Facebook Co-Founder Gives Up U.S. Citizenship

[rkbabang]

 

Facebook Co-Founder Gives Up U.S. Citizenship

 

"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. "

 

 

[DCG]

What a d-bag.

[ERICOPOLY]

I understand where he is coming from.  He isn't even a resident here, and one day inheritance and gift tax would have been an issue.  Thus, the time to act is now.

 

The carried interest people are probably worse -- they treat income as capital gains and hire lobbyists to protect their tax rate.  This guy is just leaving, not attempting to stay and use money to change laws to suit himself.

 

 

[moore_capital54]

It's disgusting because he is using the US capital markets for his exit... Is it really going to make a difference if he makes $3.4B vs. $2.8B

 

Eduardo Saverin should take a page from John Arnold.

[ERICOPOLY]

What do you mean "for his exit".  He doesn't even live here and he is still taxed.

 

I'm a citizen of both Australia and the United States.  I only pay US tax because I'm a resident here, but not there.  If I move to Australia, I will have to pay taxes in BOTH countries.

 

The US tax law on non-resident citizens is the one that's way out of line.

[moore_capital54]

What do you mean "for his exit".  He doesn't even live here and he is still taxed.

 

I'm a citizen of both Australia and the United States.  I only pay US tax because I'm a resident here, but not there.  If I move to Australia, I will have to pay taxes in BOTH countries.

 

The US tax law on non-resident citizens is the one that's way out of line.

 

He is a US Citizen naturalized from Brazil, he grew up in Miami, where his family lives, studied at Harvard, and once FB was worth something conveniently moved to Singapore. His whole process was designed to avoid US Taxes.. I am just saying its very petty when considering the figures involved..

[tooskinneejs]

I doubt his tax savings will be as much as he expects.  If he gave up citizenship as of April 30, 2012, then there won't be any meaningful time period between that date and the first day of public trading of the stock.  Fair value doesn't change overnight.  I suspect the IRS will be all over this and won't allow a large illiquidity discount.

 

Now what would be funny is if the IPO pricing doesn't work out as well as hoped and he actually ends up paying more in tax by renouncing his citizenship.

[ERICOPOLY]

If he gave up citizenship as of April 30, 2012, then there won't be any meaningful time period between that date and the first day of public trading of the stock.  Fair value doesn't change overnight.  I suspect the IRS will be all over this and won't allow a large illiquidity discount.

 

He renounced his citizenship in September 2011 -- the IRS updated us on April 30, 2012 when it released it's list of people who have renounced their citizenship.

 

Also, once again, he won't be bothered anymore with paying US taxes for the rest of his life as a non-resident and won't be subject to an estate or gift tax.  This is so much bigger than avoiding an "exit tax".

 

[moore_capital54]

If he gave up citizenship as of April 30, 2012, then there won't be any meaningful time period between that date and the first day of public trading of the stock.  Fair value doesn't change overnight.  I suspect the IRS will be all over this and won't allow a large illiquidity discount.

 

He renounced his citizenship in September 2011.

 

Exactly he used the sharepost valuation of $35B for his "exit tax" date...

 

Now his shares are worth x3 at the IPO date.

 

Here is the Math:

 

Eduardo Shares worth $1.4B @ September 2011, Pays 15% Capital Gains Exit Tax (No State income tax in Florida) $210mm cash needs to be paid, so he borrows $210mm @ 3% from GS backed by his FB stake... he uses that money to pay the IRS and hes out.

 

Now he has $1.4B shares left encumbered by $210mm @ 3% to GS after hes paid his "exit tax". Those shares can now be sold as a Singapore resident tax free..

 

On IPO date those shares are worth $4.2B which he can sell with no tax paid. Assuming he sells the shares he pays off his debt to GS + 3% or $6.3 million so $216.3mm total. He has $3.984 Billion left.

 

If he had not renounced his citizenship he would have been forced to pay 15% Cap Gains on the $4.2B, Uncle Sam would have received $630mm instead of $210mm and Eduardo would "only" be worth $3.57B

 

Essentially Eduardo Screwed the US government for $420mm... Thats the bottom line.

 

Given the figures involved I think Eduardo his conduct is disgusting. He owes everything to the US...

[ERICOPOLY]

I doubt his tax savings will be as much as he expects.  If he gave up citizenship as of April 30, 2012, then there won't be any meaningful time period between that date and the first day of public trading of the stock.  Fair value doesn't change overnight.  I suspect the IRS will be all over this and won't allow a large illiquidity discount.

 

Now what would be funny is if the IPO pricing doesn't work out as well as hoped and he actually ends up paying more in tax by renouncing his citizenship.

 

A couple of other points:

 

1)  "exit tax" became law in 2008.  Why did he wait until after it came into effect to move to Singapore and then renounce his citizenship?  Insanity?

 

2)  Assuming you are right about the IRS:  isn't it better to take the capital gains hit now instead of waiting for the Bush tax cuts to expire?

 

3)  What about the dividend that may eventually flow from FB shares?  Does he want to pay US income tax rates on that which may be 35+% or so (who knows how high they will eventually go?).  Does the "Buffett" tax motivate him to get out from under the US tax code?

 

I guess I see it from the point of view of a dual-citizen.  I understand your duty to pay taxes where you live, but where you don't live?  Come on.

 

 

 

 

[moore_capital54]

I doubt his tax savings will be as much as he expects.  If he gave up citizenship as of April 30, 2012, then there won't be any meaningful time period between that date and the first day of public trading of the stock.  Fair value doesn't change overnight.  I suspect the IRS will be all over this and won't allow a large illiquidity discount.

 

Now what would be funny is if the IPO pricing doesn't work out as well as hoped and he actually ends up paying more in tax by renouncing his citizenship.

 

A couple of other points:

 

1)  "exit tax" became law in 2008.  Why did he wait until after it came into effect to move to Singapore and then renounce his citizenship?  Insanity?

 

2)  Assuming you are right about the IRS:  isn't it better to take the capital gains hit now instead of waiting for the Bush tax cuts to expire?

 

3)  What about the dividend that may eventually flow from FB shares?  Does he want to pay US income tax rates on that which may be 35+% or so (who knows how high they will eventually go?).  Does the "Buffett" tax motivate him to get out from under the US tax code?

 

I guess I see it from the point of view of a dual-citizen.  I understand your duty to pay taxes where you live, but where you don't live?  Come on.

 

2008 is irrelvant in 2008 FB was only vallued at 5-6B his stake was worth a few hundred million, only in 2010+ did FB become a monster and did Eduardo become a billionaire. Only in 2010+ did the shares have a very liquid private market which allowed him to encumber his stake with debt from GS which makes the whole move worth it.

 

He moved to Singapore to have another $400mm in the bank.

[ERICOPOLY]

I doubt his tax savings will be as much as he expects.  If he gave up citizenship as of April 30, 2012, then there won't be any meaningful time period between that date and the first day of public trading of the stock.  Fair value doesn't change overnight.  I suspect the IRS will be all over this and won't allow a large illiquidity discount.

 

Now what would be funny is if the IPO pricing doesn't work out as well as hoped and he actually ends up paying more in tax by renouncing his citizenship.

 

A couple of other points:

 

1)  "exit tax" became law in 2008.  Why did he wait until after it came into effect to move to Singapore and then renounce his citizenship?  Insanity?

 

2)  Assuming you are right about the IRS:  isn't it better to take the capital gains hit now instead of waiting for the Bush tax cuts to expire?

 

3)  What about the dividend that may eventually flow from FB shares?  Does he want to pay US income tax rates on that which may be 35+% or so (who knows how high they will eventually go?).  Does the "Buffett" tax motivate him to get out from under the US tax code?

 

I guess I see it from the point of view of a dual-citizen.  I understand your duty to pay taxes where you live, but where you don't live?  Come on.

 

2008 is irrelvant in 2008 FB was only vallued at 5-6B his stake was worth a few hundred million, only in 2010+ did FB become a monster and did Eduardo become a billionaire. Only in 2010+ did the shares have a very liquid private market which allowed him to encumber his stake with debt from GS which makes the whole move worth it.

 

He moved to Singapore to have another $400mm in the bank.

 

Only "a few hundred million"...

 

Well, most of us are worth far less than that and we think taxes still matter. 

 

You don't need to be saving $400m to consider tax planning. 

 

When is the last time anyone on this board made a trade without considering tax implications?  Don't we all like the tax-deferred benefits of IRA accounts -- or only if we are billionaires?

[ERICOPOLY]

A lot of board members here will vote for Romney.

 

He gave money early to his children -- an amount that has grown to over $100m.  Obviously, he did this only to avoid inheritance and gift tax -- you know, make sure he pays less.  And he intends to keep on living here!

 

The intent?  By timing the giving of the money before it has appreciated, he intends to lessen his tax bill.

 

Where is the outrage Moore?  Are we just conditioned to think that's perfectly alright because everybody does it, but this other guy is wrong because it's something new and the media delivered it as a negative story in a leading manner?

 

Also, I suppose I'm a bad person for converting my IRA to a RothIRA at a time when I knew the market was cheap and would soon recover.  Technically I'm brazenly cheating my fellow taxpayers.

 

 

[moore_capital54]

A lot of board members here will vote for Romney.

 

He gave money early to his children -- an amount that has grown to over $100m.  Obviously, he did this only to avoid inheritance and gift tax -- you know, make sure he pays less.  And he intends to keep on living here!

 

The intent?  By timing the giving of the money before it has appreciated, he intends to lessen his tax bill.

 

Where is the outrage Moore?  Are we just conditioned to think that's perfectly alright because everybody does it, but this other guy is wrong because it's something new and the media delivered it as a negative story in a leading manner?

 

Also, I suppose I'm a bad person for converting my IRA to a RothIRA at a time when I knew the market was cheap and would soon recover.  Technically I'm brazenly cheating my fellow taxpayers.

 

Eric come on, you can't possibly compare using legitimate tax loopholes than renouncing your US citizenship. It's an apples to orange comparison. Relating to your "only a few hundred million" comment, as I mentioned that few hundred million wasn't even marginable.

 

What made this strategy work was when the secondary market for FB shares became developed which was roughly 2010-2011, that is when he was able to borrow against his stake to payoff the IRS.

 

If he was some rogue business man with operations all over the world or even a financial hedge fund manager I would be more sympathetic. But it so happens that Eduardo owes nearly all his success to a US company that was built in a US university and that he himself grew up a US citizen and enjoyed all the benefits of the US society.

 

To give all that up for a net worth of $4.0B instead of $3.6B is disgusting. That is my point of view.

 

 

[Dorsia1]

A lot of board members here will vote for Romney.

 

He gave money early to his children -- an amount that has grown to over $100m.  Obviously, he did this only to avoid inheritance and gift tax -- you know, make sure he pays less.  And he intends to keep on living here!

 

The intent?  By timing the giving of the money before it has appreciated, he intends to lessen his tax bill.

 

Where is the outrage Moore?  Are we just conditioned to think that's perfectly alright because everybody does it, but this other guy is wrong because it's something new and the media delivered it as a negative story in a leading manner?

 

Also, I suppose I'm a bad person for converting my IRA to a RothIRA at a time when I knew the market was cheap and would soon recover.  Technically I'm brazenly cheating my fellow taxpayers.

 

Eric come on, you can't possibly compare using legitimate tax loopholes than renouncing your US citizenship. It's an apples to orange comparison. Relating to your "only a few hundred million" comment, as I mentioned that few hundred million wasn't even marginable.

 

What made this strategy work was when the secondary market for FB shares became developed which was roughly 2010-2011, that is when he was able to borrow against his stake to payoff the IRS.

 

If he was some rogue business man with operations all over the world or even a financial hedge fund manager I would be more sympathetic. But it so happens that Eduardo owes nearly all his success to a US company that was built in a US university and that he himself grew up a US citizen and enjoyed all the benefits of the US society.

 

To give all that up for a net worth of $4.0B instead of $3.6B is disgusting. That is my point of view.

 

Maybe there is more to it than just the money.

[ERICOPOLY]

I think you are begging the question of whether he left the US solely for tax reasons.

 

 

 

[Dorsia1]

I think you are begging the question of whether he left the US solely for tax reasons.

 

Yes. I personally think there must be more to it. The potential tax liability probably sealed it.

For people to call him a "d-bad' and "disgusting" from only reading an article about the situation is foolish as far as I am concerned.

Regardless, I'm glad the US isn't going to get their hands on HIS money. They waste it anyway.

[moore_capital54]

Please raise your hand if you would fork over 400 million to Uncle Sam if you didn't have to.

 

Proud American citizen, but for 400 million I got to think about it.

 

Wrong way to look at it If I made 3.6b I'd fork over 400 to uncle Sam.

 

For those that think it has something to do with other than money you guys are naive...

 

 

 

 

[ERICOPOLY]

Eric come on, you can't possibly compare using legitimate tax loopholes than renouncing your US citizenship.

 

I guess that's really the crux of the matter.  It is annoying that this guy isn't going to pay taxes to the US, and he is allegedly leaving in order to do so.

 

It is however a legitimate tax loophole, isn't it?

 

Personally I would get more annoyed by the people who find ways to pay little tax and continue to live in our society for the rest of their lives and reap whatever benefits there may be.  People who live on carried interest for example, and are respected so much that they can become President of the country.  Or people like me who can compound millions in RothIRAs and leave it to my kids, who can in turn keep it in there compounding tax free -- yet it is a "retirement" account (sounds more like a tax shelter).  Should be fairly outrageous but because of the legality perhaps and because so many people do it, nobody here cares as much.  Or perhaps there is some degree of nationalism here that is being aroused -- somebody abandoning a country that ostensibly did so much for them.

 

[Hielko]

I think you are begging the question of whether he left the US solely for tax reasons.

That's the most ridicoules part of the story. Leaving the US wasn't enough, he needed to give up his citizenship. As far as I know the US is the only country in the world that has this ridicoules tax rule where you are taxed even if you are living in another country.

[smathew]

Please raise your hand if you would fork over 400 million to Uncle Sam if you didn't have to.

 

Proud American citizen, but for 400 million I got to think about it.

 

Wrong way to look at it If I made 3.6b I'd fork over 400 to uncle Sam.

 

For those that think it has something to do with other than money you guys are naive...

 

If he is not staying in USA and doing most of the  business outside USA then there can be many other reasons .

Filing  FBAR etc for every account/ business interest can be a real pain .

 

[Dorsia1]

 

 

Wrong way to look at it If I made 3.6b I'd fork over 400 to uncle Sam.

 

For those that think it has something to do with other than money you guys are naive...

 

Moore, for you to purport to know what someone's intentions and thoughts are by reading an article in the media is really absurd. Also, I didn't say the reason was other than money, just that there may be more to it that we don't know. Why do you usually debate topics in absolutes? It makes it difficult to have a thoughtful debate with you. Although on this topic there is no room for debate because we  can't know what his reason(s) are. So you may certainly be right but don't call others naive when you can't possibly know all the information yourself.

[Hawk4value]

I believe he did it solely for the money. Good for him. I would have done the exact same thing. I believe he owes the US the very minimum he can possibly pay. Facebook could have been invented and developed in any number of countries. Whats unique about Facebook are the inventors, of which Saverin is one. The US gov't did not supply the ingenuity to invent Facebook. In essence The US is a silent, passive partner, or in other words "dumb money". It should be thrilled with any crumbs it gets.

[turar]

I don't blame him for renouncing his citizenship, but to say that the US had little to do with creation of Facebook is a stretch. I think it had a lot to do with Facebook becoming what it is, from early education of the founders, to providing "ground zero" (Harvard campus), to a place that made its growth possible -- Silicon Valley. There are very few other places like that.

[biaggio]

Hawk + others above, I get where you re coming from. I used to feel the same way.

 

But just think of what his chances of inventing Facebook if he was born in ethiopia or some other 3rd world country and never having a chance to immigrate to the U.S.

 

Personally I would want to stay put (sure would be nice to be in that position though)