Facebook Co-Founder, Patron Saint of Tax Renunciants

by Peter Spiro

Facebook co-founder Eduardo Saverin has given up his US citizenship in the run-up to the Facebook IPO.  Not that it didn’t cost him.  High net-worth folks like Saverin have to pay what is in effect an exit tax, under the mis-acronymed HEART Act.  Under this 2008 legislation, renunciation is treated like a tax event, at which point your assets will be valued for capital gains purposes as if they were sold at that time.  Saverin must have been presented with a hefty bill by way of getting his release (according to this excellent Bloomberg report on his renunciation, he can pay it on the installment plan).

[FYI: Here is the 1Q 2012 list (as published in the Federal Register) of "those who have chosen to expatriate."  In addition to Saverin, the list includes a JFK relation, one apparently not interested in a political career here.]

Saverin doesn’t have a problem with the US – he doesn’t seem to be making any sort of political statement here – but the tax and regulatory burdens outweigh the benefit for someone in his bracket (see the posts on FATCA below).  That is, so long as he can still go to NYC.  Under 212(a)(10) of the Immigration and Nationality Act:

(E) Former citizens who renounced citizenship to avoid taxation.- Any alien who is a former citizen of the United States who officially renounces United States citizenship and who is determined by the Attorney General to have renounced United States citizenship for the purpose of avoiding taxation by the United States is excludable.

Excludable, as in not getting into the country.

Obviously Saverin has capable lawyers who checked this out, and it appears to be the case that this provision has never been deployed since it was enacted in 1996.  The plausible theory here: since Saverin and his bracket in effect have to settle up when they renounce, they aren’t renouncing to avoid taxation.

In any case, Saverin may be at the leading edge of rich expatriate Americans for whom the nationality just isn’t worth it any more.  Like most other memberships, citizenship has a price point.

http://opiniojuris.org/2012/05/14/facebook-co-founder-patron-saint-of-tax-renunciants/

2 Responses

  1. In the summer of 1999, I went out for drinks one night with a U.S. foreign service officer who was working the visa line at our embassy in London.  She told me that she had just that day denied a visa to someone who had renounced his U.S. citizenship for the purpose of avoiding U.S. taxes.  (As I recall, he had become a citizen of some island nation where there was no income tax.)  The unlucky visa applicant (and tax dodger) was married to a U.S. citizen and had up to that point spent most of his life in the United States.  It may be that this was an atypical case but I can attest that this provision has been deployed at least once since it was enacted in 1996.

  2. John, very interesting! Maybe Saverin has something to worry about after all (though somehow I doubt it).

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