A hundred years ago, billionaires were a big big deal. Tycoons like John D. Rockefeller, worth the equivalent of two Jeff Bezoses in today’s dollars, were celebrities, the overachieving substitutes for today’s merely overexposed Kardashians and Tiger Kings. Today, though, CNBC reports there are at least 630 billionaires in the U.S. alone, which means if you live in California, New York, or Florida, you’ve probably bumped into one at the grocery store. This week’s stories feature a couple of billionaires (and one mere millionaire) who don’t like paying tax any more than you do.
Last year, Robert Smith, a venture capitalist worth $5 billion, grabbed headlines by taking the stage as Morehouse College’s graduation speaker — and announcing he would give $10 million to eliminate off the student debt for the school’s 396 graduates. He structured that gesture as a grant to the school, to qualify it as a deductible charitable gift, which meant drafting Uncle Sam into covering 37% of that cost.
Today Smith is back in the news, but for slightly different reasons. Last week, he ‘fessed up to using offshore accounts to hide $200 million of income from 2000 through 2015. He’s agreed to pay $139 million in back taxes and penalties. He’ll also forego $182 million in charitable deductions, which could add $65 million more to the bill. Hindsight is 20/20, of course, but he clearly would have been better off just paying the original tax in the first place. And he’s lucky he’s not facing time in a place that makes dorm food seem pretty appetizing.
Smith isn’t the only billionaire making tax headlines. Last month, the IRS indicted Robert Brockman, a Houston-based software billionaire (and investor in Robert Smith’s first fund), on a 39-count all-you-can-eat buffet of financial crimes. They say he used accounts in the Bahamas and Nevis to avoid tax on $2 billion of capital gains from 2000-2018. It’s the largest criminal tax prosecution the DOJ has ever brought. (So why is the 79-year-old Brockman free on a mere $1 million bond? Do they think he can’t afford a bogus passport if he chooses to flee?)
Both billionaires relied on the classic tax-cheat “business plan”: setting up entities like trusts, shell companies, and accounts in foreign owners’ names in foreign locations. Smith admitted paying a Houston lawyer (who also worked for Brockman) over $800,000 from 2004-2018 to fake the paper trails to hide the accounts. The scheme collapsed when his Swiss bank alerted him, they were about to rat him out to the IRS to reduce their own criminal exposure. Smith tried to take advantage of a voluntary amnesty program, but the IRS said no, suggesting they already had a target on his back.
Finally, Gene Simmons — front man for the 70s band KISS — isn’t a billionaire, although he’s a music industry groundbreaker. (Quote: “I like being part of a rock and roll band, but I love being part of a rock and roll brand.”) He’s just announced that he and his wife are kissing their $22 million Benedict Canyon mansion goodbye, and moving to . . . Washington. Why? California’s top tax rate, which stands at 13.3% and may be heading to 16.8%, is just too high for the famously long-tongued showman. Best of all, his trip doesn’t involve the risk of prison!
In the end, of course, billionaires and rock stars aren’t just like us. They’re billionaires. And rock stars. They have more money and gold records. But careful planning can still give us the tax savings they so obviously want, without risking a trip to jail or even making the news.