Comment by jonshea | Hacker News Reader

Comment by jonshea | Hacker News Reader

By my math, Eduardo Saverin doesn’t avoid any tax at all by leaving the US, regardless of whether or not his stock goes up or down. If he leaves, the US takes 15% of his stock now. If he stays, the US takes 15% of his stock later. But either way, the US have taken away 15% of his ability to spend.

Let’s work through it with numbers, in case that isn’t clear. Say Saverin has $100 worth of Facebook stock. He renounces US citizenship. He sells enough stock to pay $15 to the government, leaving him with $85 in Facebook stock. Over the next year, Facebook doubles in value, leaving him with $170 in stock. He cashes out, and there’s no tax, so he ends up with $170 in cash.

Now imagine he stays in the US. He has $100 in Facebook stock, which he pays no tax on because there is no taxable event. Facebook doubles in value over the next year, so he ends up with $200 in stock. Then he cashes out, paying 15% in capital gains, leaving him with $170 cash.

Clearly he ends up with the same amount of cash either way. Perhaps Saverin is avoiding tax by leaving the US, but neither this article nor any other article I have read identifies how he is doing so.

See this comment below. Also you could make the case that you are locking in the 15% LT cap gains rate, which could and likely will increase at some unknown point in the future.

>> The numbers on and analysis of his tax liability in the article are demonstrably wrong - at a level of error unworthy of The Economist. His tax liability is calculated on the value of the stock as of the date he renounces citizenship, which was last September. Today, Facebook is worth maybe $100 billion. Early this year, a private equity offering put the value at $50 billion. Last fall, who knows, and it's all subject to negotiation with the IRS - my guess is no more than $25 billion. That means he evades 75 % of the tax bite by renouncing citizenship, and will be paying at most maybe $125 to $150 million of that $500 to $600 million tax liability he would owe if he sold all his stock next week.

If we assume that Saverin had to pay his taxes by selling shares at the same price at which the IRS assessed then, then my logic still holds. Saverin would have to sell 15% of his stock to pay the 15% tax.

If, as you suggest, he is able to sell his shares at a greater valuation than the IRS uses to calculate his exit tax, then you are correct. When you renounce your citizenship, I have no idea how long the IRS gives you to actually pony up the exit tax.

Here's how he's avoiding taxes:

He's making this move before Facebook is public.

Once Facebook is public, the value of his stake is much more transparent (and harder to fool around with). In your first example, the valuation of a privately-held company determines the exit tax. In your second example, Facebook is a public company and its valuation is determined by a public market. Singapore has no capital gains tax, so if he exits now with the lower private company valuation, he won't pay taxes on the difference.

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