On Capitol Hill, there is new interest in connecting taxes and passports.
After it was disclosed that Facebook
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.
Eight Famous Ex-Americans
ZUMAPRESS.com
Jet Li became a citizen of Singapore in 2011, and while the kung fu superstar did not say whether he had renounced either his Chinese or American citizenship, Singapore law forbids dual citizenship
Renouncing the U.S.
Track the number of U.S. citizens who have formally renounced their citizenship or residency each year since 2000.
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.?
Revoking Passports
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.
The provision passed the Senate in February and is before the House now. Revenues it generates would be used to help fund a highway-transportation bill that extends provisions set to expire on June 30.
The measure comes on the heels of a 2011 Government Accountability Office study requested by Senate Finance Committee Chairman Max Baucus (D., Mont.) and then-ranking Republican member Charles Grassley (R., Iowa).
The GAO report found that for the year it studied?2008?the State Department issued passports to more than 224,000 citizens who owed about $ 6 billion in tax. Most of it was for individual income taxes, and nearly two-thirds was more than three years old.
The report also gave details of 15 cases in which passport recipients owe lots of unpaid tax. The biggest scofflaw owed $ 46.6 million and was part-owner of a professional sports team. Another owed nearly $ 40 million and had traveled to 10 foreign countries in the recent past. The report said that the IRS had filed tax liens against both individuals but large amounts of tax still were uncollected.
The Senate-passed provision is based on a law allowing U.S. officials to deny passports to U.S. citizens or residents who are behind on $ 2,500 or more of child-support payments. Under the proposal, officials could revoke or deny a passport if the IRS has placed a lien or levy against the taxpayer?s property, and it allows exceptions in cases of hardship or for humanitarian reasons.
?Guns and Badges?
Mr. Stretch says he thinks this provision has a far better chance of passage than the Schumer-Casey bill. ?This is akin to shutting off the cellphone if you don?t pay your bill,? he says, ?and it prevents the IRS from having to send folks with guns and badges to collect the money.?
Bryan Skarlatos, a criminal tax lawyer at Kostelanetz & Fink in New York, points out that there already are rules allowing for interaction between the IRS and the Department of Homeland Security.
If a taxpayer has an outstanding tax debt but can?t be found, the IRS can alert Homeland Security officials to question the person on his way into the U.S. Typically, they will ask where the person is going and for how long, so the IRS can get in touch, Mr. Skarlatos says, but they can?t arrest a taxpayer.
?Because of the potential for abuse,? he says, ?people should know what?s allowed and what isn?t.?
?Email: taxreport@wsj.com
A version of this article appeared May 26, 2012, on page B9 in the U.S. edition of The Wall Street Journal, with the headline: New Taxes for ?Renouncers??.
WSJ.com: Money
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