't take off. Instead he
| decided to make a much longer shot bet and for him it
| paid off.
|
| I can understand adding legislation that would tax
| distributions on Roth IRA's for billionaires. Thiel would
| be fine if he had to pay taxes on that windfall.
|
| I just think that it is a mischaracterization that he
| isn't paying his fair share of taxes. To me, it doesn't
| seem like he did anything wrong. He took advantage of a
| system that is accessible to everyone.
| Retric wrote:
| The issue is as far as people can tell he illegally
| invested 2000$ from an IRA. You're not allowed to invest
| in a company _with an IRA_ if:
|
| _an officer, director (or an individual having powers or
| responsibilities similar to those of officers or
| directors), a 10 percent or more shareholder, or a highly
| compensated employee (earning 10 percent or more of the
| yearly wages of an employer) of a person described in
| subparagraph (C), (D), (E), or (G)_ https://uscode.house.
| gov/view.xhtml?hl=false&edition=1994&re...
|
| Being the CEO clearly qualifies. That said, the statute
| of limitations means you can often get away with things
| if they go unreported for long enough. It may be he's
| currently in the clear.
| mattferderer wrote:
| The article says he was audited.
|
| > In 2011, Thiel caught the attention of the IRS. The
| agency launched an audit, tax records show. The records
| don't spell out what the IRS was looking at or if it
| involved Thiel's Roth. Whatever the case, the audit was
| closed years later and Thiel didn't owe any more taxes,
| tax records show.
| Retric wrote:
| He was CEO of PayPal until 2002, which means in 2011 this
| would presumably be past the statute of limitations for
| many things. It's unclear if this falls under Tax Fraud
| or not.
| eloff wrote:
| I think the problem is these IRAs were not designed to
| shield the super rich from taxes. It's meant to help the
| average person. Implemented properly it should have an
| upper limit, probably under a million dollars. Letting it
| grow to five billion tax free is a loophole that
| shouldn't exist and does not benefit society at large.
| nrmitchi wrote:
| > IRAs can be shareholders in anything. They can be 100%
| shareholders as well. They can even form their own companies
| from the beginning. > Being a minor shareholder in a
| corporation isn't a prohibited transaction or run afoul of
| self dealing regulations.
|
| Yes, obviously, and is exactly how the real estate example I
| provided works. The IRA opened a company. _Obviously_ it is a
| company in order to financially benefit the owner of the IRA.
| That 's literally the whole point of investing, and is not
| what I am debating here.
|
| It is different when you are then taking an active role in
| the day-to-day management and/or operation of that business,
| which is obviously what Thiel did at PayPal.
| vmception wrote:
| Oh by property that to you meant real estate, I didnt catch
| that
|
| Peter Theil did not have 100% voting shares of Paypal, and
| if he did that went away very soon after with the other co
| founders and investors diluting him fast enough for it to
| satisfy IRS regulations.
|
| That would work now as well, but it is also possible that
| it worked better 22 years ago as the IRS may have lacked
| clarity back then.
| nrmitchi wrote:
| > Peter Theil did not have 100% voting shares of Paypal,
|
| First, that's not the requirement.
|
| > and if he did that went away very soon after with the
| other co founders and investors diluting him fast enough
| for it to satisfy IRS regulations.
|
| Your argument here is "even if he made illegal
| investments into a tax-advantaged account that has set
| him up to not pay taxes on 50000000000 dollars, we should
| ignore it because if he made the investment later it
| wouldn't have been illegal".
|
| By that logic let's just throw out insider trading laws.
| "Well if he made the investment after the information was
| public, it would have been fine"
|
| > the IRS may have lacked clarity back then.
|
| They didn't. It was still explicitly not allowed for a
| officer/director of a company, someone with a similar
| role, > 10% share-holder, etc to make investments like
| this with a Roth IRA.
| TuringNYC wrote:
| >> What I don't understand about this whole maneuver is that
| Roth transactions must be made at arms length; ie,
| "Transactions must be made at arm's length and not involve the
| IRA owner or a member of his or her family."
|
| Wouldnt this be as simple has investing in another company
| (managed by external managers) that then invests in your
| company? I'm sure the wealthy have all sorts of ways to get
| around this.
| bosswipe wrote:
| The rich have defunded their police, the IRS has no resources to
| go after complex schemes like these. But they consider it out of
| bounds when poor people demand the street harrasment police be
| defunded.
| missedthecue wrote:
| The article actually says that Thiel was the target of a multi-
| year IRS audit, which didn't turn up any irregularities.
| vineyardmike wrote:
| He's known to be a litigious PITA so i'm sure they're worried
| about maintaining resources for eaasier-to-win audits.
| tapmap wrote:
| What people are missing here is the fact that Peter Theil is
| investing in new companies that go on to create thousands of jobs
| and billions of dollars in taxes every year. He risks his capital
| to create these new companies, and a lot of his investments go to
| zero. The next effect of this is that he's generating a lot more
| tax revenue for the IRS that he's saving from his Roth IRA.
| esotericimpl wrote:
| watch out propublica, Hulk Hogan might be bankrolling another
| lawsuit soon.
| underseacables wrote:
| Can one learn this skill?
| lamontcg wrote:
| Make a really good bet on a stock in your Roth that pops
| something like >10,000x.
|
| In his case it was Paypal shares.
|
| Then you have a massive tax-free investment shelter and you can
| be an angel investor for startups through it and seek out
| another >100x investment with it.
|
| It helps a lot to have better information and be more plugged
| into the investment culture than your average person on the
| street reading the NYT and trying to sort out where to invest
| their 401k. It also helps to be a sociopath so that all you
| care about is returns.
|
| There's a bit of an oversight here where the tax-free returns
| in a Roth shelter are completely unlimited, they probably
| should have been capped where massive windfalls became taxed
| some way, but rich people and those who carry water for them,
| would have flipped out.
| foolzcrow wrote:
| The writer of this article sounds jealous and intellectually
| small.
| aurizon wrote:
| Yes, this is what it was made for. I got mine up to $150,000
| based on the annual increment and a few smart buy/sell. I wish I
| had bought $50,000 Apple at $2, it would have turned into $25
| million. A few like Thiel do better. Want to hurt Thiel? Hurt us
| all is your only way. Block options etc, so only trading shares
| can go in. No 'popcorn' shares that expand by 100 to one or more
| after they vest etc.
| vernie wrote:
| The usual response to any criticism of Thiel on HN: Actually
| this rocks!
| aurizon wrote:
| I did not criticise Thiel at all, he did well. That said he
| did have the ability to capture the entire leap from option
| pennies into mature trading stock at many many dollars, and
| roll that over a few times.
| [deleted]
| cinntaile wrote:
| It's a pretty smart loophole but it's not like he came up
| with this. He has tax specialists for that. Now, it's
| probably not a good idea for loopholes like these to exist.
| Articles like these can certainly make a difference to close
| them. Although it's definitely not black and white, excluding
| private shares would be too broad imo but maybe a different
| mechanism to determine the value should be used.
|
| More general I'd say Peter Thiel is both loved and hated and
| everything in between on HN, there is no real consensus.
| papito wrote:
| Any suggestion on HN that Peter Thiel is a shit-tier human
| and a monster will get you downvotes.
|
| The funny thing is, there is never any verbal defense - just
| downvotes.
| peter422 wrote:
| I thought his book on startups was very well done and
| interesting.
|
| However this seems quite shady. The rich should still have
| to pay taxes.
| lotsofpulp wrote:
| They do have to pay taxes. Maybe Congress should not pass
| laws that exempt them from paying taxes, or require them
| to pay more taxes.
| papito wrote:
| Congress doesn't write laws - people like Peter Thiel do.
| You sound like these billionaires are innocent virgins.
| "Oppsies, I made all these billions because the
| incompetent congress let me do it". Uh huh.
| not2b wrote:
| No, it isn't what it was made for. You're limited to a $2000
| contribution. Claiming that the value of a share of PayPal was
| 1/10 of a cent was nonsense. He found a loophole, sure, but
| it's morally fraudulent even if legally allowed. To close the
| loophole, putting private shares into a Roth IRA should be
| banned because they have no true market price that indicates
| their worth.
| icedchai wrote:
| $2000 hasn't been the contribution limit for almost 20 years.
| It's $6K now, but we could argue that it's still not enough.
|
| Private companies that are raising money have a valuation on
| them done periodically ("409A valuation"), and this is what
| private stock options and common shares are based on. This is
| the IRS's own rules.
| vmception wrote:
| I dont find this to be a loophole, you just werent aware of
| it. A plain reading of the tax code would make that
| possibility fairly obvious.
|
| This approach will just leave you surprised in the 2040s
| about what anybody with reading comprehension skills is doing
| in 2020s.
|
| Also greater private equity access was just expanded in the
| tax code for tax deferred roth products. So the opposite is
| happening.
| vmception wrote:
| lol, 22 years late with a knee jerk reaction of trying to
| change that specific law
|
| I love how this approach will just leave you surprised in the
| 2040s about what anybody with reading comprehension skills is
| doing in 2021
| dang wrote:
| Please don't be an asshole on HN, no matter how uninformed
| someone else is or you feel they are. It only makes things
| worse.
|
| https://news.ycombinator.com/newsguidelines.html
| silicon2401 wrote:
| > He found a loophole, sure, but it's morally fraudulent even
| if legally allowed.
|
| Morality is relative. You can't legally police other people
| based on your personal morality. To me, morality is
| maximizing your self-benefit, so there's nothing wrong with
| what Thiel did. If other people disagree, then there are
| plenty of avenues to campaign for outlawing what he did.
| iammisc wrote:
| > it's morally fraudulent even if legally allowed
|
| Can you detail the immorality?
|
| > To close the loophole, putting private shares into a Roth
| IRA should be banned because they have no true market price
| that indicates their worth.
|
| Why should they be banned? Everything has a price. IIRC, in a
| self-directed IRA you can put anything... paintings, gold,
| collectibles, houses. Why not random shares?
|
| I see a huge problem here. Roth IRAs were made with certain
| guarantees. That some people would make outsized returns in a
| country of almost 400 million should be expected. Why do we
| find it necessary to then go and 'get our fair share'? Didn't
| we already set the rules? Why must we now change them since
| some guy got lucky?
|
| Ideally, we should just say 'good job Mr Thiel', you held up
| your end of the bargain and we'll hold up ours. The deal was
| already struck. This is why no one trusts the American
| government.
|
| Also, I'd point out that the roth IRA mentioned here is only
| nominally worth $5b. If he were to sell all the shares there
| would likely be a huge drop in price. Either way, what goes
| unmentioned is that the $5b wouldn't be taxed anyway if it
| was all in unrealized capital gains.
| zajd wrote:
| Imagine being this dumb
| bklyn11201 wrote:
| Precisely. Was anyone else allowed to buy Paypal shares at
| 1/10 of a cent in 1999? If he alone marked this price, how
| would it not be fraudulent?
| jandrese wrote:
| He basically bought those shares from himself, which is why
| he was able to set the price arbitrarily low.
|
| The point of the Roth IRA is to encourage middle and lower
| class people to invest in their retirement by offering a
| tax incentive. But to avoid being abused by the rich the
| total yearly contribution limit is set very low. Thiel
| avoided this limit by simply selling himself a huge amount
| of stock for fractions of a penny on the dollar, knowing
| the actual price on the open market would be far higher.
| However, nobody can prove that the price of the private
| share would have been higher at the time because they
| weren't on a market.
|
| It would be like if you were trying to avoid taxes by
| selling your 1,000 acre mansion to a LLC that you own for
| $1 and paying the tax on that $1. This doesn't work for
| real estate, but the Roth IRA system is not as
| sophisticated so you can get away with it.
| s1artibartfast wrote:
| >Claiming that the value of a share of PayPal was 1/10 of a
| cent was nonsense.
|
| It was the valuation at the time and there is nothing illegal
| about that. You can invest your Roth in penny stocks or sub
| penny stocks today if you want.
|
| The real question is if it was legal to purchase stocks in a
| company he also managed.
| medvezhenok wrote:
| The only way that was a true valuation of the shares at the
| time would be if he were willing to sell those shares to
| someone else at that price ($0.001) at the end of 1999. If
| not, that's not true value, that's just accounting fraud.
|
| For a valuation, there has to be a market and a market
| clearing price. If there is no market (no buyers and
| sellers), valuation is meaningless.
| s1artibartfast wrote:
| That's not how tax law works. When you found a company
| you buy founder's stock, with an initial valuation filed
| with the IRS and this is the value until the next
| qualified valuation event, where it may change. Share
| prices of $0.01 to $0.00001 are common. I guarantee that
| $0.001 was the founders share price filed with the IRS at
| company formation.
|
| https://gust.com/launch/blog/how-to-value-startup-stock
| machinebun wrote:
| Sure, $0.001 is the value on paper (and under current
| law). The point is, it's exploitable (let's say I'm an
| Apple engineer, I start a new company and get a wink wink
| from some friends in high places who want to invest in my
| company doing X. I put in my founders stock into IRA in
| return for first dibs on placement for the investor - 1
| year later company has valuation, my stock has risen many
| %%. Sure, I'm technically doing everything legally, but
| practically it's somewhat equivalent to insider trading +
| avoids taxes).
|
| I would personally ban non-public investments in Roth
| IRAs. That way a debate about market value doesn't have
| to happen.
| NonEUCitizen wrote:
| Many times, $0.001 turns out to be too high a value for
| startup shares -- a lot of startup shares end up being
| worth zero.
| s1artibartfast wrote:
| seems like the far better solution is banning IRA
| investments in your own company. This is the current law.
|
| If you make a smart or lucky in somebody else's company,
| bitcoin, or whatever, it isn't an exploit, it is the
| point.
| joshe wrote:
| Anyone actually done this with normal stock options (NSO if it
| matters) and have advice? My understanding is that it might be
| achievable with Pensco as the IRA custodian but I'd be interested
| in hearing how it worked in practice
| vmception wrote:
| I've done it, you have to have executive authority over the
| issuing company to do it, as other directors and their legal
| counsel are too uninspired to do anything outside of the norm.
|
| Your IRA is a legal entity and you can grant an option to it.
| It needs the cash to exercise it. Options can have shares at
| any price in them, such as discounted to nothing but it comes
| down to which consequences you care about. Making a potentially
| screwy 409a valuation isn't a big deal, but also avoided if
| done before other investors come in. Either way it can be a
| tolerable level of consequence.
| ffggvv wrote:
| i don't get why twitter banned hunter biden discussion or BLM
| founder because they were private.
|
| but we're all comfortable seeing the private tax records of these
| individuals that were stolen. the media has such massive biases
| stevenalowe wrote:
| The key quote: "Get a sweetheart deal to buy a stake in a startup
| that has a good chance of one day exploding in value"
|
| In other words, use your Roth IRA to invest in startups (or
| stocks) that do exceptionally well.
|
| I'd be more concerned about the author's access to "secret
| internal IRS data"...
| gumby wrote:
| I have tried to do this in the past and always been told it's not
| possible (as an exec in the startup it wouldn't be arm's length).
|
| I guess that's what I get for following the rules.
|
| Not that my IRA would have reached the billions mark if I had
| managed to.
| casefields wrote:
| Just like Trump--or even Thiel himself--you've gotta not be
| scared to sometimes amass hefty legal bills, and you can get
| away with a lot.
| [deleted]
| marris wrote:
| Does anyone know whether this kind of tax planning is available
| to today's startup investors? Are there any administrators which
| support this kind of illiquid investment?
| vmception wrote:
| Yes, Roth IRAs are quite simple as you can literally just have
| a stack of cash in your apartment labelled "Roth IRA" if you
| wanted to. All the reindeer games with IRAs are just so the
| accounting is hard to mess up, with separate usually electronic
| accounts.
| runako wrote:
| IANAL but this topic is of interest.
|
| Without commenting on whether this was legal at the time Thiel
| made this transaction, it appears it would not be permissible
| under current tax law. (Update: the relevant text in the statute
| appears to have been in effect as early as 1995:
| https://uscode.house.gov/view.xhtml?hl=false&edition=1994&re...)
| Specifically, the law explicitly disqualifies anyone who is:
|
| >an officer, director (or an individual having powers or
| responsibilities similar to those of officers or directors), a 10
| percent or more shareholder, or a highly compensated employee
| (earning 10 percent or more of the yearly wages of an employer)
| of a person described in subparagraph (C), (D), (E), or (G)
|
| (Source: https://www.law.cornell.edu/uscode/text/26/4975)
|
| So the relatively plain language would almost certainly include
| anyone who's a co-founder involved in actively managing a company
| today.
|
| This kind of blatant tax avoidance is going to end badly for our
| tax regime, which is likely to overcorrect.
| nickpp wrote:
| Maybe he was already diluted by other investors to under 10%?
| And usually founders aren't highly compensated.
| runako wrote:
| "an officer, director (or an individual having powers or
| responsibilities similar to those of officers or directors)"
| nickpp wrote:
| Oops I missed that. You are right then. I wonder if this
| changed since 1999...
| runako wrote:
| I updated my post. This provision appears to date to at
| least 1995.
|
| (IANAL so again I could be misreading something.)
| toomuchtodo wrote:
| Solid finding.
| kyleblarson wrote:
| Another sensationalist headline about people doing things that
| are not illegal. This article feels especially egregious since it
| is based on stolen IRS data.
| JacobDotVI wrote:
| Mitt Romney did this as well (although only to the tune of
| $100M). It was discussed in 2012 in various news outlets:
| https://www.investopedia.com/managing-wealth/grow-ira-100-mi...
| vmception wrote:
| Thats where I got the inspiration from for thinking about a lot
| of accounting differently. Financial engineering that people
| seem to neglect or be to scared of considering.
|
| With him sometimes Bain Capital made separate share classes,
| and I think they would give massive dividends periodically to
| the separate share class that only the 401k investors at Bain
| Capital would receive. I think its a really great strategy!
|
| Buffett should be doing that in Berkshire Hathaway for their
| employees instead of being sad about how much tax his secretary
| pays
| xkjkls wrote:
| Or, the government should change the tax code to not make
| this possible and make the advantages of doing this moot.
| People need to be taxed, and we shouldn't have a system which
| requires a bunch of extra paperwork just for people to avoid
| it.
| vmception wrote:
| These simplistic ideas are exactly why it never will happen
|
| Roth versions of tax deferred accounts only exists because
| the government is an irresponsible spender and needed
| revenues. It made the contract with the people because its
| like a degenerate crack addict child scrounging for cash,
| in its case only to keep convincing international investors
| that it can slowly pay debt. Wow the contract worked and
| you just caught on 22 years later.
|
| What is your issue with people making good trades in a tax
| deferred and tax exempt accounts? That it needs more
| revenues again? The government will be fine, international
| investors are content with its revenue sources. These kinds
| of accounts are already subject to massive penalties and
| even UBTI regulations
| xkjkls wrote:
| My issue is that as a society, we want a percentage of
| the wealth that is created to be democratically
| controlled. We can debate which percentage and how that
| should be acquired, but the end social contract is that
| part of all wealth produced has some democratic component
| to it. For the last 5 is that decades, we've had groups
| of people gradually trying to evade more and more of that
| responsibility, and we aren't going to produce a
| functioning society that way.
| stretchwithme wrote:
| What happened is the resources put into this account were
| invested in highly successful things. If all investment accounts
| were this successful, society would be 10X or 100X or 1000X more
| wealthy.
| cdolan wrote:
| I am aware of the fact its popular to dislike the ultra-rich, but
| is this not worrying to the general public?
| ProPublica has obtained a trove of IRS tax return data on
| thousands of the country's wealthiest people, covering more than
| 15 years.
|
| Someone leaked not only Gates, Bezos, Musk, etc data, but
| thousands of private citizen's intimate financial disclosures
| (edit: seemingly for the purpose of weaponizing the data against
| them).
|
| What crime were these thousands of people convicted of to deserve
| this?
| eloff wrote:
| Some countries have public tax returns (Sweden? Norway? One of
| those Nordic countries.)
|
| I think probably they should be public data.
|
| That aside, for very rich people, having them be public is in
| the interest of the public as it reveals the shady stuff they
| do to dodge taxes (legally.)
| cdolan wrote:
| Debating wether tax returns should or should not be public is
| a great debate to have, I agree. The country should be having
| that debate. And if we decide tax returns should be made
| public, it should happen in the future so everyone is on the
| same page.
|
| The fact is that US tax returns are private information,
| regardless of what other countries are doing or what you and
| I _think_ should be done.
| walshemj wrote:
| Welcome to the great panopticon remember the Telescreen
| sees all citizen.
| machinebun wrote:
| > Debating wether tax returns should or should not be
| public is a great debate to have, I agree. The country
| should be having that debate. And if we decide tax returns
| should be made public, it should happen in the future so
| everyone is on the same page.
|
| The same way the Snowden leaks were instrumental into
| regulation about surveillance, leaks like this are
| instrumental in crafting better tax policy, so I would say
| they are a public good. It's also not-quite possible to do
| it via completely legal means (as vested interest
| opposition is too big and has too much capital - the only
| way to battle against them seems to be to do it via not-so-
| legal means).
|
| So in this case the fight is punching up against people in
| positions of power, not down onto people that have no
| power, so I don't see a direct issue with it. If you have
| power, you should also have the proportionate
| responsibility.
| cdolan wrote:
| "Responsibility" is a very strange word in your comment
| to me.
|
| Snowden leaked government program details. How in the
| world is that the same about thousands of private
| citizens (aka not public figures) personal financial
| details?
|
| How are these individuals not being "responsible"?
|
| The only unresponsible person is the person(s) who leaked
| the details, and ProPublica for monetizing it.
| machinebun wrote:
| We have a disagreement in what makes a public figure
| then. I believe that over a certain level of wealth, the
| wealth alone makes someone a public figure or a figure of
| significance (since wealth = power, and public status
| also = power, and celebrity status = power).
|
| If someone is powerful enough to have power over other
| people (which the wealthy certainly are), then they
| should account for that power with appropriate
| responsibility.
|
| If you don't want to be a public figure, don't accumulate
| exorbitant amounts of wealth.
| cdolan wrote:
| When I say public figure (which Mr. Thiel is, despite his
| harassment by Gawker and other quirks, but I get your
| point) I am referring to the thousands of non-public
| figures who have had their personal tax details stolen
| and shared with ProPublica, who seemingly did nothing to
| deserve this.
| yupper32 wrote:
| You want family and friends to know exactly how much you
| make?
|
| That's extremely problematic for a lot of people.
|
| Congress already has access to tax returns for the purpose of
| writing tax legislation. It's not perfect but I really don't
| want my finances public, and I'm not doing anything shady.
| pmoriarty wrote:
| _" You want family and friends to know exactly how much you
| make? That's extremely problematic for a lot of people."_
|
| Can you explain why it's problematic?
| babayega2 wrote:
| I have lived in 4 countries, and 3 continents and
| everyone I have lived with agreed that it's not useful
| for the whole family to know how much you make.
|
| Last year I learned that lesson the hard way...
| yupper32 wrote:
| Family can be very manipulative when they know you have
| much more money than them. It can end up massively
| hurting relationships.
|
| I don't even tell my parents how much I make.
| pmoriarty wrote:
| _" Family can be very manipulative when they know you
| have much more money than them."_
|
| As I suspected, this is mainly a problem of the rich.
|
| Most of the rest of us don't make much more money than
| anybody.
|
| So are we going to make our laws to advantage the rich or
| the vast and ever growing majority of the population who
| aren't and never will be rich?
| yupper32 wrote:
| Ah yes, I'm the problem, paying around 40% in taxes.
|
| People making 6-figures a year are not the ones
| manipulating the financial system. HN is particularly in
| this category.
|
| But go ahead and lump me in with someone with like 6000x
| my net worth.
| pmoriarty wrote:
| You don't have to be a billionaire to be part of the
| problem (though it helps).
| djmips wrote:
| I can see some reasons to not wanting your wealth public if
| you are reasonably worried that it would attract unwanted
| attention.
| matz1 wrote:
| Yes, this is the most pragmatic way to deal with privacy
| issue, as much as possible information has to be make
| public for everyone.
|
| >You want family and friends to know exactly how much you
| make?
|
| Not really but I would like the information to be public,
| that is they don't have to know but if they want to know
| they can.
|
| Its great that I don't have to hide it or worry about it
| being leaked.
|
| If this information being public cause me trouble then
| we'll find a way to solve that issue rather than fixing it
| by hiding the information.
| yupper32 wrote:
| > that is they don't have to know but if they want to
| know they can.
|
| For the people that I'm defending here, there's no
| difference.
|
| > Its great that I don't have to hide it or worry about
| it being leaked.
|
| ...so are you saying you're worried about a law like
| this?
|
| > Yes, this is the most pragmatic way to deal with
| privacy issue, as much as possible information has to be
| make public for everyone.
|
| I'm guessing you think the best way to deal with revenge
| porn is to have everyone post nude photos of themselves
| publicly?
| lordnacho wrote:
| I can see why people tend to err on the side of privacy,
| but it doesn't seem to have destroyed Norwegian society to
| have public records.
|
| I think it's a reasonable thing to discuss, then at least
| we can get some pros and cons out there.
| eigen wrote:
| seems like corporate tax transparency would be a good first
| step.
|
| > Congress already has access to tax returns for the
| purpose of writing tax legislation.
|
| while that is the law that Congress can request/subpoena
| returns under SS6103(f) of Title 26 [1], if it can just be
| ignored then Congress doesnt really have access.
|
| [1] https://irc.bloombergtax.com/public/uscode/doc/irc/sect
| ion_6...
| yupper32 wrote:
| > if it can just be ignored then Congress doesnt really
| have access.
|
| Then fix that! Why do you have to go to the absolute
| extreme here and make everyone's finances public?
| eloff wrote:
| Imagine hooking up the public tax returns to an image
| recognition system and database built from social media. It
| should be possible to create a dating app for women that
| lets you see the wealth of people on tinder, in the street,
| at a party. Men might also use that, but they already have
| their ideal "rating by physical appearance" app in tinder.
| Some gender differences are persistent throughout all human
| history.
|
| There are some downsides to be sure.
| loudtieblahblah wrote:
| It's not about disliking the ultra-rich.
|
| It's about recognizing how the entire system is stacked against
| working people and that these ultra-rich pay 0% in taxes, while
| I pay 30%.
|
| The backbone of this nation is funded by the middle class and
| the poor being taxed, while the rich externalize their expenses
| to the government and pay little to nothing in taxation.
|
| If some IRS docs need to get leaked, then so be it. The
| reporting on this has been pretty responsible.
| cscurmudgeon wrote:
| The fight against the ultra rich usually ends up as a fight
| against the middle class with some token offensives against
| the ultra rich.
| cdolan wrote:
| Government spending is almost entirely leveraged by debt and
| these documents prove that these "ultra-rich" pay a large
| absolute dollar amount of taxes (albeit lower than 30%). That
| is factually non-zero.
|
| I am all for a healthy debate on the topic, but I disagree
| the reporting is responsible. Responsible reporting, in my
| opinion, would involve nameless "there is a $5 billion Roth
| IRA out there... the system isn't working", rather than
| naming private citizens who believe their tax returns from
| 2005-2020 are private information.
|
| Edit: And I think it may be of public curiosity to know about
| what goes on in the billionaire class. I get that, to a
| degree. My original point was that ProPublica is admitting
| that they are in control of _thousands!_ of American 's tax
| returns for the last decade and a half. There is no guarantee
| that the IT administrator or summer intern is going to keep
| that data safe.
| pmoriarty wrote:
| _" these "ultra-rich" pay a large absolute dollar amount of
| taxes"_
|
| Money is power.
|
| Because of the wealth they get to keep, these ultra rich
| are in many ways ruling the rest of us and turning more and
| more of us in to their servants, telling us how to run our
| lives, raise our kids, and what to believe.
|
| Are you ok with that? I'm not.
| emteycz wrote:
| Voters decide, not money. And the rich usually want a
| free world...
| andrepd wrote:
| I don't recall ever reading such a naive statement x)
| joshjdr wrote:
| I disagree. Many complain about Bezos making billions and
| not paying a fair share of taxes; yet they support and
| empower him to further do so with every purchase they
| make from Amazon. Sure, voters have power voting in
| occasional elections, but every other day they vote with
| their dollars--whether they see that or not.
| pmoriarty wrote:
| _" Many complain about Bezos making billions and not
| paying a fair share of taxes; yet they support and
| empower him to further do so with every purchase they
| make from Amazon."_
|
| From what I understand, the vast majority of Amazon's
| profit comes not from the e-commerce website but from
| AWS.
|
| And the overwhelming majority of Bezos' net worth comes
| from the value of Amazon's stock, does it not?
|
| So aren't the people who are most responsible for his
| wealth the purchasers of Amazon's stock, not the users of
| the e-commerce part of the business?
| dantheman wrote:
| Notice what the 'fair share' is, is never stated, and at
| the same time want to encourage behavior via the tax
| code, but then get mad when people use the incentives.
| [deleted]
| mschuster91 wrote:
| Given the enormous reliance on advertising in US
| elections and the mindblowing sums that parties,
| candidates and PACs burn on them: money buys votes.
| pmoriarty wrote:
| _" Voters decide, not money."_
|
| The voters are told what to believe by the likes of Peter
| Thiel and Cambridge Analytica, or by the likes of Hearst,
| Bezos, and Rupert Murdoch owning newspapers.
|
| The rich very often have the ears of politicians, with
| which (if they don't directly bribe) they can easily have
| lunch any day of the week to lobby for their special
| interest, or propose quid-pro-quo plans.
|
| How often does the average voter have lunch with their
| elected representatives? For almost all of them the
| answer is never.
|
| The rich also donate to foundations (if they don't own
| some outright) that lobby the government for their
| interests, they fund ads to the tune of millions of
| dollars, they sometimes use millions of their own money
| to fund their own campaigns for office (Trump being
| exhibit #1, and Bloomberg #2), etc.
| ABCLAW wrote:
| >the rich usually want a free world...
|
| There are plenty of Kleptocrats that aren't concerned
| with the world being free and fair; they're just happy to
| sit atop the pile, regardless of what the pile is.
| axbytg wrote:
| > Government spending is almost entirely leveraged by debt
| and these documents prove that these "ultra-rich" pay a
| large absolute dollar amount of taxes (albeit lower than
| 30%). That is factually non-zero
|
| These are such non points. Who cares about the absolute
| amount? We measure it in points for a reason, and the
| effective number of points the ultra rich pay is <1, while
| I pay ~25. You can't denormalize that away.
| aeturnum wrote:
| I'm pretty open to the ethical version of this article
| omitting Thiel's name.
|
| I also think it would be interesting to talk about what it
| is in this reporting that materially harms Thiel. That he
| is a billionaire and that he owns PayPal stock was
| previously public knowledge. This only seems to introduce
| information about how much tax his Roth is sheltering him
| from - which the anonymous version of the article would
| also cover.
| cdolan wrote:
| Forbes thought his personal wealth was 2 billion.
|
| This reveal puts his ROTH IRA _alone_ at $5 billion (it
| owns stock in companies other than PayPal and Palantir)
|
| That is a material change in Mr. Thiel's privacy.
| meristohm wrote:
| In principle it seems unfair. Case-by-case I have a hard
| time being against this sort of reporting because of how
| much influence that money might have. How is it that an
| individual has so much money? My feeling is that it was
| enabled in part by tax-funded infrastructure and
| insufficient government regulation. Too much individualism
| is trouble (see the USA response to COVID-19). Likewise too
| much central control.
|
| If we're collectively being exploited and some publicity is
| what is effective at change, so be it. I still see the
| super-rich as individuals, intrinsically no better or worse
| than anyone else, worthy of empathy, and answerable for
| their actions, which generally feel unethical.
|
| Where might we cap wealth? What is a better way to go
| through life than playing the acquisition game and feeling
| like we're not adults until we have the fancy, humorless
| luxury things? How do we otherwise meet the needs of those
| who thirst for more and more power and resources?
| andrepd wrote:
| > Government spending is almost entirely leveraged by debt
|
| What does that have to do with anything? I literally have
| no idea what you're trying to imply.
|
| > these documents prove that these "ultra-rich" pay a large
| absolute dollar amount of taxes (albeit lower than 30%).
|
| Yes, and they also benefit from the work of society and
| government many times more than I do! From courts to law
| enforcement to bailouts to everything else. More generally:
| _these people are not rich in a vaccum, they are only this
| rich because the rest of society exists, therefore they owe
| a debt back to society_.
|
| Absolute values count for nothing. It's preposterous that I
| work my ass off and get taxed 30 or 40% and they live off
| capital gains and get taxed zilch.
| dennis_jeeves wrote:
| >It's about recognizing how the entire system is stacked
| against working people and that these ultra-rich pay 0% in
| taxes, while I pay 30%.
|
| Rather that have the rich also pay 30%, don't you think that
| it would be better if you too have to pay 0%?
| dane-pgp wrote:
| > these ultra-rich pay 0% in taxes, while I pay 30%.
|
| Then I have a modest proposal. If the median household net
| worth[0] in the US is about $120k, and the median household
| federal tax burden[1] is about $10k per year, then let's say
| that anyone with a net worth more than $1 billion should pay
| an annual wealth tax of 10%.
|
| The G7 have already agreed to a global minimum corporation
| tax rate, so let's make this wealth tax global too, and
| forbid billionaire residents of non-compliant countries from
| visiting or passing through countries that implement this
| tax.
|
| [0] https://dqydj.com/average-median-top-net-worth-
| percentiles/
|
| [1] https://www.propublica.org/article/the-secret-irs-files-
| trov...
| Swenrekcah wrote:
| A 10% wealth tax is quite a lot but otherwise I agree hat
| we absolutely need to move from income to wealth tax.
|
| I'd support a progressive tax, something like 0 for the
| first 200,000 or something, then slowly rising to a few
| percent.
|
| The really tricky thing though is that some assets generate
| income but others don't, and we probably don't want to put
| even more pressure on people to make rent on their assets
| than they already have.
|
| So it's a really hard problem but worth thinking about
| because taxing capital is really the only way to have a
| fair tax system in a capitalist society.
| Manuel_D wrote:
| What country are you talking about? Because in the US the top
| 1% pay about 40% of taxes [1]. The remaining 2-5% pay 20%.
| Almost all taxes are paid by people in the top quarter.
|
| 1. https://www.heritage.org/taxes/commentary/1-chart-how-
| much-t....
| listless wrote:
| I think two things can be true at once here...
|
| 1. We have GOT to close some of these loopholes now that we
| know what they are and...
|
| 2. Someone should go to federal prison for this leak
|
| We can't undo what we now know about avoiding taxes and we
| cannot condone egregious invasions of privacy like this.
| machinebun wrote:
| I believe that if the leak is proven to be in the public
| interest, no one should go to jail (but that it should be
| the rare exception).
|
| I also don't believe Snowden deserves to be in jail (or
| rather that he should be pardoned). Sometimes you can't fix
| things without breaking the law - everyone does it on a
| daily basis with few consequences (jaywalking, etc).
| Sometimes it has to be done on a larger scale in order to
| shed light on injustices - otherwise the power of the few
| will prevail over the power of the many.
| dane-pgp wrote:
| If someone brings to light an injustice which prompts the
| legislature to fix the laws to better match the public
| consensus of fairness, that seems a perfect example of what
| the presidential pardoning power is intended for.
|
| I understand that the word "If" is doing a lot a work in
| that sentence, and I have some sympathy for law-abiding
| billionaires who don't deserve to have their privacy
| invaded, but they should receive some form of compensation
| rather than legal punishment of the leaker.
| pradn wrote:
| It's reasonable for good journalistic organizations to have
| access to secret government records. They just need to be
| responsible with them. The same discussion happens any time
| there's a leak of intelligence/surveillance/military documents.
| What if the info puts soldiers at risk? Well, the ethics of
| that are up to the journalistic organization to tackle. They're
| the best equipped to do that, with their training and
| standards.
|
| Now if someone just sold the records to TMZ or something,
| that's a different conversation.
| andrepd wrote:
| > but thousands of private citizen's intimate financial
| disclosures (edit: seemingly for the purpose of weaponizing the
| data against them).
|
| Can you point to one instance of some of this data being
| divulged about random citizen's finances, or used for
| blackmailing someone? It seems silly to complain about
| legitimate journalism because the data _might_ , but has not,
| been used for nefarious purposes.
|
| Google "whistleblowing".
| IG_Semmelweiss wrote:
| Whistle blowing journalism implies you are reporting on acts
| breaking the law.
|
| Reporting things that are juicy but not illegal, is
| effectively gossip / tabloid material.
|
| You don't get to break the law in order to effectively
| gossip.
|
| Case in point. You don't get to break into the King of
| England's cell phone to report he's infertile, even if you
| think means English citizens have a right to know that the
| country will never have a Prince-heir.
|
| That is not legitimate journalism, and its certainly not
| whistle-blowing. Its repugnant and tabloid journalism.
|
| Personal privacy is never second to the mob. Period.
|
| EDIT: unsafe, fraud, abuse, corruption, malfeasance of
| government/company funds, are almost always also breaking
| fed/state/opco policy or regulations, and as such they are
| illicit and fall within the spectrum of whistle-blowing.
| cdolan wrote:
| Well said, take my upvote.
|
| Personal privacy and the belief that you are innocent until
| proven guilty (no matter how "obviously guilty" you are),
| are two things we've really forgotten in the USA and
| perhaps the modern world in general.
| machinebun wrote:
| The innocent until proven guilty only applies in criminal
| court, not in civil court by the way.
|
| Personal privacy is good, but there are some societal
| things that should supersede the right to personal
| privacy in my opinion - I don't think any single right
| should be absolute.
| cdolan wrote:
| The US Constitution would disagree with you.
|
| Edit- the "Bill of Rights" sorry
| andrepd wrote:
| > A whistleblower (also written as whistle-blower or
| whistle blower)[1] is a person, usually an employee, who
| exposes information or activity within a private, public,
| or government organization that is deemed illegal, illicit,
| unsafe, or a waste, fraud, or abuse of taxpayer funds.
|
| Morality [?] lawfullness. Many things are perfectly legal
| but profoundly immoral or unethical. The public has a right
| to know that they're being cheated like this, that working
| class people have to pay their taxes but the very rich
| don't. It's very slimy that you try to equate this to
| curiosity about royalty.
| luffapi wrote:
| There is no requirement for whistle blowing to be strictly
| about illegal activity. Mismanagement, corruption,
| unethical behavior... are all considered under the term.
| It's in the public's benefit for this information to be
| public. All billionaires should be under far more scrutiny
| then they are. There's no benefit to the rest of us for
| them to operate with impunity in the shadows.
| legitster wrote:
| The weird thing is that none of it is terribly surprising or
| unexpected. So information was stolen just to kind of confirm
| what everyone already knew?
|
| If this was all new information I might disagree with you, but
| we already knew capital gains is horrendously undertaxed. And
| knowing the specific dollar amount doesn't change the
| conversation much, it just makes it that much more incendiary.
| FabHK wrote:
| There is a difference between mutual knowledge (everyone
| knows X) and common knowledge (everyone knows X, and knows
| that everyone knows X, and knows that everyone knows that
| everyone knows X, etc. ad infinitum).
|
| This brings the knowledge everyone sort of knew and makes it
| common knowledge. That can have a powerful impact.
| cdolan wrote:
| Counter point - Information was stolen and is being held that
| doesn't change the common narrative or introduce new
| information ("our tax system needs help").
|
| Have you considered the amount of identity theft that can
| occur when you have 15-20 years of tax information on
| thousands of individuals? And that information has obviously
| been duplicated many times if it made its way from the IRS,
| through an informant, and into the hands of at least one
| person at ProPublica?
|
| I don't intend to defend "the system" and the fact ultra-rich
| can become even more ultra-rich, or the morality/fairness of
| that. I do find it very alarming that its apparently "OK"
| that Pro-Publica has intimate financial details of thousands
| of Americans - enough to completely ruin their lives if in
| the wrong hands - and its "OK because they have a lot of
| money".
|
| Thats not OK to have on any American, wealthy or not, in my
| opinion.
| enahs-sf wrote:
| I grep'ed the article for the word 'criminal' and came up
| empty. This is essentially a hit piece. Say what you will about
| Bezos, Thiel, et al., but they are just high profile targets
| that propublica is going after for the clicks. I question the
| ethics of these journalists.
| FabHK wrote:
| Maybe also grep synonyms:
|
| > Victor Fleischer, a tax law professor at the University of
| California, Irvine who has written about the valuation of
| founders' shares, read the PayPal filings at ProPublica's
| request. Buying startup shares at a discounted $0.001 price
| with a Roth, he asserts, would be indefensible. "That's a
| huge scandal," Fleischer said, adding, "How greedy can you
| get?"
| andrepd wrote:
| Morality [?] lawfullness. Many things are perfectly legal but
| profoundly immoral or unethical. The public has every right
| to know that they're being cheated like this, that working
| class people have to pay their taxes but the very rich don't.
| luffapi wrote:
| Who cares if it's criminal? Do you only read crime reports? I
| was unaware that a Roth IRA could be exploited like this
| until this piece enlightened me.
| pmoriarty wrote:
| What's the argument for keeping tax returns secret?
| cdolan wrote:
| In the USA they have been private for a long time (forever
| perhaps, I don't know the full 200 year history on them). In
| modern times (2000 or later) they have certainly been very
| private, though.
|
| Whats the argument for being selectively harassed by leaking
| your sensitive financial details?
| paxys wrote:
| What's the argument for keeping anything secret? Simply that
| it is my personal info and isn't anyone else's business.
| walshemj wrote:
| Same argument for regulating Google analytics which seems
| super popular on here
| packetslave wrote:
| ask Donald Trump
| bonzini wrote:
| Mostly that you don't want random people to know how much you
| make, and unless you are a public figure there's no reason
| why it should be useful to the public.
| pmoriarty wrote:
| So what exactly is the problem with a random person knowing
| how much you make?
| jes wrote:
| How much do you make?
| pmoriarty wrote:
| Nothing. I'm out of work.
|
| Your turn.
| adolph wrote:
| So you got no skin in the game, take a hike.
| Dma54rhs wrote:
| Why are you out of work. If so, from where do you get the
| money to cover your expenses. Who and how much pays, or
| what are your savings?
| claudiawerner wrote:
| 24k/year.
| bonzini wrote:
| Relatives or "friends" asking for money, neighborhood
| rumors, I don't know. The world is full of random shitty
| people.
| seventytwo wrote:
| Maybe we should fund and staff the IRS properly so that they
| can properly police and audit the wealthy unsteady of relying
| on "leaks"?
|
| It's perfectly ok for the wealthy to lobby Congress so that the
| IRS is neutered, but when a person leaks their info, it's a
| crime, huh? Seems like a double standard.
| adolph wrote:
| The only crime is ProPublica's and some IRS people. Who's next
| after "the rich?" Some impolite plumber?
| cdolan wrote:
| Hey thanks for actually answering my (somewhat rhetorical)
| question haha.
| [deleted]
| m_ke wrote:
| Twitter thread breaking this down
| https://mobile.twitter.com/propublica/status/140800243612462...
| lotsofpulp wrote:
| Why did ProPublica omit exactly when the funding round for
| additional millions was in tweet 10 and 11?
|
| > 10/ So.
|
| >Right pointing backhand index IRS records show that in 1999
| Thiel purchased 1.7 million shares of his startup, which would
| soon become PayPal, for just $1,700 -- a tenth of a penny per
| share.
|
| > 11/ Even though Thiel's startup received millions in funding
| within months, Pensco still told the IRS these founders' shares
| were worth less than $1,700 at the end of 1999.
|
| >See where this is going?
|
| The only reason I can think of is ProPublica intended to
| suggest Thiel committed fraud by misstating the company's
| valuation in 1999, but ProPublica wants to maintain plausible
| deniability because the funding round did not happen in 1999.
|
| It is great that ProPublica is pointing out how tax
| deductions/exemptions/credits allow for loopholes to exist, but
| I do not see a reason for them go after specific people for
| using them.
|
| Edit: copied tweets for easy reference
| sjg007 wrote:
| I mean, all startup founders should do this.
| nrmitchi wrote:
| Except it is very clearly not an arms length transaction,
| and is explicitly not allowed, and the penalty is
| tainting/exposing-to-tax the entire IRA.
| hash872 wrote:
| Is it legal for a startup employee to purchase shares with their
| Roth? I understand that an officer in the company probably
| cannot, but if you're just an employee- does anyone know if
| that's permitted? I skimmed about half the comments section here,
| not sure if anyone answered this already.
|
| If it is legal- pretty great deal for an employee either given
| RSUs or options to buy them this way, no?
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