Patagonia’s donation: good news for the planet and for its founder’s pocket

The decision of Yvon Chouinard, founder of Patagonia, de , a non-profit organization, is a declaration of his commitment to the environment. It’s also a great way to save hundreds of millions of dollars in taxes.

We must start by explaining the type of structure chosen by the former owner of the sportswear company to transfer 98% of the company to Holdfast Collective. Specifically, they have opted for a 501(c)(4) organization, a tax-exempt nonprofit entity that can make unlimited political contributions. Due to the latter, donors cannot deduct what they contribute from income tax. That is, Chouinard has not obtained any tax deduction for this transfer.

As for the remaining 2% -the shares with voting rights-, it has been transferred to the Patagonia Purpose Trust. It is a trust created with the aim of “consecrating the purpose and values ​​of the company”, as Chouinard himself pointed out to The New York Times. Said legal structure will be supervised by the family members, as well as by their advisors. For this donation, Chouinard will have to pay 17.5 million dollars in taxes.

However, things change when the other options that Chouinard could have chosen are analyzed. If instead of turning the company over to a 501(c)(4) organization, his founder had chosen to leave it to one of his adult children, the deal would have been taxed at 40%. Given that the company is worth $3 billion, Patagonia’s former owner would have had to pay the US government more than $1 billion in estate and gift taxes.

Although less impressive, the sum that he would have had to pay if he had decided to sell the company is not negligible either. In this case, Chouinard would have had to pay $700 million in federal capital gains taxes, according to Bloomberg calculations and Fortune.

Patagonia’s founder is not the only one who has chosen to donate his company to 501(c)(4). Without going any further, Barre Seid, a magnate in the manufacturing industry, did the same thing last year. In his case, the chosen non-profit organization sold the transferred company for more than 1,600 million dollars, an operation for which the billionaire did not have to pay a penny in taxes. The difference between Chouinard and Seid is that the latter’s decision is serving to finance climate denialism.