Two U.S. senators are really upset that Facebook co-founder Eduardo Saverin, who last year renounced his adopted American citizenship, will avoid a reported $67 million potential federal tax bill.
In fact, Sens. Charles Schumer of New York and Robert Casey of Pennsylvania, both Democrats, are so ticked off, they plan to introduce the Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy, or Ex-Patriot, Act.
Currently, when a person who has either a net worth of $2 million or more or an average income tax liability of at least $148,000 over the last five years renounces his or her U.S. citizenship, that individual has to pay an exit tax based on the value of the individual's property and assets at the time of the renunciation.
Schumer's and Casey's proposal would re-impose taxes on expatriates, such as Saverin, even after they officially relocate elsewhere. It would also bar these former U.S. citizens from reentering the country so long as, in the senators' words, they continue to avoid paying their taxes in full.
Saverin's people are adamant that their boss's move was not motivated by tax savings.
But under the Ex-Patriot Act, the reason for the move by individuals meeting the $2 million or an average $148,000 income tax liability over the last five years threshold would automatically be deemed for tax purposes.
The individual would get a chance to demonstrate otherwise to the Internal Revenue Service 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 30 percent tax on the individual’s future investment capital gains, no matter where he or she resides. This is the rate that is already applied on nonresident aliens for dividends and interest earnings.
And, as long as the individual doesn't pay taxes that are deemed due to the U.S. Treasury, they could never reenter the United States.
Don't expect this bill to go anywhere. But it's a quick and easy way to get some attention on the political theme of how the rich, both within U.S. borders and abroad, avoid taxes.
Do you think Schumer and Casey are justified in their effort to collect more from wealthy tax expatriates?
Keep up with tax news and tax-cutting tips by subscribing to Bankrate's free Weekly Tax Tip newsletter.
You also can follow me on Twitter @taxtweet.