Qualcomm chairman Paul Jacobs and his wife, Stacy, employ a legal but controversial tax strategy that can greatly lessen or eliminate estate and gift taxes, according to Qualcomm and Securities and Exchange Commission filings. It's called a Grantor Retained Annuity Trust (GRAT).
President Obama and other Democratic lawmakers have unsuccessfully tried to modify use of this tax strategy. The Internal Revenue Service challenged it in court but lost.
Goldman Sachs chief executive officer Lloyd Blankfein has used the GRAT to transfer more than $50 million to family members with little or no gift-tax due, says Bloomberg News. Since 2010, Las Vegas casino moneybags Sheldon Adelson, one of America's richest persons, has used GRAT to transfer $7.9 billion of his wealth to his heirs while avoiding about $2.8 billion in gift taxes, says Bloomberg.
The lawyer who created the maneuver says that it has cost the U.S. Treasury $100 billion since the year 2000. Even that lawyer "says the practice, which involves rapidly churning assets into and out of trusts, makes a mockery of the tax code," says Bloomberg. The GRAT takes advantage of a loophole in the 1990 tax law, says the attorney.
Qualcomm's proxy statement, published in January, noted that Jacobs and his wife held 845,808 Qualcomm shares in Grantor Retained Annuity Trusts. This month, Jacobs and his wife sold some of the GRAT shares, as they have earlier in the year. The company would not comment.
Other rich San Diegans no doubt use the GRAT technique. In 2002, the local law firm of Miller, Monson, Peshel, Polacek and Hoshaw, which specializes in tax planning, put out a paper on how to use the Grantor Retained Annuity Trust.
The bottom line is that the little taxpayers have had to dig in their pockets to make up for the $100 billion denied the Treasury through the super-affluents' use of the GRAT.
Edward McCaffery, a professor at the University of Southern California's Gould School of Law, told Bloomberg that the GRAT is one of a handful devices that make the estate tax system "ineffective as a brake on soaring economic inequality."