Orange County residents cannot help but notice the increasing financial buzz surrounding Facebook these days. The billions raised by the company's initial public offering are generating a wave of media attention. But the tax issues concerning one of the company's co-founders has also received wide publication in the press.
In a prior post, we discussed the increase in expatriate Americans who renounced their citizenship in the past year. Eduardo Saverin, a Facebook co-founder, has also renounced his citizenship ahead of the company's IPO. While the entrepreneur stands to save tens of millions of dollars from the move, he denies that taxes motivated his decision in any way. Regardless, his renunciation has been perceived by some as tax evasion, and has prompted some Congressional leaders to act.
U.S. Senators Bob Casey and Charles Schumer have combined to draft legislation that would penalize those the government determines gave up their passports into order to avoid taxes. In particular, the law would give the Internal Revenue Service the power to presume that anyone who gave up their citizenship and owed on average $148,000 or more in taxes or had at least $2 million in net worth did so to eschew their tax bill.
The presumption would be rebuttable, however. But taxpayers unable to provide alternative explanations would be subject to two penalties. First, they would be prevented from ever returning to the U.S. Second, any investments that person still had in the U.S. would have an increased capital gains tax of 30 percent applied to them.
The name of the proposed law is the Ex-PATRIOT Act, which is an acronym for "Expatriation Prevention by Abolishing the Tax-Related Incentives for Offshore Tenancy." It remains to be seen whether the law will achieve its goals, but it has the potential to revise the calculus driving the increase in Americans renouncing their citizenship in recent years.
Source: Los Angeles Times, "Two senators want to stop Facebook's Saverin from dodging taxes," Jim Puzzanghera, May 18, 2012.