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Renouncing Citizenship to Avoid Taxes

Gerard Magliocca

Gerard N. Magliocca is the Samuel R. Rosen Professor at the Indiana University Robert H. McKinney School of Law. Professor Magliocca is the author of three books and over twenty articles on constitutional law and intellectual property. He received his undergraduate degree from Stanford, his law degree from Yale, and joined the faculty after two years as an attorney at Covington and Burling and one year as a law clerk for Judge Guido Calabresi on the United States Court of Appeals for the Second Circuit. Professor Magliocca has received the Best New Professor Award and the Black Cane (Most Outstanding Professor) from the student body, and in 2008 held the Fulbright-Dow Distinguished Research Chair of the Roosevelt Study Center in Middelburg, The Netherlands. He was elected to the American Law Institute (ALI) in 2013.

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9 Responses

  1. All great points to ponder. I pondered along the same lines myself.

  2. There are all sorts of laws about this. I have only moderate familiar with expatriation and taxes, but my rough understanding is that you choose the date of your renunciation, and you pay taxes on all of your assets, as if you sold them on that date. (See here: http://www.irs.gov/businesses/small/international/article/0,,id=97245,00.html).

    I don’t know about Saverin’s situation, but it wouldn’t surprise me if this allows him to avoid some taxes because his unrealized stock options might count as much less now than they will post-IPO. I assume that he’s gotten expert legal counsel about doing this.

    There’s also something called the Reed Amendment which creates a statutory bar to entry for people who renounce their U.S. Citizenship for tax purposes. But my understanding is that it isn’t commonly enforced.

  3. Matt says:

    There’s also something called the Reed Amendment which creates a statutory bar to entry for people who renounce their U.S. Citizenship for tax purposes. But my understanding is that it isn’t commonly enforced.
    INA 212(a)(10)(E): Former citizens who renounced citizenship to avoid taxation.-Any alien who is a former citizen of the United States who officially renounces United States citizenship and who is determined by the Attorney General to have renounced United States citizenship for the purpose of avoiding taxation by the United States is excludable.

    But, as Will notes, it’s rarely, if ever, enforced, in part because it’s pretty hard to prove that the renunciation was done “for the purpose of avoiding taxation”. In this case, my understanding is that Savarin has other citizenships (w/o having acquired them in any funny or unusual way) and has been living abroad for some time, so it would not be completely implausible for him to claim that his reasons were not to avoid taxation, at least if we require some modest level of proof. (In immigration situations, of course, we often just go with the gut feeling of the consular officer, but I doubt Savarin would just admit it to the officer.

  4. Kent says:

    IRC 877 Deals with expatriation to avoid tax. Says that a nonresident alien pays taxes on their domestic sourced income for ten years following their loss of citizenship. At least that’s what the code section appears to say…

  5. Sam Brunson says:

    Kent, the 877 rules don’t apply to anyone who expatriates after 2008. See I.R.C. s 877(h). Instead, the rules of 877A apply; under those rules, an individual is treated as selling all of her assets on the day before her expatriation, and is required to pay taxes on that amount, less an exemption.

    Gerard, I’m pretty sure the government doesn’t have any equitable recourse to change his repatriation date. Section 877A says that the date of expatriation is determined by one of four events: the date she renounces her nationality before a diplomatic or consular officer, the date she provides a signed statement that she did certain required things, the date the State Department issues a certificate of loss of nationality, or the date a court cancels her certificate of nationality. Congress could, of course, change the law, but under current law, individuals get to decide when to trigger their expatriation for tax purposes.

  6. Kent says:

    Ah, thanks for the clarification Professor Brunson.

  7. Sam Brunson says:

    No problem, Kent–even though I knew the rule in 877 had been superseded, it took me a couple minutes to figure out where the Code said it had.

  8. Sam Brunson says:

    (That is to say, that 877 no longer governs is far from clear on the face of the Code.)

  9. Sue Middendorf says:

    My dear Tina,
    I can’t believe that you are giving up your citizenship!
    Your first fans were U. S. citizens. Your Mother was a U.S. citizen. You made most of your money (and admiration)in the U.S.
    I find it very difficult to understand why you refuse to pay taxes here. I’ll bet that no matter what, you are receiving Social Security and Medicare.
    My father always said that taxes are to cover the cost of freedom. You have had the advantage of freedom for 72 years.
    I am very disappointed that you have forgotten your roots and become one of the 1%. You didn’t make the change until the Bush tax cuts were reinstated. Su-Ki-Ook!

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