Facebook co-founder's expatriation
tax savings prompt Ex-PATRIOT Act
Friday, May 18, 2012
Home is where the heart, and tax savings, are for Facebook co-founder Eduardo Saverin.
That home now is in Singapore.
Today's Facebook initial public offering could make Saverin around $4 billion richer. By renouncing his naturalized U.S. citizenship last September and relocating to the Asian city-state, Saverin will escape an estimated $67 million Internal Revenue Service bill.
While Twitter posters like The Daily Edge are having fun at Saverin's expense, some folks don't think there's anything amusing about the former U.S. citizen's tax-saving move.
Targeting tax expatriates: On the eve of the IPO, Democratic Sens. Charles Schumer of New York and Robert Carey of Pennsylvania announced that they are introducing a bill to make tax-motivated expatriates pay more than they already do.
Wealthy U.S. expatriates -- those with a net worth of $2 million or more or an average income tax liability of at least $148,000 over the last five years -- already must pay an exit tax based on the value of all their property and assets even if they don't sell.
The proposed Ex-PATRIOT Act -- the name is an acronym for Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy Act and I'll bet my house that they came up with the catchy shorthand moniker first and worked backwards -- would expand on the existing tax.
When an individual expatriates for a substantial tax purpose, that person would be subject to a 30 percent capital gains tax on future investment gains, including dividends, interest and capital gains.
The law would apply to anyone who gave up citizenship in the last 10 years.
IRS gets to decide: But the best part of the proposed law is that the IRS gets to decide what counts as "a substantial tax purpose" for Ex-PATRIOT tax purpose.
In fact, the IRS will automatically presume that any rich person renouncing U.S. citizenship is doing so for tax avoidance purposes. That taxpatriate then will get a chance to demonstrate otherwise by meeting specific requirements established by the IRS.
While this sounds a bit like a rigged game, it's actually along the lines of IRS audits.
In exam situations, America's innocent until proved guilty standard is reversed. Taxpayers are presumed guilty of the tax evasion cited by the IRS and must prove that their returns are complete and accurate.
Policy or politics? Still, this bill has the not-so-subtle look of grandstanding politics.
In statements released by both senators announcing the impending introduction of the Ex-PATRIOT Act, each expressed outrage at Saverin's move, decrying it as an effort to avoid paying his fair share (shades of the Buffett Rule) and an insult to middle class Americans.
The reasons for my somewhat cynical view?
- Saverin's change of tax address to an island off the Malay Peninsula was completely legal and exactly what all taxpayers try to do each year: lower their tax bills.
- Facebook's popularity and IPO guarantees that anything associated with the social media giant will get plenty of media coverage. (Guilty here!)
- It's a hotly contested election year, at Congressional as well as presidential levels.
Types of tax avoidance: Of course, tax expatriation is just one residency technique that Americans can use to legally cut tax bills.
There are plenty of other tax avoidance measures -- avoidance is the legal reduction of taxes, not to be confused with illegal tax evasion -- employed by thousands each year.
Many at the federal level were detailed last November by Sen. Tom Coburn, an Oklahoma Republican, in his special look into the tax subsidies of the rich and famous.
And tax-cutting techniques aren't limited to the federal level.
People move from high-tax to lower-tax states.
When it comes to state sales taxes, one of Schumer's and Casey's colleagues was tripped up. Remember Sen. John Kerry's yacht, which he docked in Rhode Island at the expense of his home state Massachusetts tax collector? Kerry ultimately paid the Bay State the use tax due on the vessel.
And at the corporate level, it's routine for states to offer sweetheart tax deals to companies that relocate or expand.
The bottom line is that everyone, individual to corporate giant, is looking for a way to reduce taxes. Is any one legal tactic really worse than the other?
Schumer, Casey, Coburn and everyone else can take all the umbrage they want at tax practices they believe to be egregiously unfair.
But they need to take a breath and realistically evaluate them all as part of comprehensive tax reform rather than cherry picking for political purposes.
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This bill makes perfect sense if you view what we still laughingly call 'American citizens' as the property of The State.
Maybe we can hire some ex-Stasi agents to help us build a huge wall around The State to prevent ungrateful 'Ex-patriots' from attempting to flee.
Posted by: Jim Howard | Saturday, May 19, 2012 at 03:50 PM
In general, politicians and the press love trying to promote class warfare when it comes to wealth and taxes. It is a classic magician's misdirection in my opinion.
If the federal government just took the entire wealth of the richest people in the world...the top 300 or so, our national debt would only be reduced by perhaps a third. Then what?
Our federal, state, and local governments need to operate like businesses and cut costs dramatically. Pretty much everyone pays more than their "fair share" That's the problem.
And yes, people will legally avoid taxes if they can. Why should that shock anyone? Why should anyone frown upon such a thing. Do people go into a department store and insist on paying full price for something that is on sale?
Posted by: Bob Cavalluzzi | Friday, May 18, 2012 at 09:45 AM