Do you see the Patagonia announcement as an act of philanthropy, an act of tax avoidance, or something in the middle?
The Chouinards are not claiming an income tax deduction in the same way that the 10% of Americans who itemize get a tax deduction when they give to charity. A lot of the big-time philanthropy— whether it’s going to a (c)(3) [a typical nonprofit charity] or a (c)(4)—that deduction matters only a bit in the big scheme of things because many philanthropists have already figured out ways to minimize their income tax liability. When Warren Buffett gives Berkshire Hathaway stock to the Gates Foundation, he’s able to deduct a bit of it, but his taxable income is so small relative to the amount he’s giving away that the deduction is almost trivial to him. What really matters is the fact that the Gates Foundation can then sell the stock tax-free. I don’t think what they’re doing is in any way tax evasion—it’s legitimate tax avoidance.
The Chouinard family is paying $17 million in taxes on this gift, right?
So if they had given the entire company to the (c)(4), they would have paid $0 in gift tax?
Right. They would’ve paid $0 in gift tax. And my understanding is the reason why they didn’t do that is because then the board of the (c)(4) would control Patagonia rather than the family. In practice, it doesn’t really matter that much because a) $17 million is pocket change to them and b) they’re going to have a lot of sway at the (c)(4). They would probably be able to control Patagonia through this (c)(4) anyway. This is a way of making sure that the family, rather than the nonprofit, remains calling the shots at Patagonia.
The only difference with Seid is he had arranged a sale of Tripp Lite, so if he didn’t move fast he would’ve faced a tax liability really soon. Whereas the Chouinards were planning ahead. If they didn’t do this, it’s not like they’d face a $1 billion tax bill next year. [Seid donated 100% of Tripp Lite shares to the nonprofit before selling the firm to an Irish conglomerate, allowing the nonprofit to reap untaxed $1.65 billion takeover fee.]
So, Patagonia’s owners weren’t under the same pressure, but in both situations two corporate owners gave away their companies to 501(c)(4)s in order to avoid taxes and use the money for political causes.
Often (c)(4)s are associated with so-called dark money in politics. Is Patagonia’s donation technically considered dark money?
This isn’t dark money because we happen to know where the money is coming from. And it’s the same for Seid—we know where the money is coming from. (c)(4)s don’t have to disclose their donors to the public or even to the IRS. So whereas if it were a political campaign or a Super PAC, they would file an FEC disclosure where they would say, “This is who gave us money.”
So, the darkness is the lack of transparency, but the Chouinards are being entirely transparent here.
Do you have a critique of this maneuver or more of how the tax code is set up?
But given that we have the system we do and climate change is an urgent problem, I wouldn’t want liberals to say, oh, “We’re going to pay as much tax as we can.” I would want them to say, “Well, maybe we’ll try to change the rules, but until we do, we’ll play by those rules.”