Thread by @JustinElliott

NEW:

Lord of the Roths: How Tech Mogul Peter Thiel Turned a Retirement Account for the Middle Class Into a $5 Billion Dollar Tax-Free Piggy Bank

propublica.org/article/lord-o… (thread)

2/ The latest from The Secret IRS Files project: @SheInvestigates , @bandler_james and I investigated how the mundane Roth IRA became a giant tax shelter for the ultrawealthy, including Peter Thiel, Warren Buffett, Robert Mercer, and others.

3/ The Roth IRA was created in the ‘90s to, in the words of Senator Roth, help “hard-working, middle-class Americans” save for retirement.

Congress imposed income limits and a contribution cap of just $2,000 to keep the wealthy from accessing the Roth’s special tax-free status.

4/ The Roth is a unique financial vehicle: Once money goes in, any income generated by an investment – interest, dividends, gains from selling a stock – is tax-free. Those tax savings can be reinvested, with gains compounding.

5/ So how has Thiel managed to shield $5 billion from taxes using his Roth?

h/t @aggggnessss

6/ The story begins during the dot-com mania of the late 1990s, when Thiel made an unusual purchase of non-public stock of a startup he co-founded, the company that would become PayPal.
businessinsider.com/paypal-mafia-m…

7/ His personal financial assistant later described how Thiel tucked these so-called “founders’ shares” of PayPal into his Roth. This is from a letter included in Thiel’s application for residency in New Zealand:

8/ SEC filings show Thiel paid a tenth of a penny per share for 1.7 million shares. At that price, he was able to buy a large stake for just $1,700. The Roth contribution cap that year was $2,000.

9/ The filings also reveal that Thiel’s 1.7 million shares were among those the company sold to employees at “below fair value.”

One tax law professor told us that, in his view, buying discounted shares at a $0.001 price with a Roth would be indefensible.

10/ Investors aren’t allowed to buy assets for less than their true value through a Roth. Doing so would get around the strict limits imposed by Congress on how much money can be put into one of the tax-free accounts.

11/ In just a year’s time, the value of Thiel’s Roth jumped from $1,664 to $3.8 million — a 227,490% increase.

By 2002 it was worth $28 million.

12/ Thiel now had the equivalent of an investment bank that existed largely outside the normal system of income taxation.

Investments in Facebook, Palantir, and other Silicon Valley firms followed, all of which grew tax-free inside the Roth.

13/ In recent years, Thiel, a J.R.R. Tolkien super fan, moved his Roth to a family trust company, Rivendell Trust. In the Lord of the Rings, Rivendell is a valley populated by Elves, a sanctuary from the forces of darkness.

14/ As long as Thiel waits until he turns 59 and a half in a few years, he can pull the billions out of his Roth without paying a penny of tax.

15/ A spokesman for Thiel accepted detailed questions on Thiel’s behalf, then never responded to phone calls or emails.

16/ The IRS, as has been expertly documented by the GAO, has long been aware of aggressive strategies to build giant Roths, including the use of dirt-cheap founders’ shares.

But Congress hasn’t acted on reform proposals by Sen @RonWyden and others.

gao.gov/assets/gao-15-…

17/ Here’s the full story:

propublica.org/article/lord-o…

18/ Know anything we should know about how the ultrawealthy avoid taxes? Here's how to contact us:

projects.propublica.org/tips/help-us-r…