Behind Elon Musk’s twitter ballot is a tax invoice coming due

Elon Musk could have already been compelled to promote a large portion of his Tesla shares even when he had not issued an uncommon Twitter pledge over the weekend. Musk on Saturday polled Twitter customers on whether or not he ought to promote 10% of his stake in his firm. The ballot seemed to be a response to a Democratic proposal to tax the unrealized positive factors of billionaires.
“Much is made lately of unrealized gains being a means of tax avoidance, so I propose selling 10% of my Tesla stock,” he tweeted.
Musk stated he was elevating the query as a result of he doesn’t take a money wage as Tesla’s CEO and subsequently wouldn’t have any method to pay a big tax invoice with out promoting a few of his Tesla shares, which make up the overwhelming majority of his wealth.

Much is made currently of unrealized positive factors being a way of tax avoidance, so I suggest promoting 10% of my Tesla inventory.
Do you assist this?
— Elon Musk (@elonmusk) November 6, 2021
Musk wrote in a follow-up tweet that he would “abide by the results of this poll, whichever way it goes.” Tesla’s shares had been down just a little greater than 3% on the information Monday.
He closed the ballot Sunday, after practically 3.5 million votes had been forged, with 58% voting for him to promote. Musk has not confirmed what he’ll do, however after closing the ballot, he tweeted, “I was prepared to accept either outcome.”
Either means, Musk could quickly have wanted to promote a giant chunk of his shares. He holds practically 23 million inventory choices that had been awarded in 2012. Those choices have since vested and can expire in August 2022. Most inventory grants permit executives to keep away from paying taxes for years, and maybe perpetually, so long as they don’t promote the shares they get from changing the choice.
But Brian Foley, an govt compensation marketing consultant, says that due to the scale of Musk’s grant and the best way it was structured, it’s probably that a lot of his 2012 choices don’t qualify for the preferential tax therapy. That means Musk would owe revenue taxes when he workouts the grant, which at present costs can be value slightly below $30 billion. Musk’s tax invoice may prime $10 billion, relying on what proportion of the choices don’t qualify for the preferential therapy.
“They are a ticking tax time bomb,” Foley stated of Musk’s inventory choices. “Offhand I can’t think of any way for him to get around paying the tax.”
What’s extra, Musk could must promote much more shares than what it might take to pay his tax invoice. He owns 17% of Tesla’s shares, which at its present inventory worth can be value about $200 billion. That means his weekend tweets are a pledge to promote roughly $20 billion value of Tesla’s shares.

The potential sale may roil Tesla’s inventory at a time when many analysts say it’s already overvalued. The firm’s market worth not too long ago crossed $1 trillion, making it solely one in every of 5 U.S. publicly traded corporations to be value that a lot.
Nonetheless, James Cox, a professor at Duke University legislation faculty and an professional in securities legal guidelines, stated it is likely to be onerous for Musk to return on his Twitter pledge.
“It’s a no-win situation,” Cox stated. “In the securities law, the problem is this could be seen as a misrepresentation that was meant to mislead if another shareholder sold on Musk’s tweet.”
But Cox stated it might be a tough lawsuit to win, as a result of CEOs are allowed to make statements and alter their minds, so long as they meant what they stated after they stated it.

It wouldn’t be the primary time that Musk has gotten into hassle over his tweets. In late 2018, he and Tesla settled a lawsuit by the Securities and Exchange Commission, with out admitting guilt, for tweeting a couple of potential sale of Tesla that by no means occurred. Musk was additionally sued for defamation in 2018 after calling a diver who had helped rescue youngsters caught in a collapse Thailand a “pedo guy” on Twitter. Musk gained the swimsuit.
Daniel Ives, a inventory analyst at Wedbush Securities who follows Tesla, known as Musk’s newest Twitter pledge “bizarre” however stated he thought that given Tesla’s prospects and the investor enthusiasm for the corporate, the inventory, which is up greater than 60% this yr, would maintain climbing, even with Musk cashing out a portion of his holdings.
“Musk was likely to sell some of his Tesla stock before year end, but no one ever imagined there would be a Twitter poll translating into a 10% sale of his ownership,” Ives stated. “This weekend’s Twitter poll was a strange one even for Elon.”
This article initially appeared in The New York Times.