Mr. Baszucki and his relatives have been able to multiply the tax break at least 12 times. Among those poised to avoid millions of dollars in capital gains taxes are Mr. Baszucki’s wife, his four children, his mother-in-law and even his first cousin-in-law, according to securities filings and people with knowledge of the matter.
The tax break is known as the Qualified Small Business Stock, or Q.S.B.S., exemption. It allows early investors in companies in many industries to avoid taxes on at least $10 million in profits.
The goal, when it was established in the early 1990s, was to coax people to put money into small companies. But over the next three decades, it would be contorted into the latest tax dodge in Silicon Valley, where new billionaires seem to sprout each week.
Thanks to the ingenuity of the tax-avoidance industry, investors in hot tech companies are exponentially enlarging the tax break. The trick is to give shares in those companies to friends or relatives. Even though these recipients didn’t put their money into the companies, they nonetheless inherit the tax break, and a further $10 million or more in profits becomes tax-free.
Mr. Karachale, the San Francisco tax lawyer, said he jokes to clients that they should have more children so they can avoid more taxes. It’s so expensive to raise kids in the Bay Area, the only good justification to have another kid is to get another
Q.S.B.S. exemption, he said.
Jesse Drucker & Maureen FarrellThis story about yet another loophole for American billionaires to evade taxes reminded me of a corruption scandal in the early 2000’s here in Romania, when the prime minister claimed that a large unexplained sum of money was not a bribe, but an inheritance from his aunt. Ironic to see the American wealthy class use the same tactics and excuses as corrupt people all over the world.
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