How One of the World’s Richest Men Is Avoiding $8 Billion in Taxes. (Jesse Drucker, N.Y. Times)

"A disgrace to the human race!" That was President Jimmy Carter's description of the Internasl Revenue Code. It has gotten worse under kakistocracy and kleptocracy by billionaires.  From The New York Times: 

How One of the World’s Richest Men Is Avoiding $8 Billion in Taxes

The chief executive of Nvidia, Jensen Huang, has taken advantage of popular loopholes in the federal estate and gift taxes, which have quietly been eviscerated.

Credit...Photo Illustration by Blake Cale; Photographs by Philip Cheung for The New York Times; Haiyun Jiang for The New York Times; Carly Zavala for The New York Times; Jim Wilson, via The New York Times

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By Jesse Drucker

• Dec. 5, 2024

The I.R.S. has challenged some setups that it viewed as overly aggressive. Mr. Davidson settled with the I.R.S. The agency claimed that the Karmazin family’s arrangements “lacked economic substance” and sought $2.4 million in back taxes. But the agency ultimately abandoned most of its arguments and collected about $100,000, according to a lawyer for the Karmazin family.

In Mr. Huang’s case, the details in securities filings are limited. But multiple experts, including Mr. Mulligan, said it was almost certainly a classic I Dig It gift, loan and sale transaction.

The $7 million of shares that Mr. Huang moved into his trust in 2012 are today worth more than $3 billion. If those shares were directly passed on to Mr. Huang’s heirs, they would be taxed at 40 percent — or well over $1 billion.

Instead, the tax bill will probably be no more than a few hundred thousand dollars.

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Mel Karmazin, the media mogul, in 2008. His family used the I Dig It strategy to avoid taxes.Credit...James Estrin/The New York Times

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Bill Davidson, a former Detroit Pistons owner, in 2005. I Dig It also helped him protect his wealth.Credit...Jeff Kowalsky/European Press Agency

First-Name Basis

The Huangs soon took another big step toward reducing their estate-tax bill.

Nvidia was emerging as the main provider of chips for artificial intelligence technology, eventually capturing more than 90 percentof the market. Mr. Huang was becoming a Silicon Valley celebrity. He adopted an all-black dress code. Such was his renown that he was known in tech circles simply by his first name, along with luminaries like Tesla’s Elon, Meta’s Mark and Google’s Sergey and Larry.

In 2016, the Huangs set up several vehicles known as grantor retained annuity trusts, or GRATs, securities filings show.

They were borrowing a strategy that had been invented years earlier on behalf of the ex-wife of Walmart’s co-founder. Beginning in 1993, Audrey Walton transferred about $200 million worth of shares to two GRATs. The twist was that the trusts had to eventually repay Ms. Walton the value of those shares, plus some modest interest. If the value of the shares went up more than what had to be repaid, the trusts could keep whatever was left over — tax free.

The I.R.S. contested the arrangement on narrow technical grounds. But in 2000, a U.S. Tax Court judge upheld its legality.

Mr. Hemel of New York University said the I.R.S. could have challenged the use of GRATs on other grounds as well. Instead, he said, the agency “capitulated” and essentially permitted the use of the trusts as an acceptable avenue for avoiding the estate tax.

Billionaires took notice. The Goldman Sachs chief executive Lloyd Blankfein, the casino magnate Sheldon Adelson, the oil investor Harold Hamm, the cable magnates John Malone and Charles Dolan, and the designer Ralph Lauren were among those who set up GRATs soon after the Walton decision, according to disclosures in the men’s filings with the S.E.C. That positioned their families to collectively avoid billions of dollars in future tax bills.

Under President Barack Obama, the Treasury Department repeatedly tried to make it harder to avoid the estate tax, proposing restrictions on the use of GRATs and I Dig Its. But the proposals died in Congress. (In the Trump administration, Treasury Secretary Steven Mnuchin, himself a GRAT user, would halt efforts to close the loopholes.)

In 2016, Mr. Huang and his wife put just over three million Nvidia shares into their four new GRATs. The shares were worth about $100 million. If their value rose, the increase would be a tax-free windfall for their two adult children, who both work at Nvidia.

That is precisely what happened. The shares are now worth more than $15 billion, according to data from securities filings compiled for The Times by Equilar, a data firm. That means that the Huang family is poised to avoid roughly $6 billion in estate taxes.

If the Huangs’ trusts sell their shares, that will generate a hefty capital gains tax bill — more than $4 billion, based on Nvidia’s current stock price. Mr. and Mrs. Huang can pay that bill on behalf of the trusts, without it counting as a taxable gift to their heirs.

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Nvidia’s value soared as its chips became central to the development of artificial intelligence.Credit...Christie Hemm Klok for The New York Times

A Charitable Tax Dodge

Starting in 2007, Mr. Huang deployed another technique that will further reduce his family’s estate taxes. This strategy involved taking advantage of his and his wife’s charitable foundation.

Mr. Huang has given the Jen Hsun & Lori Huang Foundation shares of Nvidia that were worth about $330 million at the time of the donations. Such donations are tax-deductible, meaning they reduced the Huangs’ income tax bills in the years that the gifts took place.

Foundations are required to make annual donations to charities equal to at least 5 percent of their total assets. But the Huangs’ foundation, like those of many billionaires, is satisfying that requirement by giving heavily to what is known as a donor-advised fund.

Such funds are pools of money that the donor controls. There are limitations on how the money can be spent. Buying cars or vacation homes or the like is off limits. But a fund could, say, investmoney in a business run by the donor’s friend or donate enough money to name a building at a university that the donor’s children hope to attend.

There is a gaping loophole in the tax laws: Donor-advised funds are not required to actually give any money to charitable organizations.

When the donor dies, control of the fund can pass to his heirs — without incurring any estate taxes.

In recent years, 84 percent of the Huang foundation’s donations have gone to their donor-advised fund, named GeForce, an apparent nod to the name of an Nvidia videogame chip. The Nvidia shares that the Huangs have donated are today worth about $2 billion.

The fund is not required to disclose how its money is spent, though the foundation has said the assets will be used for charitable purposes. The Nvidia spokeswoman, Ms. Matthew, said those causes included higher education and public health.

But there is another benefit. Based on Nvidia’s current stock price, the donations to the fund have reduced Mr. Huang’s eventual estate-tax bill by about $800 million.

Kitty Bennett and Dylan Freedman contributed research.

Jesse Drucker is an investigative reporter for the Business section and has written extensively on the world of high end tax avoidance. More about Jesse Drucker

See more on: Internal Revenue Service

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