Paul Jacobs
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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."

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Don Bauder June 18, 2014 @ 7:22 a.m.

Burwell: This is disgusting and should eliminate Hillary Clinton from running for president, just as Romney's Cayman Islands shenanigans should have eliminated him in 2012. Bloomberg is doing a great job making these revelations.

Unfortunately, these tax maneuvers are complex. Joe Sixpack doesn't understand them. The complexity also scares away many journalists. These maneuvers are deliberately complex. As I have said many times, "The essence of white collar fraud is contrived complexity." I have also said, "Scams are often legal."

Best, Don Bauder


danfogel June 18, 2014 @ 8:35 a.m.

Don Bauder So tell me, whom do you think is worse, people who take advantage of completely legal loopholes to protect their estates from huge tax bills, such as Bill and Hillary, or even you and me, or the fcking a*holes in Congress who simply refuse to not only eliminate these loopholes but to rework the entire tax code?


Don Bauder June 18, 2014 @ 8:56 a.m.

danfogel: Interesting that you ask. I have argued with good friends over this -- one quite recently. He argued that since Congress allows obvious, unethical tax dodges, a company or individual cannot be blamed for taking advantage of them. I argued that both corporations and individuals have a loyalty to the country that helped make them rich. The federal government is starving for funds, partly because of the trillions of dollars parked offshore, often in tax and secrecy havens.

Some argue that tax avoidance is perfectly fine but tax evasion is a crime. Trouble is, the difference between avoidance and evasion is very often a very thin line, subject to subjective interpretation by biased lawyers and judges. Best, Don Bauder


Don Bauder June 18, 2014 @ 7:11 a.m.

Bob Hudson: There are a lot of tax maneuvers that are legal but stink. This is one of them. An even more repugnant one is the inversion ploy -- the company buying a firm in a lower-tax country and then "moving" the headquarters there to avoid taxes in the U.S. Medtronic is planning such a putrid move by buying a company in Ireland. Actually, the company's headquarters remain in the U.S. This is little different than the ploy of a company or an individual setting up a tiny office in the tax and secrecy haven of the Cayman Islands to avoid either U.S. taxes or regulations.

Instead of running for president, Mitt Romney should have been investigated for offshore diddling during his time with Bain Capital.

Those who get extremely rich with great help from the United States -- roads, bridges, corporate welfare (which is sorrowfully abundant) and zillions of other emoluments -- should pay the taxes which helped propel them to the top. We should be changing some laws in this country to stop both this corporate and individual rape of the small taxpayer. Alas, it probably won't happen because the pols are in the superrich's pockets. Best, Don Bauder


Visduh June 18, 2014 @ 10:45 a.m.

I'm still waiting for a number of frequent commentors to weigh in. They are the usual GOP bashers, and they're silent on this. Wonder why?

Paul was at a symposium within the past few days, and his hobby horse was "immigration reform." But it's not the kind that many of us would hope for. What he wants is, in a word, more. Oh, he couches it in terms of getting "the finest minds" into the US and keeping them, but we all should know by now that what he wants is even freer access to indentured Indians at Qualcomm. Odd that Qualcomm doesn't recruit from the nearby UCSD engineering school that bears his father and mother's name. Nope, those grads are too independent in their thinking and have a strange work ethic (wanting to be rewarded for hard work) and won't stay put.

For a long time, I've found party affiliation generally irrelevant when looking at local offices. But now it seems to be increasingly irrelevant at the national level. Here we have supposedly "liberal" Dems creating and using a complicated and generally unknown tax dodge.

Final point: The estate tax was established for revenue, but also to break up family dynasties that came out of the Robber Baron era. It was aimed squarely at those with names such as Vanderbilt, Rockefeller, and Gould, along with many others. It could still do that if dynasties such as Jacobs were obliged to pay it. But they will not, and the dynastic families will continue to accrue huge wealth. Does some of this explain why old Irwin gave so much to Obama's campaign?


Don Bauder June 18, 2014 @ 1:30 p.m.

Visduh: Good points. You note that the estate tax was created to whack the Robber Baron family dynasties. The GRAT is sometimes known as the Walton GRAT, because a member of the Walton Wal-Mart family used it and defended in an important court case.

Yes, Qualcomm is one of the major U.S. companies using the H-1B program, which is, in essence, a latter-day form of indentured servitude. Wide use of the program (importing mid-level talent, greatly from India) has a tendency to lower the pay of American-born STEM (science, technology, engineering and mathematics) workers. Because labor is cheaper, H-1B inflates profits and permits companies to pay excessive salaries to top management. Best, Don Bauder


jnojr June 18, 2014 @ 1:32 p.m.

Where on Earth did the notion come from that every time money changes hands, government should get a share?

By the time money winds up in my hands, it's already been taxed many times. If I then want to give it to someone else, an heir, a family member, whatever, there's government with those greedy paws out, demanding more. I bet many of the people who cheer someone else being forced to pay will complain the loudest and most bitterly when they're trying to give orr receive a gift, and all of a sudden taxes are too high and should be lowered... but only for me, not for those greedy SOBs who have more than I do!


Don Bauder June 18, 2014 @ 2:59 p.m.

jnojr: Yours is exactly the argument that Las Vegas casino owner Sheldon Adelson uses: the money has been taxed several times, so it shouldn't be taxed when given to heirs.

I think that argument is hooey. One of the biggest economic problems we have is the unbalanced dispersion of wealth and income. The top 1% to 5% control far too much of financial and physical assets for the economy to function well. Stiff estate and gift taxes can help correct this distortion. Best, Don Bauder


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