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Saturday, May 19, 2012

Estate & Gift Tax Savings From Facebook Co-Founder's Renunciation of U.S. Citizenship Dwarf Income Tax Savings

FacebookFollowing up on my prior post, Tax Savings From Facebook Co-Founder's Renunciation of U.S. Citizenship: $67 Million: Wall Street Journal:  So How Much Did He Really Save?, by Laura Saunders:

Eduardo Saverin renounced his U.S. citizenship last year and now is a resident of Singapore. How much did he save on his taxes by making the switch then? ... [B]ased on financial filings, experts say, it was likely tens of millions in income tax and far more in estate tax -- at least $700 million at current values and tax rates.

Here is why: The Facebook co-founder holds 2% of the company's stock, worth more than $2 billion at $38 a share. By renouncing his citizenship last September, before the public offering, he limited his 15% "exit tax" to the gains in his shares and other assets up to that point. Appreciation in the shares after that escapes the tax. Depending on how Mr. Saverin valued his holdings, which were illiquid at the time, he might have lowered his bill even more. If those two moves shaved even $10 a share from the IPO price of $38, then Mr. Saverin's early exit saved him more than $80 million; likely it was more, says independent tax expert Robert Willens.

[David Miller (Cadwalader, New York)] says the Facebook co-founder's real tax worry should have been estate and gift taxes -- even though Mr. Saverin is only 30 years old. That's because the top rate is 35% and is set to rise next year to 55%, more than twice the 15% exit tax on appreciation. On a net worth of $2 billion, that tax would amount to $700 million. Singapore has no estate tax. "On wealth that great, it's far harder to avoid U.S. estate and gift tax than to avoid income tax, especially if you are unmarried," Mr. Miller says.

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Comments

Note that as long as he keeps US shares and other US property, he still is subject to US Estate Tax on those assets - even if he is now a non US citizen. Given that US shares are considered US property, it does not matter where he actually lives. He will still be subject to US Estate Tax on those US shares. There is no US Singapore Estate Tax Treaty. So, only if he sold the shares and reinsvested proceeds in non US property would he avoid US Estate Tax.

Posted by: GDH | May 21, 2012 4:57:23 AM