WASHINGTON — Populist anger at Facebook co-founder Eduardo Saverin’s decision to renounce his U.S. citizenship — a move that could save him hundreds of millions in taxes if his Facebook stock gains value after the company goes public on Friday — has inspired two senators to propose legislation that could hit Saverin with heavy taxes and bar him from ever reentering the United States.
Sens. Chuck Schumer (D-N.Y.) and Bob Casey (D-Pa.) are unveiling the Ex-PATRIOT Act, which stands for “Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy,” on Thursday. The bill would force anyone who “expatriates for a substantial tax purpose — as judged by the Internal Revenue Service” to pay a mandatory 30 percent tax on future capital gains. The ex-citizens would also be turned back at the border if they ever tried to come back.
“This is a great American success story gone horribly wrong,” Schumer told reporters Thursday. “Eduardo Saverin wants to defriend the United States of America just to avoid paying taxes. We aren’t going to let him get away with it.”
Schumer called Saverin’s behavior “outrageous,” arguing that “Saverin has turned his back on the country that welcomed him and kept him safe, educated him and helped him become a billionaire.”
Schumer also predicted the GOP would go along with the measure.
“Why wouldn’t they?” he said. Casey added, “I’d like to hear the reason why not.”
According to his lawyer, Saverin renounced his citizenship in September, although his name just showed up on an Internal Revenue Service list two weeks ago, and has become a permanent resident of Singapore.
The New York Times on Thursday reported that Saverin said he had been misunderstood when it came to allegations of tax avoidance. “I’m not a tax expert,” he told the Times. “We complied with all the known laws. There was an exit tax.”
The tax laws that apply to extremely rich people who renounce their citizenship are, not surprisingly, hideously complex. (Here are two tax professors trying to explain some of the many variables.)
On the one hand, Saverin’s renunciation left him on the hook for an “exit tax” on the estimated capital gains from his stock holdings at the time of his renunciation. Bloomberg estimates that levy will cost him about $365 million, but could be deferred indefinitely until he sells his shares.
Bloomberg also calculates that renouncing his citizenship in September, as Saverin did, should save him about $67 million in income taxes versus renouncing his citizenship today, because his attorneys could argue that his Facebook stock was worth less then that it is now.
The big advantage for Saverin is that, assuming the price of Facebook stock continues to rise, any future gains will not be subject to tax at all, because Singapore doesn’t tax capital gains.
Saverin’s Facebook stock, thought to be about 4 percent of the total, is likely to be worth $3 billion to $4 billion as of Friday. If the price doubles over time, not having to pay capital gains tax would save him $600 million at the current 15 percent U.S. rate, which could go up in the future.
Noting that there are other ways for the ultra-wealthy to finagle income taxes, the Times suggested the thinking behind Saverin’s citizenship renunciation could have had more to do with estate and gift taxes. “Mr. Saverin’s decision to leave could have been a wager that the cost of an exit tax now — 15 percent of whatever valuation he could get the Internal Revenue Service to agree to — would be far less than the 35 percent or more in estate tax his heirs would face on his holdings when he died,” the Times wrote.
There is already a law on the books, dating back to 1996, that prohibits the issuance of visas to former citizens who renounced their citizenship to avoid U.S. taxation. But it requires a finding by the attorney general, and has rarely, if ever, been enforced. A Justice Department spokesman reached by HuffPost was unable to find any information about enforcement one way or the other.
Yale Law professor Bruce Ackerman on Wednesday wrote an op-ed in the Los Angeles Times lamenting the rise of “Citizens of Davosland,” who “can look with disdain upon the struggling 99.9% who believe that a commitment to their country is a lifetime affair.”
He noted that “[t]he number of Americans renouncing their citizenship grew from 238 in 2008 to 1,534 in 2010. This sixfold increase no doubt includes a hefty portion of super-rich cosmopolitans.”
Ackerman proposed legislation much like Schumer and Casey’s, arguing, “If an American wishes to separate himself from this country and its people, he is taking a step of deep significance. He should not be able to easily return and brag to his friends about the billions he is making by evading civic responsibilities.”
But David Jones, an immigration lawyer with the labor and employment law firm Jackson Lewis, said some people have legitimate, non-tax-related reasons to renounce their citizenship and shouldn’t be punished for their actions.
“What might be more sensible, if the government can show that you’re trying to avoid taxes, is not making the renunciation effective,” Jones said. “That would probably be a more useful tool — or not making it effective for tax purposes.”
UPDATE: 5:48 p.m. — In a statement issued later on Thursday, Eduardo Saverin denied he was ungrateful to the United States.
He wrote, “My decision to expatriate was based solely on my interest in working and living in Singapore, where I have been since 2009. I am obligated to and will pay hundreds of millions of dollars in taxes to the United States government. I have paid and will continue to pay any taxes due on everything I earned while a U.S. citizen. It is unfortunate that my personal choice has led to a public debate, based not on the facts, but entirely on speculation and misinformation.”
Facebook’s Eduardo Saverin angers Senators
Sen. Chuck Schumer (D-N.Y.) called Facebook co-founder Eduardo Saverin a “great American success story gone horribly wrong” on Thursday. Saverin recently renounced his U.S. citizenship, avoiding millions of dollars in taxes on Facebook stock.
Michael McAuliff & firstname.lastname@example.org