Roblox CEO Reportedly Avoids Paying Millions In Taxes Using A Loophole In Tax Law

December 30, 2021 Marc Marasigan Comments

Roblox Corp. takes another hit with allegations of tax evasion on top of the fresh round of child labor exploitation accusations thrown at the company earlier this month.

The New York Times ran an exposé earlier this week, that dug deep into the finances of Roblox CEO David Baszucki. According to the report, Baszucki and his family have apparently been using a loophole in US tax laws to avoid paying millions of dollars in capital gains taxes.

The loophole, called Qualified Small Business Stock exemption, is aimed at small businesses to entice investors to put money in the company. Early investors are given a tax break on profits of up to $10 million. Roblox, however, has transitioned from a startup to a tech giant years ago and is now valued at around $60 billion. Baszucki himself is worth $7 billion.

The way the loophole works is that company owners and investors give relatives and friends shares for free. This makes them eligible for the tax break even though they didn’t actually put money into the company. In Baszucki case, he gave shares to his wife, his children, his mother-in-law, and his cousin-in-law which allowed him to increase the tax break by at least 12 times.

The scheme has been dubbed as “stacking” or “peanut-buttering” and is apparently a common practice in Silicon Valley. Early investors in big tech companies like Airbnb, Lyft, Uber, DoorDash, Pinterest, and Zoom have allegedly all been using the strategy, according to The New York Times’ sources.

“Q.S.B.S. is an example of a provision that is on its face already outrageous,” said Daniel Hemel, a University of Chicago tax law professor. “But when you get smart tax lawyers in the room, the provision becomes, in practice, preposterous.”

Another expert on tax law estimates that the Q.S.B.S. exemption will potentially cost the government at least $60 billion in the coming decade, not including the taxes avoided by stacking.

Fortunately, not everyone is trying to avoid paying taxes. One CEO and founder of a $4 billion company admitted that she was advised to take advantage of the loophole but didn’t do so because she thought it was “shady” and that “paying taxes is an act of patriotism.”