You can check out anytime you like, but you can never leave.
WASHINGTON, DC– U.S. Senators Bob Casey (D-PA) and Charles E. Schumer (D-NY) unveiled a comprehensive plan to respond to those like Facebook co-founder Eduardo Saverin, who recently unleashed a scheme [“unleashed a scheme”? Oh My Goodness…] to renounce his U.S. citizenship in order to dodge taxes on profits he is expected to collect when the social-networking company goes public.
Saverin, a partial owner of Facebook, has lived in Singapore since 2009 and renounced his U.S. citizenship in September. The avoidance scheme could help him duck a reported $67 million in taxes since Singapore, unlike the U.S., has no capital gains tax. That amount could increase even further as Facebook’s stock price rises.
The senators called Saverin’s move an outrage and described a plan to re-impose taxes on expatriates like Saverin even after they flee the United States and take up residence in a foreign country. Their plan would also bar individuals like Saverin from reentering the country so long as they continued to avoid paying their taxes in full.
“We simply cannot allow the ultra-wealthy to write their own rules,” said Senator Casey. “Mr. Saverin has benefited greatly from being a citizen of the United States but he has chosen to cast it aside and leave U.S. taxpayers with the bill. Renouncing citizenship to simply avoid paying your fair share is an insult to middle class Americans and we will not accept it.”
“Mr. Saverin has decided to ‘defriend’ the United States of America just to avoid paying his taxes. We aren’t going to let him get away with it so easily,” Senator Schumer said. “It’s infuriating to see someone sell out the country that welcomed him and kept him safe, educated him and helped him become a billionaire. This is a great American success story gone horribly wrong. We plan to put a stop to this tax avoidance scheme. There should be no financial gain from renouncing your country.”
Schumer and Casey’s proposal is called the Ex-PATRIOT Act (“Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy” Act).
Under the proposal, any expatriate with either a net worth of $2 million or an average income tax liability of at least $148,000 over the last five years will be presumed to have renounced their citizenship for tax avoidance purposes [note: the law applies to everyone, but this presumption clause applies only to those who meet the net worth or tax liability tests]. The individual will then have an opportunity to demonstrate otherwise to the IRS by meeting specific IRS requirements. If the individual has a legitimate reason for renouncing his or her citizenship, no penalties will apply. But if the IRS finds that an individual gave up their passport for substantial tax purposes, then it will prospectively impose a tax on the individual’s future investment gains, no matter where he or she resides. This would eliminate any tax benefit and financial incentive from renouncing one’s citizenship. The rate of this capital gains tax will be 30 percent, in keeping with the rate that is already applied on non-resident aliens for dividends and interest earnings.