Zach Tripp's  Instablog

Zach Tripp
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Certified program manager (PMP) with a background in engineering. Fundamental investor who's portfolio consists of buy-and-hold dividend growth companies, growth companies (short-term) and index fund portfolio management (retirement / long-term savings).
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  • Buffett: More Donations, More (Legal) Tax Evasion 0 comments
    Jul 31, 2013 10:34 PM | about stocks: BRK.A, BRK.B

    Warren Buffett has continued his philanthropic activities with another donation to the Bill & Melinda Gates Foundation. I am glad Mr. Buffett has continued the donation of his vast wealth. But, why does he donate shares? HUGE legal tax loop hole, that's why. The very man which made a point of saying he thinks he should paid more taxes.

    From Alex Morrell, Forbes Staff / 08-July-2013 (link):

    "Berkshire Hathaway Berkshire Hathaway announced Monday that its chairman and CEO gave away 22,870,529 shares of his class B common stock in the company, which were trading at about $115 per share Monday."

    "According to his filing with the Securities and Exchange Commission, Buffett converted 14, 000 class A shares to 21 million class B shares July 5 to complete the donation."

    Robert A. Green, CPA, does a good job of explaining the loop hole that Mr. Buffett uses (link):

    Buffett's double-dip tax loophole of donating appreciated shares to charity also saves him 15% long-term capital gains taxes on the embedded capital gains in the shares he donates (as noted in my Aug. 16 blog "Mr. Buffett, the IRS needs your charity, too"). (link)

    When you make yourself a national figure and claim that you should pay more taxes on national television (CNBC, for example), you should lead by example and pay those higher taxes. I think it would have been a great example of leadership if Mr. Buffett sold his shares, paid capital gains tax, then donated the post-tax profit to the Gates Foundation.

    Since Berkshire stock does not pay a dividend, the donation of shares is purely for tax purposes. This got me thinking, what if Berkshire paid a dividend? What type of revenue could the Gates Foundation expect on a recurring basis (as opposed one-time)? I will assume BRK.A / BRK.B paid a dividend equivalent to 10% of free cash flow.

    (click to enlarge)

    The Gates Foundation could receive approx. $11.5-million per year from the donated shares if Berkshire paid a dividend equal to 10% of free cash flow, which, I assume would grow over time, at a rate greater than inflation.

    (click to enlarge)

    (click to enlarge)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: BRK.A, BRK.B
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