How to Give Away Your Empire and Keep Control

Billionaires use 501(c)(4)s to avoid taxes, keep control of a business and influence politics

- Ben Steverman, with Noah Buhayar

Ray Dalio, founder of the world's largest hedge fund, has one. The Koch family, sitting atop a $137 billion fortune, has at least two. Patagonia founder Yvon Chouinard famously created one earlier this year.

What is it? A tax code structure called the 501(c)(4). For decades it was the chosen vehicle for civic-minded charities such as Rotary International and affinity groups like the AARP. Now it's attracting billionaires who realize it offers far more: control over their business. Control over political influence. Over disclosure. Over taxes. And, of course, control over the soft power of charitable giving. All in one place.

The structure drew widespread attention in September when Chouinard donated Patagonia Inc. to a new $3 billion environmental nonprofit that will exert influence long past his lifetime.

Dalio's 501(c)(4), with $3.5 billion, hasn't been previously reported, nor has a $265 million entity controlled by the Koch family. Meanwhile, Chase Koch, Charles Koch's 45-year-old son, deployed the strategy to build a $1.3 billion philanthropic war chest of his own.

The key advantage of C4s, as they're called, is their ability to tap the illiquid wealth of entrepreneurs and owners of private family businesses without having to step away. Proponents argue they could help break a philanthropic logjam. More than 100 US billionaires, worth a collective $1 trillion, have signed the Giving Pledge since 2010, promising to donate at least half their wealth to charity. Yet only a few have gifted enough to shrink their fortunes, frequently balking at the rules and disclosure requirements that come with traditional forms of charity.