Billionaire David Baszucki, known as the CEO of Roblox Corporation, has found a legal but very delicate way to avoid millions of dollars in capital gains taxes. According to the latest report, he gave a lot of his company shares to his family members
This scheme was explained in The New York Times article published December 28. He says Baszucki and several of his relatives have managed to multiply the tax break at least 12 times.
The so-called Qualified Small Business Equity (QSBS) tax break was introduced in the 1990s to motivate people to invest in small businesses. While it should have helped small businesses legally avoid taxes on at least $ 10 million in profits, the practice (aka “stacking”) eventually became a way for billionaires in Silicon Valley to avoid. taxes on their investment profits. As noted in the NY Times report, this will cost the US government at least $ 60 billion over the next 10 years.
When David Baszucki started Roblox in 2004, it was actually a small games company. It grew in the following years and began to raise its first million dollars from investors. It was at this point that Baszucki and his wife Jan Ellison decided to use stacking to get tax relief and avoid paying part of their future profits to the government.
So they donated Roblox shares to their four children and other family members including Baszucki’s stepmother and step cousin. This would have saved the businessman hundreds of millions of dollars in future gift and estate taxes. And that’s exactly what happened.
Since Roblox was still a relatively small company at the time, all family members also received tax relief on future profits as they received these shares when the company had a low valuation.
Last year, Roblox announced its intention to go public. So David Baszucki and his family still had to find a way to avoid future federal taxes before the IPO. If Baszucki and his wife had decided to donate more Roblox shares, those gifts would have been subject to the 40% gift tax (considering all the shares they have donated over the years). So his mother-in-law donated her own shares to more family members in the fall of 2020, as they still fell under the QSBS exemption.
So when Roblox went public earlier this year, David Baszucki not only became a billionaire, but also managed to save tons of money that he could have paid in taxes.