On Capitol Hill, there is new interest in connecting taxes and passports.
After it was disclosed that Facebook FB -3.39% co-founder—and billionaire—Eduardo Saverin escaped millions of dollars in U.S. taxes by renouncing his citizenship before the company went public, Sens. Charles Schumer (D., N.Y.) and Bob Casey (D., Pa.) called for strengthening the “exit tax” that renouncers are required to pay Uncle Sam on their way out.
That levy has changed over the years, but it currently is 15% and applies to untaxed appreciation on all assets (net of losses) for people who have a net worth of more than $2 million or meet other conditions. There also is an exemption, which this year is $651,000 of appreciation.
Sens. Schumer and Casey want to change the law to raise the overall penalty on renouncers, unless they can prove they didn’t decamp for tax reasons. Those who can’t prove otherwise would owe a new 30% tax on all future investment gains earned in the U.S., even though they no longer are citizens and no longer live here. Failure to pay the tax would keep them from re-entering the country.
Will this proposal get traction? Clint Stretch, a veteran tax expert at Deloitte Tax in Washington, doesn’t think so. “There’s always a tension when the IRS gets involved with affairs usually handled by the State Department, and this does that,” he says.
Michael Graetz, a law professor at Columbia University and former top Treasury official, hopes the proposal goes nowhere: “This is a good example of bad anecdotes making bad legislation.”
A different proposal is further along in the pipeline. It would allow federal officials to revoke or deny passports to delinquent taxpayers who owe the Internal Revenue Service $50,000 or more.