19 ms·

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 th

by maxk42 5y ago

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.

sida 5y ago
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
- concreteblock 5y ago
  Who sold him those shares?
  - sida 5y ago
    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
    - ajju 5y ago
      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 5y ago
        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 5y ago
        > 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 5y ago
        > 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).
  - enahs-sf 5y ago
    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 5y ago
      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 5y ago
        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 5y ago
        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.
        s1artibartfast 5y ago
        The difference is 83b defers tax until you sell, while IRAs don't allow you to buy assets from yourself
  - maxk42 5y ago
    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 5y ago
      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 https://www.law.cornell.edu/uscode/text/26/4975
- ghufran_syed 5y ago
  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 5y ago
    > 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 5y ago
      You don’t need two classes of shares for this you are over complicating things
      - Scoundreller 5y ago
        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 5y ago
        Yes I believe Bain Capital used separate share classes to pump their employees 401ks That level of collaboration and financial engineering should be encouraged
- onlyfortoday2 5y ago
  waffle talk
- deleted 5y ago
  [deleted]
cdolan 5y ago
The true theft is the thousands of private documents on private citizens stolen from the IRS and provided to ProPublica
- justanotherguy0 5y ago
  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 5y ago
  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 https://www.propublica.org/about
  - cdolan 5y ago
    I assume the IRS had them stolen but perhaps you are correct and it was an IRS employee who feels like this is a noble thing to do.
deleted 5y ago
[deleted]
dustingetz 5y ago
you "withdraw" by getting a bank line of credit with the IRA as collateral
- maxk42 5y ago
  It's explicitly prohibited for Roth IRAs.
- deleted 5y ago
  [deleted]
- deleted 5y ago
  [deleted]
- gravypod 5y ago
  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.
  - s1artibartfast 5y ago
    Of course you are allowed to borrow against an IRA. You can pull they money out, at any time, day or night, for any purchase. You just have to pay tax on it. There are some situations where the tax is waived
- ska 5y ago
  That's not allowed. I expect if you have enough there, you could use the same sorts of schemes as other illiquid wealth.
kolbe 5y ago
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 5y ago
  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 5y ago
    > 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).
  - kolbe 5y ago
    It gets philosophical, but founders equity has a lot of characteristics that I’m sure the government was not thinking of when they made the Roth IRA rules. For example, Thiel’s time was a massive reason for him getting the equity he did, so he was able to use $x of Roth IRA money and $100*x of his labor to transfer value into his Roth. What most people have to do is trade their labor for money, then transfer a capped amount of money into the Roth, and use that small amount to invest. On top of that, as the other commenter said, founders equity doesn’t see the light of the market to have a fair value. And it wouldn’t shock me if Thiel waited until it was obvious PayPal would succeed (i.e. if presented to the market, his shares would be massively valuable) to transfer the stock in.
onlyfortoday2 5y ago
this is a forum for programmers. they know nothing about finance
hyperpape 5y ago
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 5y ago
  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 5y ago
    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.
    - vmception 5y ago
      I see, just a stricter bar of scrutiny I think this outcome passes the stricter bar of moral, just, intended, and something others should learn from
aeturnum 5y ago
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 5y ago
  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 5y ago
    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 5y ago
      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.
  - 5y ago
SavantIdiot 5y ago
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 5y ago
  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 5y ago
    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.
    - cscurmudgeon 5y ago
      > 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?
chrisseaton 5y ago
> That's generally how people get to be billionaires. I think generally they inherit?
- hyperpape 5y ago
  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 5y ago
    > 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 5y ago
      [deleted]
deleted 5y ago
[deleted]
tablespoon 5y ago
> 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 https://www.irs.gov/pub/irs-prior/p590--1999.pdf). Look at his work history: > https://en.wikipedia.org/wiki/Peter_Thiel 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.
- marris 5y ago
  He could have saved it up from prior years of work. Starting salaries can in fact be lower than $110K.
  - tablespoon 5y ago
    The OP said he made the contribution in 1999, after he did things like work as a securities lawyer and founding a hedge fund.
- vmception 5y ago
  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.
1-more 5y ago
> 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.
- rebelos 5y ago
  This is by the far the most succinct way to debunk the OP's misguided thinking. There is simply no way to argue that what Thiel et al have done was an intended use of the Roth IRA account. Any attempt to advance some form of that argument is jaw-droppingly disingenuous. The easy fix here is to either cap the tax free gain (the cap could be as high as $1M and have the desired effect w/o hurting the people meant to benefit) OR revise the eligible asset definition.
FabHK 5y ago
- “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 5y ago
  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 5y ago
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 5y ago
  You'd be trading as an investment company then
seventytwo 5y ago
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.
- nverno 5y ago
  This seems to be an example of the opposite of this. From a quick search, Thiel is from a first gen immigrant family of no extraordinary wealth. Yet, your comment is implying that prior wealth is responsible for his current wealth, which gave him an unfair advantage over the rest of us. I think that is absurd, this guy's talents+luck are clearly responsible for his success.
  - horstmeyer 5y ago
    talents+luck+greed
outside1234 5y ago
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 5y ago
  The US government is pretty aggressive about getting their tax dollars (no matter who it is). See John McAfee, Al Capone.
  - DoreenMichele 5y ago
    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. Edit: https://www.forbes.com/sites/kellyphillipserb/2018/10/17/al-capone-sentenced-to-prison-for-tax-evasion-on-this-day-in-1931/?sh=a6fed237c4cd https://www.forbes.com/sites/kellyphillipserb/2018/10/17/al-...
    - selectodude 5y ago
      His 1099-MISC was lacking millions in income.
      - deleted 5y ago
        [deleted]
  - diob 5y ago
    They're gone on record saying they only go after the small fry though. The big ones hold them up in litigation.
  - nrmitchi 5y ago
    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.
lukeschlather 5y ago
> 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 5y ago
> 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".
vmception 5y ago
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.
eplanit 5y ago
> 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 the "Capitalism and Wealthy People are Bad" narrative.
tomdell 5y ago
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.
mapt 5y ago
The "Investments" made by private equity firms are not the same as investments made by you and I. Why? Because unlike for a public company, holding a managing stake in a private company in certain circumstances and controlling how they compensate you for your services, permits you to legally pay yourself (or perform financing indistinguishable from paying yourself) in shares that you assign an arbitrary value to. Let's say I've taken over management of a private retail firm with a big multibillion-dollar balance sheet that's barely breaking even. Yesterday when my finance firm borrowed $800M to acquire it, I felt like the company was worth $900M, today as I guide it through the bankruptcy process I feel like it's worth $100k, which has no consequences whatsoever except for the $5000 in shares (5% stake) I'm issuing to myself today as a management fee. Tomorrow I'll feel like it's worth $1400M once some of its debts have been renegotiated and I take it public again. My shares just appreciated 1,400,000%. https://www.theatlantic.com/politics/archive/2012/09/whats-really-going-on-with-mitt-romneys-102-million-ira/261500/ https://www.theatlantic.com/politics/archive/2012/09/whats-r... This is a tiny, oversimplified picture of how all this works; Everyone that takes advantage of these structures has their own spin on it. In VC it may take the form of simultaneous dollar-capitalized debt and ownership stakes. It would take an aggressive forensic audit to even know what's been employed here. There are more than enough levers to pull for this sort of compensation scheme to use arbitrary valuations to make a mockery of the program, though. With enough financial lawyers and enough money, they control the vertical and the horizontal here. That money is tax-free. In this hypothetical, I've ascended to a partnership at this firm at age 59. I get full control of that money at age 65.
ausbah 5y ago
seriously? people aren't stupid, of course he didn't break the law - but the law shouldn't be like that on the first place
uncomputation 5y ago
It’s pretty disingenuous to say that Thiel’s investments just happened to be “in the top 0.0001%” like he’s some 90s wunderkind. He bought non-public shares for $0.001 per share - a price that no one except a PayPal founder would have access to - years before PayPal went public and then watched it balloon after IPO and onwards. This is not the same thing as the average American making wise investments and to paint it like that is missing the point entirely. I certainly don’t agree that Thiel is “stealing” or being sinister here, but I also don’t see any other comments in this thread purporting he is. It seems the general consensus is this is just another “hack” of the system (purchasing shares of your own company before IPO with a triple tax benefit account) out of reach to 99% of people - which is true.
- imgabe 5y ago
  Anyone can purchase shares of a company they found. You can file paperwork for a few hundred dollars and immediately own 100% of the shares of your own company. Making those shares worth billions of dollars is left as an exercise for the reader.
  - prezjordan 5y ago
    Not with funds in a Roth IRA. Everything must be at "arm's length" (otherwise a lot of people would purchase homes using their Roth)
    - imgabe 5y ago
      You can purchase real estate with a self directed IRA, not sure if it can be a Roth IRA, and probably not your primary residence, but I don't know the exact rules.
      - nrmitchi 5y ago
        You can purchase property with a Roth. It cannot be your primary residence. You have to be entirely hands-off with it. You are not allowed to manage the property, do repairs, etc. You are still not allowed to decree that the value of a house that you own is $10 and sell it in to your Roth in order to shelter it from taxes and get around contribution limits.
betterunix2 5y ago
"This is the law functioning as intended" The law creating Roth IRAs was intended for middle-class people, not billionaires. Likewise, the law allowing conversions from Traditional to Roth IRAs was intended for the middle-class. A billionaire taking advantage of the Roth conversion to amass a Roth IRA worth billions is not even remotely what the relevant laws were intended for; that it is legal is an oversight on the part of Congress, who did not realize what they were drafting when they wrote the law. Moreover, it is not as if billionaires need to exploit the IRA rules like this. Typically billionaires will avoid taxes by borrowing against the value of their assets, then deducting the interest they pay on those loans from the income they use to pay the interest (done right, this results in no income taxes). That is an example of the law working as intended.
bjornsing 5y ago
> 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. I agree with the general sentiment of your post, but I think you’re overstating your case a bit. To me it seems pretty obvious that Thiel did stretch the law when he bought shares in his own company at a far lower price than investors payed just months later. This is a quite common and general loophole in tax legislation. E.g. in Sweden (where I live) capital gains are taxed lower than income. This of course creates an incentive to try and convert income to capital gains, and the tax authorities are constantly on the lookout for such schemes. If you sell shares/options cheaply to yourself or employees just a month before investors pay top dollar then you can expect… trouble.
- hagy 5y ago
  I agree that Thiel did stretch the law, but all of this only matters because PayPal was exceptionally successful. Almost all founders who buy their early shares prefunding and place them in a Roth IRA will end up with worthless equity for retirement. Further, there are disadvantages to having this portion of his wealth in a Roth IRA. For one, you cannot borrow against equity in a Roth. So while he can sell and buy something else tax free, none of these assets are available to him until retirement age. Whereas his PayPal shares outside of retirement accounts can serve as collateral for loans, which would allow him to access a portion of these assets tax free , while allowing the equity to continually appreciate.
godelski 5y ago
That's not how I read the article at all. Honestly how I read it shows how he was able to abuse the system in ways that weren't intended. It also lays out clear and simple solutions: - Only let publicly traded stocks/investments be part of an IRA - Stock grants should be included in the maximal income to determine if someone should be able to contribute to an IRA Honestly with just these two factors he couldn't have done what he did (implicitly nor anyone else with mega IRAs). The intent of the IRA was for a retirement vehicle for the average person, not as an investment vehicle where you could dodge taxes. You're right that he didn't commit any crimes. But that also doesn't make the thing right. When we find people using edge cases and breaking the intent of the system we say "well played" then patch the framework. This is a tax dodge, just a legal one.
- sfblah 5y ago
  Just impose a tax when capital gains exceed some annual threshold averaged over a time period (say 5 years). Also, make everything after the first, say, $1m taxable on withdrawal at cap gains rates. It’s super easy to fix this.
  - godelski 5y ago
    I mean I'd be perfectly okay with adding a third criteria to my list being something like "max holdings of $10m (tied to inflation) and returns higher than that are taxed as capital gains." That's enough to ensure a luxurious retirement. But I do think the other parts are helpful and would help reduce other avenues for abuse. The IRA was intended for lower and middle class people to build retirement investments. Also 1m seems low for the maximum. At least IMO.
    - nrdvana 5y ago
      > The IRA was marketed as a way for lower and middle class people to build retirement investments. The pessimist in me FTFY
      - sfblah 5y ago
o8r3oFTZPE 5y ago
There is some truth to what you are saying however I think one could easily be just as "astounded and disamyed" at your comment's lack of social conscience. There is a legtimate legal question over the valuation of some of the shares held in Thiel's Roth IRA. If they were sold to Thiel at less than FMV then there is a potential legal issue. Even if we put that aside, if everything Thiel has done is "legal" then how can a "hit piece"1 recounting inculpable actions succeed in swaying public opinion toward a negative view of the subject. No one should care. The truth however is that legality and morality are two different things. If we live our lives doing only what is "legal" and ignore doing what is "right", then what sort of behaviour does that allow for, what sort of "character" does that build. The question readers are implicitly presented with is not only whether what he has done is "legal", it is whether what he has done is "right". Thiel can do whatever he wants with his money, including "legally" avoiding taxes, but by the same token, ProPublica can opine on that in any way they see fit. If there are factual inaccuracies in the article, then that is a different matter; they should be corrected. However, your comment does not appear to contest the facts presented, it only contests the author's apparent opinion on them. 1 https://en.wiktionary.org/wiki/hit_piece https://en.wiktionary.org/wiki/hit_piece According to this definition, the ProPublica is not a "hit piece" because it neither presents false information nor tries to appear objective. The bias is very clear.
deleted 5y ago
[deleted]
sfblah 5y ago
He lied about the value of the PayPal shares he put in. That’s a problem.
- hagy 5y ago
  No. If anything he exaggerated the value of those PayPal shares at the time of contribution. Assuming he made the contribution for tax year 1998, then PayPal hadn't yet raised any money and had no external valuation. The company was worthless at the time and the price-per-a-share was a formality of the initial incorporation. This is similar to most other early stage startups that are similarly worthless at founding.
  - sfblah 5y ago
    You're splitting hairs. Treating gains from startup founder stock like gains from an investor who put in substantial amounts of money is just silly, and that part of the tax code should be fixed. It's just as abusive as the carried-interest provision. If the person who started the company had zero access to capital, then claiming the company had no value at the beginning would be credible. Peter had substantial access to capital even in 1998-99. There was no question he was going to raise a boatload of money quickly after starting the company. Contributing shares of such a company to an IRA by claiming they're worth $1700 is just an abuse of the system.
dbancajas 5y ago
> keep all of his wealth in this Roth IRA, just a percentage. And it clea how did he get access to paypal shares that's <0.1$/share?
RhodoGSA 5y ago
If you read elsewhere, they've got him on a couple cases. He technically wasn't allowed to put any shares of confinidy (Eventually paypal) in his roth ira since he was a founder. Also, he's not paying US taxs on his personal international income and using his dual newzealand citizenship to park it there.
nodesocket 5y ago
Spot on. From the first paragraph I could immediately tell Propublica is trying to paint Thiel as some sort of evil tax dodging criminal. Quite an agenda the author seems to have. You outraged by this? Then you should be advocating for dramatically simplifying tax code and laws. I know most don't want to hear this on HN but Trump tried to do just that with his tax plan. Obviously did not go all the way unfortunately. > Get a sweetheart deal to buy a stake in a startup that has a good chance of one day exploding in value. Ummmm that's called being an angel investor.
Crontab 5y ago
"The whole article is a hit piece designed to get whip people into a furor." I've seen a lot of this lately too and it feels coordinated.
johnnyfived 5y ago
It's absolutely crazy to me to see such a technical community not understand or care for finance, investing, and crypto. The sentiment in discussions about crypto border on fearmongering and complete misunderstanding, while I see little to no discussion about investing in general.
maxerickson 5y ago
PayPal later disclosed details about the early history of the company in an SEC filing before its initial public offering. The filing reveals that Thiel’s founders’ shares were among those the company sold to employees at “below fair value.” If the shares were really purchased below fair value, there's not much in the way of a defense of the activity.
softveda 5y ago
Australian retirement investment account (called superannuation or super) worked similarly where you could accumulate as much money as you want in a low tax environment. In this phase all income and capital gains received from assets within superannuation are taxed at a maximum of 15%. Then once you turn 65 and convert to a pension there is no tax on the pension (drawdown from the accumulated money). The govt. changed rules couple of years back this so that the max you can now convert to pension phase is AUD $1.6m indexed every few years. The rest of the money stays back in accumulation phase where tax has to be paid. This closed the loophole where really wealthy people were having $1m tax free pension earnings.
floodyberry- 5y ago
Do you think he scours the internet for idiots who defend him so he can give them lots of money, or is this more of a kink situation where you get off on defending the rich in general?
jonas21 5y ago
The article also names Berkshire Hathaway's Ted Weschler as someone who has a large Roth IRA. Weschler's response [1], which is linked from the article, is worth reading. He points out that decades ago he opened an IRA, just like anyone else, and happened to make some good investment decisions and got very lucky along the way: > The magnitude of my Roth IRA is certainly larger than anything I ever would have imagined when I first opened my IRA in 1984 as a 22 year old Junior Financial Analyst making $22,000 a year working for W.R. Grace & Co... > Upon leaving Grace, I transferred my IRA to a self-directed IRA account at Charles Schwab & Co., giving me discretion over the individual investment made in the account. Over the ensuing 29 years (through the end date you quote of year-end 2018) I invested the account in only publicly-traded securities i.e., all investments in this account were investments that were available to the general public... > The investing success of this account has been a function of careful stock selection, exceptional luck and a multi-decade time period. To have a sum of this magnitude built up in my Roth IRA is certainly beyond anything that I ever expected but it was implemented in a way that was available to all taxpayers with an appropriately long investment runway, i.e., the result is exceptional but it is not the product of exclusionary tax strategies. [1] https://www.documentcloud.org/documents/20971124-ted-weschler-statement https://www.documentcloud.org/documents/20971124-ted-weschle...
brown9-2 5y ago
Seems pretty clear that he sold himself shares below fair value to make the contributions legal
jrochkind1 5y ago
I think you missed a key part. The way Thiel (and others) got so much in the Roth IRA -- when contributions are limited, at that time to 2K/year -- is by under-valuing the non-publicly-traded stock they had insider access to. Although yes, the main thrust of the reporting is that the tax laws are set up to hugely benefit the rich and allow them to avoid paying taxes, not that the rich are breaking the laws. With these IRAs in particular though, there does seem to be something very dodgy and possibly illegal about the way the rich are getting around the contribution limits by under-valuing non-publicly-traded stocks. > Thiel’s unusual stock purchase risked running afoul of rules designed to prevent IRAs from becoming illegal tax shelters. Investors aren’t allowed to buy assets for less than their true value through an IRA. The practice is sometimes known as “stuffing” because it gets around the strict limits imposed by Congress on how much money can be put in a Roth. > PayPal later disclosed details about the early history of the company in an SEC filing before its initial public offering. The filing reveals that Thiel’s founders’ shares were among those the company sold to employees at “below fair value.” > 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?” > Warren Baker, a Seattle tax attorney who specializes in IRAs, said he would advise clients who are top executives working at a startup not to purchase founders’ shares with a Roth to avoid accusations by the IRS that they got a special deal and undervalued the shares. Baker was speaking generally, not about Thiel. > “I would be concerned about the fact that you can’t support the valuation number as being reasonable,” he said.
WheelsAtLarge 5y ago
>>"And that's not even to mention that the assets in a Roth IRA are essentially worthless to him" Not at all, he can withdraw and pay a 10% penalty. He probably will never needed to since, I bet, he has other assets and it makes no sense to pay the penalty. Few people in the world get that option. A characteristic of a Roth IRA is that withdraws are tax free. 5 billion plus decades of tax free growth, wow! The idea of taxes is for everyone to contribute to the common infrastructure we all need to live in society. It's very unfair for someone to acquire such wealth with out contributing to the system that made it happen. True it was 100% legal but that's a loophole that needs to be reviewed since it's not a one time case. Other high worth individuals have done the same thing so it's not an out of the ordinary case. As it stands now roth ira's have no upper limit.
Ar-Curunir 5y ago
Don't need to gargle billionaire balls mate.
- missedthecue 5y ago
  But it's good to keep the facts straight. No need to delude ourselves just to make sure they are always the bad guys in our head.
chiefalchemist 5y ago
> "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." Absolutely. But key is the interpretation of "used the law exactly as intended". In the context of ongoing reports of no taxes paid, off shore tax shelters, etc. "intended" takes on new meaning (read: nefarious, or at least should be questioned). The disgust isn't that he didn't do any wrong, the disgust is that what he did isn't wrong.
KKKKkkkk1 5y ago
Are you claiming there's nothing illegal about Thiel buying his stake in PayPal for a nominal $1,700? There are two tax-law experts quoted in the article saying otherwise.
deleted 5y ago
[deleted]
mlindner 5y ago
> 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. I hadn't heard of pro publica until around 2-3 years ago and during that time they've produced some of the most shameful inaccurate reporting I've ever read. I don't know why anyone trusts them at all. They a prime "cancel culture" mover that drives people to hate and shame others for no reason at all.
silexia 5y ago
Actually, I bet good money the law was broken by Peter Thiel. It is very likely he used backdated options or sold shares at below fair market prices into the Roth. This is criminal behavior.

by maxk42 5y ago

sida 5y ago

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

concreteblock 5y ago
Who sold him those shares?
- sida 5y ago
  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
  - ajju 5y ago
    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 5y ago
      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 5y ago
        > 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 5y ago
      > 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).
- enahs-sf 5y ago
  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 5y ago
    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 5y ago
      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 5y ago
      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.
      - s1artibartfast 5y ago
        The difference is 83b defers tax until you sell, while IRAs don't allow you to buy assets from yourself
- maxk42 5y ago
  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 5y ago
    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 https://www.law.cornell.edu/uscode/text/26/4975
ghufran_syed 5y ago
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 5y ago
  > 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 5y ago
    You don’t need two classes of shares for this you are over complicating things
    - Scoundreller 5y ago
      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 5y ago
        Yes I believe Bain Capital used separate share classes to pump their employees 401ks That level of collaboration and financial engineering should be encouraged
onlyfortoday2 5y ago
waffle talk
deleted 5y ago
[deleted]

cdolan 5y ago

The true theft is the thousands of private documents on private citizens stolen from the IRS and provided to ProPublica

justanotherguy0 5y ago
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 5y ago
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 https://www.propublica.org/about
- cdolan 5y ago
  I assume the IRS had them stolen but perhaps you are correct and it was an IRS employee who feels like this is a noble thing to do.

deleted 5y ago

[deleted]

dustingetz 5y ago

you "withdraw" by getting a bank line of credit with the IRA as collateral

maxk42 5y ago
It's explicitly prohibited for Roth IRAs.
deleted 5y ago
[deleted]
deleted 5y ago
[deleted]
gravypod 5y ago
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.
- s1artibartfast 5y ago
  Of course you are allowed to borrow against an IRA. You can pull they money out, at any time, day or night, for any purchase. You just have to pay tax on it. There are some situations where the tax is waived
ska 5y ago
That's not allowed. I expect if you have enough there, you could use the same sorts of schemes as other illiquid wealth.

kolbe 5y ago

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 5y ago
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 5y ago
  > 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).
- kolbe 5y ago
  It gets philosophical, but founders equity has a lot of characteristics that I’m sure the government was not thinking of when they made the Roth IRA rules. For example, Thiel’s time was a massive reason for him getting the equity he did, so he was able to use $x of Roth IRA money and $100*x of his labor to transfer value into his Roth. What most people have to do is trade their labor for money, then transfer a capped amount of money into the Roth, and use that small amount to invest. On top of that, as the other commenter said, founders equity doesn’t see the light of the market to have a fair value. And it wouldn’t shock me if Thiel waited until it was obvious PayPal would succeed (i.e. if presented to the market, his shares would be massively valuable) to transfer the stock in.

onlyfortoday2 5y ago

this is a forum for programmers. they know nothing about finance

hyperpape 5y ago

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 5y ago
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 5y ago
  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.
  - vmception 5y ago
    I see, just a stricter bar of scrutiny I think this outcome passes the stricter bar of moral, just, intended, and something others should learn from

aeturnum 5y ago

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 5y ago
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 5y ago
  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 5y ago
    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.
- 5y ago

SavantIdiot 5y ago

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 5y ago
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 5y ago
  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.
  - cscurmudgeon 5y ago
    > 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?

chrisseaton 5y ago

> That's generally how people get to be billionaires. I think generally they inherit?

hyperpape 5y ago
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 5y ago
  > 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 5y ago
    [deleted]

deleted 5y ago

[deleted]

tablespoon 5y ago

> 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 https://www.irs.gov/pub/irs-prior/p590--1999.pdf). Look at his work history: > https://en.wikipedia.org/wiki/Peter_Thiel 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.

marris 5y ago
He could have saved it up from prior years of work. Starting salaries can in fact be lower than $110K.
- tablespoon 5y ago
  The OP said he made the contribution in 1999, after he did things like work as a securities lawyer and founding a hedge fund.
vmception 5y ago
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.

1-more 5y ago

> 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.

rebelos 5y ago
This is by the far the most succinct way to debunk the OP's misguided thinking. There is simply no way to argue that what Thiel et al have done was an intended use of the Roth IRA account. Any attempt to advance some form of that argument is jaw-droppingly disingenuous. The easy fix here is to either cap the tax free gain (the cap could be as high as $1M and have the desired effect w/o hurting the people meant to benefit) OR revise the eligible asset definition.

FabHK 5y ago

- “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 5y ago
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 5y ago

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 5y ago
You'd be trading as an investment company then

seventytwo 5y ago

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.

nverno 5y ago
This seems to be an example of the opposite of this. From a quick search, Thiel is from a first gen immigrant family of no extraordinary wealth. Yet, your comment is implying that prior wealth is responsible for his current wealth, which gave him an unfair advantage over the rest of us. I think that is absurd, this guy's talents+luck are clearly responsible for his success.
- horstmeyer 5y ago
  talents+luck+greed

outside1234 5y ago

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 5y ago
The US government is pretty aggressive about getting their tax dollars (no matter who it is). See John McAfee, Al Capone.
- DoreenMichele 5y ago
  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. Edit: https://www.forbes.com/sites/kellyphillipserb/2018/10/17/al-capone-sentenced-to-prison-for-tax-evasion-on-this-day-in-1931/?sh=a6fed237c4cd https://www.forbes.com/sites/kellyphillipserb/2018/10/17/al-...
  - selectodude 5y ago
    His 1099-MISC was lacking millions in income.
    - deleted 5y ago
      [deleted]
- diob 5y ago
  They're gone on record saying they only go after the small fry though. The big ones hold them up in litigation.
- nrmitchi 5y ago
  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.

lukeschlather 5y ago

> 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 5y ago

> 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".

vmception 5y ago

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.

eplanit 5y ago

> 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 the "Capitalism and Wealthy People are Bad" narrative.

tomdell 5y ago

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.

mapt 5y ago

The "Investments" made by private equity firms are not the same as investments made by you and I. Why? Because unlike for a public company, holding a managing stake in a private company in certain circumstances and controlling how they compensate you for your services, permits you to legally pay yourself (or perform financing indistinguishable from paying yourself) in shares that you assign an arbitrary value to. Let's say I've taken over management of a private retail firm with a big multibillion-dollar balance sheet that's barely breaking even. Yesterday when my finance firm borrowed $800M to acquire it, I felt like the company was worth $900M, today as I guide it through the bankruptcy process I feel like it's worth $100k, which has no consequences whatsoever except for the $5000 in shares (5% stake) I'm issuing to myself today as a management fee. Tomorrow I'll feel like it's worth $1400M once some of its debts have been renegotiated and I take it public again. My shares just appreciated 1,400,000%. https://www.theatlantic.com/politics/archive/2012/09/whats-really-going-on-with-mitt-romneys-102-million-ira/261500/ https://www.theatlantic.com/politics/archive/2012/09/whats-r... This is a tiny, oversimplified picture of how all this works; Everyone that takes advantage of these structures has their own spin on it. In VC it may take the form of simultaneous dollar-capitalized debt and ownership stakes. It would take an aggressive forensic audit to even know what's been employed here. There are more than enough levers to pull for this sort of compensation scheme to use arbitrary valuations to make a mockery of the program, though. With enough financial lawyers and enough money, they control the vertical and the horizontal here. That money is tax-free. In this hypothetical, I've ascended to a partnership at this firm at age 59. I get full control of that money at age 65.

ausbah 5y ago

seriously? people aren't stupid, of course he didn't break the law - but the law shouldn't be like that on the first place

uncomputation 5y ago

It’s pretty disingenuous to say that Thiel’s investments just happened to be “in the top 0.0001%” like he’s some 90s wunderkind. He bought non-public shares for $0.001 per share - a price that no one except a PayPal founder would have access to - years before PayPal went public and then watched it balloon after IPO and onwards. This is not the same thing as the average American making wise investments and to paint it like that is missing the point entirely. I certainly don’t agree that Thiel is “stealing” or being sinister here, but I also don’t see any other comments in this thread purporting he is. It seems the general consensus is this is just another “hack” of the system (purchasing shares of your own company before IPO with a triple tax benefit account) out of reach to 99% of people - which is true.

imgabe 5y ago
Anyone can purchase shares of a company they found. You can file paperwork for a few hundred dollars and immediately own 100% of the shares of your own company. Making those shares worth billions of dollars is left as an exercise for the reader.
- prezjordan 5y ago
  Not with funds in a Roth IRA. Everything must be at "arm's length" (otherwise a lot of people would purchase homes using their Roth)
  - imgabe 5y ago
    You can purchase real estate with a self directed IRA, not sure if it can be a Roth IRA, and probably not your primary residence, but I don't know the exact rules.
    - nrmitchi 5y ago
      You can purchase property with a Roth. It cannot be your primary residence. You have to be entirely hands-off with it. You are not allowed to manage the property, do repairs, etc. You are still not allowed to decree that the value of a house that you own is $10 and sell it in to your Roth in order to shelter it from taxes and get around contribution limits.

betterunix2 5y ago

"This is the law functioning as intended" The law creating Roth IRAs was intended for middle-class people, not billionaires. Likewise, the law allowing conversions from Traditional to Roth IRAs was intended for the middle-class. A billionaire taking advantage of the Roth conversion to amass a Roth IRA worth billions is not even remotely what the relevant laws were intended for; that it is legal is an oversight on the part of Congress, who did not realize what they were drafting when they wrote the law. Moreover, it is not as if billionaires need to exploit the IRA rules like this. Typically billionaires will avoid taxes by borrowing against the value of their assets, then deducting the interest they pay on those loans from the income they use to pay the interest (done right, this results in no income taxes). That is an example of the law working as intended.

bjornsing 5y ago

> 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. I agree with the general sentiment of your post, but I think you’re overstating your case a bit. To me it seems pretty obvious that Thiel did stretch the law when he bought shares in his own company at a far lower price than investors payed just months later. This is a quite common and general loophole in tax legislation. E.g. in Sweden (where I live) capital gains are taxed lower than income. This of course creates an incentive to try and convert income to capital gains, and the tax authorities are constantly on the lookout for such schemes. If you sell shares/options cheaply to yourself or employees just a month before investors pay top dollar then you can expect… trouble.

hagy 5y ago
I agree that Thiel did stretch the law, but all of this only matters because PayPal was exceptionally successful. Almost all founders who buy their early shares prefunding and place them in a Roth IRA will end up with worthless equity for retirement. Further, there are disadvantages to having this portion of his wealth in a Roth IRA. For one, you cannot borrow against equity in a Roth. So while he can sell and buy something else tax free, none of these assets are available to him until retirement age. Whereas his PayPal shares outside of retirement accounts can serve as collateral for loans, which would allow him to access a portion of these assets tax free , while allowing the equity to continually appreciate.

godelski 5y ago

That's not how I read the article at all. Honestly how I read it shows how he was able to abuse the system in ways that weren't intended. It also lays out clear and simple solutions: - Only let publicly traded stocks/investments be part of an IRA - Stock grants should be included in the maximal income to determine if someone should be able to contribute to an IRA Honestly with just these two factors he couldn't have done what he did (implicitly nor anyone else with mega IRAs). The intent of the IRA was for a retirement vehicle for the average person, not as an investment vehicle where you could dodge taxes. You're right that he didn't commit any crimes. But that also doesn't make the thing right. When we find people using edge cases and breaking the intent of the system we say "well played" then patch the framework. This is a tax dodge, just a legal one.

sfblah 5y ago
Just impose a tax when capital gains exceed some annual threshold averaged over a time period (say 5 years). Also, make everything after the first, say, $1m taxable on withdrawal at cap gains rates. It’s super easy to fix this.
- godelski 5y ago
  I mean I'd be perfectly okay with adding a third criteria to my list being something like "max holdings of $10m (tied to inflation) and returns higher than that are taxed as capital gains." That's enough to ensure a luxurious retirement. But I do think the other parts are helpful and would help reduce other avenues for abuse. The IRA was intended for lower and middle class people to build retirement investments. Also 1m seems low for the maximum. At least IMO.
  - nrdvana 5y ago
    > The IRA was marketed as a way for lower and middle class people to build retirement investments. The pessimist in me FTFY
    - sfblah 5y ago

o8r3oFTZPE 5y ago

There is some truth to what you are saying however I think one could easily be just as "astounded and disamyed" at your comment's lack of social conscience. There is a legtimate legal question over the valuation of some of the shares held in Thiel's Roth IRA. If they were sold to Thiel at less than FMV then there is a potential legal issue. Even if we put that aside, if everything Thiel has done is "legal" then how can a "hit piece"1 recounting inculpable actions succeed in swaying public opinion toward a negative view of the subject. No one should care. The truth however is that legality and morality are two different things. If we live our lives doing only what is "legal" and ignore doing what is "right", then what sort of behaviour does that allow for, what sort of "character" does that build. The question readers are implicitly presented with is not only whether what he has done is "legal", it is whether what he has done is "right". Thiel can do whatever he wants with his money, including "legally" avoiding taxes, but by the same token, ProPublica can opine on that in any way they see fit. If there are factual inaccuracies in the article, then that is a different matter; they should be corrected. However, your comment does not appear to contest the facts presented, it only contests the author's apparent opinion on them. 1 https://en.wiktionary.org/wiki/hit_piece https://en.wiktionary.org/wiki/hit_piece According to this definition, the ProPublica is not a "hit piece" because it neither presents false information nor tries to appear objective. The bias is very clear.

deleted 5y ago

[deleted]

sfblah 5y ago

He lied about the value of the PayPal shares he put in. That’s a problem.

hagy 5y ago
No. If anything he exaggerated the value of those PayPal shares at the time of contribution. Assuming he made the contribution for tax year 1998, then PayPal hadn't yet raised any money and had no external valuation. The company was worthless at the time and the price-per-a-share was a formality of the initial incorporation. This is similar to most other early stage startups that are similarly worthless at founding.
- sfblah 5y ago
  You're splitting hairs. Treating gains from startup founder stock like gains from an investor who put in substantial amounts of money is just silly, and that part of the tax code should be fixed. It's just as abusive as the carried-interest provision. If the person who started the company had zero access to capital, then claiming the company had no value at the beginning would be credible. Peter had substantial access to capital even in 1998-99. There was no question he was going to raise a boatload of money quickly after starting the company. Contributing shares of such a company to an IRA by claiming they're worth $1700 is just an abuse of the system.

dbancajas 5y ago

> keep all of his wealth in this Roth IRA, just a percentage. And it clea how did he get access to paypal shares that's <0.1$/share?

RhodoGSA 5y ago

If you read elsewhere, they've got him on a couple cases. He technically wasn't allowed to put any shares of confinidy (Eventually paypal) in his roth ira since he was a founder. Also, he's not paying US taxs on his personal international income and using his dual newzealand citizenship to park it there.

nodesocket 5y ago

Spot on. From the first paragraph I could immediately tell Propublica is trying to paint Thiel as some sort of evil tax dodging criminal. Quite an agenda the author seems to have. You outraged by this? Then you should be advocating for dramatically simplifying tax code and laws. I know most don't want to hear this on HN but Trump tried to do just that with his tax plan. Obviously did not go all the way unfortunately. > Get a sweetheart deal to buy a stake in a startup that has a good chance of one day exploding in value. Ummmm that's called being an angel investor.

Crontab 5y ago

"The whole article is a hit piece designed to get whip people into a furor." I've seen a lot of this lately too and it feels coordinated.

johnnyfived 5y ago

It's absolutely crazy to me to see such a technical community not understand or care for finance, investing, and crypto. The sentiment in discussions about crypto border on fearmongering and complete misunderstanding, while I see little to no discussion about investing in general.

maxerickson 5y ago

PayPal later disclosed details about the early history of the company in an SEC filing before its initial public offering. The filing reveals that Thiel’s founders’ shares were among those the company sold to employees at “below fair value.” If the shares were really purchased below fair value, there's not much in the way of a defense of the activity.

softveda 5y ago

Australian retirement investment account (called superannuation or super) worked similarly where you could accumulate as much money as you want in a low tax environment. In this phase all income and capital gains received from assets within superannuation are taxed at a maximum of 15%. Then once you turn 65 and convert to a pension there is no tax on the pension (drawdown from the accumulated money). The govt. changed rules couple of years back this so that the max you can now convert to pension phase is AUD $1.6m indexed every few years. The rest of the money stays back in accumulation phase where tax has to be paid. This closed the loophole where really wealthy people were having $1m tax free pension earnings.

floodyberry- 5y ago

Do you think he scours the internet for idiots who defend him so he can give them lots of money, or is this more of a kink situation where you get off on defending the rich in general?

jonas21 5y ago

The article also names Berkshire Hathaway's Ted Weschler as someone who has a large Roth IRA. Weschler's response [1], which is linked from the article, is worth reading. He points out that decades ago he opened an IRA, just like anyone else, and happened to make some good investment decisions and got very lucky along the way: > The magnitude of my Roth IRA is certainly larger than anything I ever would have imagined when I first opened my IRA in 1984 as a 22 year old Junior Financial Analyst making $22,000 a year working for W.R. Grace & Co... > Upon leaving Grace, I transferred my IRA to a self-directed IRA account at Charles Schwab & Co., giving me discretion over the individual investment made in the account. Over the ensuing 29 years (through the end date you quote of year-end 2018) I invested the account in only publicly-traded securities i.e., all investments in this account were investments that were available to the general public... > The investing success of this account has been a function of careful stock selection, exceptional luck and a multi-decade time period. To have a sum of this magnitude built up in my Roth IRA is certainly beyond anything that I ever expected but it was implemented in a way that was available to all taxpayers with an appropriately long investment runway, i.e., the result is exceptional but it is not the product of exclusionary tax strategies. [1] https://www.documentcloud.org/documents/20971124-ted-weschler-statement https://www.documentcloud.org/documents/20971124-ted-weschle...

brown9-2 5y ago

Seems pretty clear that he sold himself shares below fair value to make the contributions legal

jrochkind1 5y ago

I think you missed a key part. The way Thiel (and others) got so much in the Roth IRA -- when contributions are limited, at that time to 2K/year -- is by under-valuing the non-publicly-traded stock they had insider access to. Although yes, the main thrust of the reporting is that the tax laws are set up to hugely benefit the rich and allow them to avoid paying taxes, not that the rich are breaking the laws. With these IRAs in particular though, there does seem to be something very dodgy and possibly illegal about the way the rich are getting around the contribution limits by under-valuing non-publicly-traded stocks. > Thiel’s unusual stock purchase risked running afoul of rules designed to prevent IRAs from becoming illegal tax shelters. Investors aren’t allowed to buy assets for less than their true value through an IRA. The practice is sometimes known as “stuffing” because it gets around the strict limits imposed by Congress on how much money can be put in a Roth. > PayPal later disclosed details about the early history of the company in an SEC filing before its initial public offering. The filing reveals that Thiel’s founders’ shares were among those the company sold to employees at “below fair value.” > 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?” > Warren Baker, a Seattle tax attorney who specializes in IRAs, said he would advise clients who are top executives working at a startup not to purchase founders’ shares with a Roth to avoid accusations by the IRS that they got a special deal and undervalued the shares. Baker was speaking generally, not about Thiel. > “I would be concerned about the fact that you can’t support the valuation number as being reasonable,” he said.

WheelsAtLarge 5y ago

>>"And that's not even to mention that the assets in a Roth IRA are essentially worthless to him" Not at all, he can withdraw and pay a 10% penalty. He probably will never needed to since, I bet, he has other assets and it makes no sense to pay the penalty. Few people in the world get that option. A characteristic of a Roth IRA is that withdraws are tax free. 5 billion plus decades of tax free growth, wow! The idea of taxes is for everyone to contribute to the common infrastructure we all need to live in society. It's very unfair for someone to acquire such wealth with out contributing to the system that made it happen. True it was 100% legal but that's a loophole that needs to be reviewed since it's not a one time case. Other high worth individuals have done the same thing so it's not an out of the ordinary case. As it stands now roth ira's have no upper limit.

Ar-Curunir 5y ago

Don't need to gargle billionaire balls mate.

missedthecue 5y ago
But it's good to keep the facts straight. No need to delude ourselves just to make sure they are always the bad guys in our head.

chiefalchemist 5y ago

> "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." Absolutely. But key is the interpretation of "used the law exactly as intended". In the context of ongoing reports of no taxes paid, off shore tax shelters, etc. "intended" takes on new meaning (read: nefarious, or at least should be questioned). The disgust isn't that he didn't do any wrong, the disgust is that what he did isn't wrong.

KKKKkkkk1 5y ago

Are you claiming there's nothing illegal about Thiel buying his stake in PayPal for a nominal $1,700? There are two tax-law experts quoted in the article saying otherwise.

deleted 5y ago

[deleted]

mlindner 5y ago

> 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. I hadn't heard of pro publica until around 2-3 years ago and during that time they've produced some of the most shameful inaccurate reporting I've ever read. I don't know why anyone trusts them at all. They a prime "cancel culture" mover that drives people to hate and shame others for no reason at all.

silexia 5y ago

Actually, I bet good money the law was broken by Peter Thiel. It is very likely he used backdated options or sold shares at below fair market prices into the Roth. This is criminal behavior.