David Baszucki, fresh off a stint as a radio host in Santa Cruz, Calif., founded a small video-game company in 2004. It qualified for a tax break that allows investors in small businesses to avoid paying millions of dollars in capital gains taxes if the start-ups succeed.

Mr. Baszucki’s company, Roblox, which created one of the world’s most popular video-gaming platforms, is now worth around $60 billion. Mr. Baszucki is estimated to be worth $7 billion.

Nonetheless, he and his extended family stand to benefit greatly from a tax break aimed at small businesses.

Mr. Baszucki and his family have multiplied the tax break at least 12 times. According to securities filings and people familiar with the situation, Mr. Baszucki’s wife, four children, mother-in-law, and even his first cousin-in-law stand to save millions of dollars in capital gains taxes. The exemption is known as the Qualified Small Business Stock, or Q.S.B.S. It allows early investors in a variety of industries to avoid paying taxes on profits of at least $10 million.

When it was founded in the early 1990s, the goal was to persuade people to invest in small businesses. However, over the next three decades, it would be twisted into the latest tax evasion in Silicon Valley, where new billionaires appear every week.

Investors in hot tech companies are expanding the tax break exponentially thanks to the ingenuity of the tax-avoidance industry. The trick is to give stock in those companies to friends or family members. Even though these recipients did not invest their money in the companies, they still receive the tax break, and any additional $10 million or more in profits is tax-free. The savings for the wealthiest American families, who would otherwise face a 23.8 percent capital gains tax, could quickly amount to tens of millions of dollars.

The legal maneuver is known as “stacking,” because the tax breaks are piled on top of one another.

According to people who worked or were briefed on the tax strategies, early investors in some of Silicon Valley’s marquee start-ups, including Uber, Lyft, Airbnb, Zoom, Pinterest, and DoorDash, have all replicated this tax exemption by giving shares to friends and family.

According to industry officials and lawyers, partners at top venture capital firms like Andreessen Horowitz have figured out ways to claim tens of millions of dollars in tax exemptions for themselves and relatives year after year.

The story of the tax break is, in many ways, the story of American tax policy in general. Congress passes a law riddled with loopholes that favors the ultra-wealthy. Lobbyists thwart attempts to rein it in. Then, using their ingenuity, tax experts at law, accounting, and Wall Street firms transform it into something far more generous than what lawmakers had in mind.

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

The tax break, according to Manoj Viswanathan, director of the Center on Tax Law at the University of California, Hastings, will cost the government at least $60 billion over the next decade. However, this does not include the taxes avoided by stacking, so the true cost of the tax break is likely to be many times higher.

The Biden administration has proposed reducing the Q.S.B.S. benefit by more than half. The plan, however, would not prevent wealthy investors from multiplying the tax break.

According to Paul Lee, chief tax strategist at Northern Trust Wealth Management, the likely outcome would be even more tax avoidance. “You’ll end up with more people planning to multiply the exclusion,” he predicted.

In the early 1990s, the venture capital and biotech industries proposed this tax break. Early investments in high-flying start-ups such as Gilead Sciences and MedImmune resulted in massive profits for venture capital firms.

As a result, they were hit with hefty capital-gains tax bills. The Q.S.B.S. exemption would exempt them from paying taxes on at least a portion of their future profits.