Paul L. Caron

Friday, May 11, 2012

Facebook Co-Founder Renounces U.S. Citizenship in Advance of IPO, Saving Millions in U.S. Taxes

FacebookBloomberg, Facebook Co-Founder Saverin Gives Up U.S. Citizenship Before IPO:

Eduardo Saverin, the billionaire co-founder of Facebook, 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 an Internet company. Saverin’s stake is about 4%, ... worth about $3.84 billion. ... Saverin, 30, joins a growing number of people giving up U.S. citizenship, a move that can trim their tax liabilities in that country. ...

Saverin’s name is on a list of people who chose to renounce citizenship as of April 30, published the IRS. ...

Singapore doesn’t have a capital gains tax. It does tax income earned in that nation, as well as “certain foreign-sourced income,” according to a government website on tax policies there.

Saverin won’t escape all U.S. taxes. Americans who give up their citizenship owe what is effectively an exit tax on the capital gains from their stock holdings, even if they don’t sell the shares, said Reuven S. Avi-Yonah, director of the international tax program at the University of Michigan’s law school. For tax purposes, the IRS treats the stock as if it has been sold. Renouncing your citizenship well in advance of an IPO is “a very smart idea,” from a tax standpoint, said Avi-Yonah. “Once it’s public you can’t fool around with the value.” ...

“It’s a loss for the U.S. to have many well-educated people who actually have a great deal of affection for America make that choice,” said Richard Weisman, an attorney at Baker & McKenzie in Hong Kong. “The tax cost, complexity and the traps for the unwary are among the considerations.”

(Hat Tip: Josh Blank, Eric Robinson.)

UpdateWill Facebook Co-Founder's Renounciation of U.S. Citizenship Increase His U.S. Tax Bill?

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(that's under 877A(b)(1). The taxpayer does have to put up a bond or get a letter of credit, though)

Posted by: jpe | May 12, 2012 6:20:00 AM

Prof. Avi-Yonah gets it partly right. While the tax is due regardless of whether the property is sold, the liability can be deferred until the property is sold. ie, the exit tax doesn't have to be paid until the taxed unrealized gains are realized.

Posted by: jpe | May 12, 2012 6:17:32 AM

Facebook became too much of a "big-brother" organization for me. Facebook will crash and burn in a few years. Don't invest unless you want to lose money.

Posted by: Anand | May 12, 2012 5:00:08 AM

Good riddance

Posted by: GaryD | May 12, 2012 3:57:39 AM

the ass should never be allowed back in the US and he should be treated as a trader.......

Posted by: Sid | May 11, 2012 9:35:09 PM