Our chapter on citizenship explains the right of expatriation. An earlier post discussed Americans renouncing citizenship for tax purposes. A founder of Facebook is doing so, as Bloomberg reports:
Eduardo Saverin, the billionaire co- founder of Facebook Inc. (FB), renounced his U.S. citizenship before an initial public offering that values the social network at as much as $96 billion, a move that may reduce his tax bill.
Facebook plans to raise as much as $11.8 billion through the IPO, the biggest in history for anInternet company. Saverin’s stake is about 4 percent, according to the websitewhoownsfacebook.com. At the high end of the proposed IPO market capitalization, that would be worth about $3.84 billion. His holdings aren’t listed in Facebook’s regulatory filings.
Saverin, 30, joins a growing number of people giving up U.S. citizenship ahead of a possible increase in tax rates for top earners. The Brazilian-born resident of Singapore is one of several people who helped Mark Zuckerberg start Facebook in a Harvard University dormitory and stand to reap billions of dollars after the world’s largest social network holds its IPO.
“It’s plainly lawful and at the same time profoundly ungrateful to the country that provided these opportunities for him,” said Edward Kleinbard, a tax law professor at the University of Southern California in Los Angeles. “He benefited from his U.S. education, the contacts he made at Harvard, and most important the extraordinary openness and flexibility of our economy that encourages startup ventures to flourish.”
The Washington Post adds:
Though his decision is highly controversial, Saverin is hardly alone is his decision. The State Department said it records around 1,100 citizens voluntarily renouncing their citizenship each year, but the tax-related expatriations list from the IRS tells a different story.
And the number of U.S. citizens voluntarily expatriating in 2011 was more than double the number in previous years. In fact, more U.S. citizens turned in their passports in 2012 than in 2007, 2008, and 2009 put together.
Because the U.S. is one of just a handful of countries that taxes expats for income earned outside the United States, our expats have more hurdles than most come tax-time, including lots of disclosures and paperwork on foreign and domestic income and accounts. And a new tax law requires foreign banks and other financial institutions to turn over data about U.S. clients to the IRS each year. Failure to comply can lead to fines (fines that start at $10,000) and criminal charges, even when the taxpayer in question doesn’t actually owe any money.