Schumer Goes After Facebook Founder For ‘Disowning USA’

Yesterday, it was reported that Facebook co-founder Eduardo Saverin renounced his U.S. citizenship in order to avoid being hit with large tax bill when the company goes public.

Today, U.S. Sen. Chuck Schumer announced new legislation that would prevent such schemes.

“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,” Mr. 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.” 



The legislation, called the “EX-PATRIOT ACT” (Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy” Act) was introduced with Sen. Bob Casey of Pennsylvania and would require the IRS to tax the future investment gains of someone who renounced his citizenship to avoid a tax bill.

According to Mr. Schumer’s office, 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. 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.

Their plan would also bar individuals like Mr. Saverin from reentering the country so long as they continued to avoid paying their taxes in full.

A full summary of the Ex-PATRIOT Act appears below. Passage at this point remains uncertain.

 

Summary of the “Ex-PATRIOT” Act

“Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy” Act

 

Sponsored by Senators Charles E. Schumer & Bob Casey

I.                   Current law (Section 877A of the Internal Revenue Code) already provides that any individual who either has:

(a) A net worth of $2 million or more; OR

(b) An average income tax liability of at least $148,000 over the last five years;

and who renounces their citizenship has to pay an exit tax based on the value all property and assets owned by that individual.

The Ex-PATRIOT Act provides that when an individual expatriates for a substantial tax purpose—as judged by the Internal Revenue Service—that individual will be subject to a 30% capital gains tax on future investment gains. Section 871 of the Internal Revenue Code already taxes non-resident aliens for dividends, interest and other items at the 30% rate.  The Ex-PATRIOT Act adds capital gains to this mix of taxable earnings. The tax will apply to anyone who gave up his citizenship in the last ten years but only taxes capital gains earned in the USA following the date of enactment.

II.                The Ex-PATRIOT Act also provides that if the IRS finds that avoidance of taxes was a substantial purpose of expatriation, the individual who renounced citizenship will be barred from any type of re-entry into the United States.  This section requires the IRS commissioner to make a decision regarding tax-avoidance intent for every individual subject to Section 877A who renounces citizenship.  It is retroactive and will encompass individuals who have renounced citizenship for the 10-year period prior to enactment of the statute.

Schumer Goes After Facebook Founder For ‘Disowning USA’