Quote:
Originally Posted by topfiverecords
4. Scenario 2, XYZ transfers his shares to a LLC foundation. The foundation sells the 100 shares for 1 million dollars exempt of capital gains. The foundation then has 1 million free cash to donate to a charity or invest in for-profit businesses.
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This is wrong, unless the LLC is in fact tax-exempt as a charity. If it's not, there are two possibilities: the members check the box to have the LLC treated as a flow-through entity, in which case each member pays its proportional share of tax on the capital gain that results from the sale of shares; or it doesn't, and the tax is paid at the corporate level out of the share sale proceeds.
Now, if it is tax exempt (it doesn't appear to be from what I can see, but for the sake of argument), sure, the LLC doesn't pay tax on the share sale... and the trade-off is that it has to use the proceeds for charitable purposes. That is, according to public policy in most western countries, a fair trade-off: we won't tax you, provided you use the money exclusively for the following things. There's a reason we exempt charities from tax. A donation of shares is a donation of property. It's no different from a car dealer giving a bunch of cars to a charity as prizes, so the charity can raise money by holding a lottery. You get a receipt for the fair value of the property donated.
There really does not appear to be anything nefarious going on here and it's just amazing how people have such strong opinions on this.