Facebook's Saverin Left U.S. as a Taxpayer, Not a Traitor

By Andrew M. Katzenstein and Scott A. Bowman
Bloomberg
May. 27, 2012

Depending on how the Facebook stock develops, Saverin could end up paying *more* in taxes as a result of his expatriation. If Facebook's stock falls low enough, he could actually lose everything and still owe the US government millions.

Sounds "fair," right? - ChrisEduardo Saverin, the co-founder of the social network and Facebook Inc. (FB), stands accused of violating the social contract -- the idea that government is based on an agreement among its citizens to ensure mutual protection of person and property.

His decision to give up his American citizenship before the Facebook initial public offering drew criticism for his perceived breach of financial and patriotic duties, including the duty to pay income taxes.

He is even the target of legislation called the Ex-Patriot Act, proposed by Democratic Senators Charles Schumer and Bob Casey, that would ban wealthy expatriates such as Saverin from ever re-entering the U.S. This is seen as a more stringent version of current law, known as the Reed Amendment, which permits the denial of re-entry to tax-motivated expatriates, but does not require it. The Ex-Patriot Act would also tax an ex- citizen’s capital gains at 30 percent for 10 years.

The proposal and the hubbub around the Saverin case are based on two misconceptions about the tax consequences of surrendering a passport and an individual’s motivations for giving up citizenship.

We do not fault Schumer, Casey and others for misunderstanding the mechanics of U.S. taxes on people who leave. These details are tucked away in a few pages that only a handful of lawyers are aware of in an increasingly complex tax code.

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