In Weekend Interview, Speaker Boehner Called Facebook Co-Founder’s Tax Dodge ‘Outrageous,’ Pledged to Pass Legislation If Bill Was Deemed Necessary
In Letter, Senator Outlines Reasons Current Law On Tax Expatriation Needs to Be Strengthened, Calls for Speedy Passage
Washington DC- Today, U.S. Senator Bob Casey (D-PA) sent a letter to Speaker John Boehner (R-OH) thanking him for his endorsement of the Ex-Patriot Act, outlining the reasons why current tax law allows people like Eduardo Saverin to skip out on millions in taxes by renouncing their citizenship and calling on him to quickly schedule a vote on the bill.
In light of Facebook cofounder Eduardo Saverin’s decision to renounce his citizenship in an effort to avoid paying million in taxes, Casey and Senator Charles E. Schumer (D-NY) outlined a bill that would close loopholes in current tax laws that allow U.S. citizens to dodge taxes by renouncing their citizenship.
“I’m pleased Speaker Boehner has decided to back our common sense bill to ensure that there are consequences for those who would renounce their citizenship as part of a scheme to avoid paying taxes,” Casey said. “I urge Speaker Boehner to quickly schedule a vote on this bill.”
In his letter Senator Casey wrote, “We must take action against those who capitalize on the advantages of United States Citizenship, but abuse the system to avoid paying their fair share. The Ex-PATRIOT Act would impose a 30 percent tax on all future capital gains on assets of expatriates who renounce their United States Citizenship for substantial tax purposes. ”
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. 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.
So long as the individual avoids these taxes, they would be inadmissible to the United States forever. The Ex-PATRIOT Act would improve current law to ensure such an individual cannot reenter the United States after renouncing his or her citizenship. The Illegal Immigration Reform and Immigrant Responsibility Act of 1996 was intended to bar any such individual from reentering the U.S. However, this statute was written in a manner that inhibits its enforcement.
In 2011, a record number of 1,780 people gave up their U.S. passports—a dramatic rise from the 235 persons who did so in 2008. Yet no individual has ever been barred from returning to the United States based upon a finding of renunciation of citizenship for tax purposes. Without an immigration bar of re-entry, those thousands of individuals who renounce their U.S. citizenship can simply return to the United States for 60 days per year, without any tax responsibility. The Ex-PATRIOT Act would end this loophole, and close the doors of the U.S. forever to individuals like Mr. Saverin if they continue to avoid paying their taxes.
A full summary of the Ex-PATRIOT Act appears below.
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.
The full text of Casey’s letter to Speaker Boehner can be seen below:
The Honorable John Boehner
Speaker of the House of Representatives
Washington, DC 20515
Dear Mr. Speaker:
I am encouraged to hear your words of support for the Ex-PATRIOT Act that I introduced last week along with Senator Schumer. This legislation is necessary to hold accountable the ever increasing number of United States citizens who flee our country only after it provided them the opportunity to be successful.
While current law provides the United States Attorney General with the authority to deny any former United States Citizen the ability to visit the United States if it is determined the expatriate denounced citizenship to avoid taxation, strengthening this provision and providing the IRS with additional authority will assist with enforcement and ensure that those trying to dodge taxes are held accountable.
Under our bill, the Ex-PATRIOT Act, 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. 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. Estimates indicate that Facebook cofounder Eduardo Saverin could avoid between $60-$70 million in taxes by renouncing his citizenship.
We must take action against those who capitalize on the advantages of United States Citizenship, but abuse the system to avoid paying their fair share. The Ex-PATRIOT Act would impose a 30 percent tax on all future capital gains on assets of expatriates who renounce their United States Citizenship for substantial tax purposes. If the expatriate has built their fortune using resources only available to them because of their United States Citizenship, then it is only fair that they pay their portion of tax on future gains instead of simply renouncing the country that has made their success possible.
At this time, Washington needs to work together in a bipartisan manner. I request that you introduce the Ex-PATRIOT Act in the United States House of Representatives and call for an immediate vote on this important legislation.
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