Since 2009, the IRS has intensified its efforts of tracking down American-owned taxable assets lodged overseas. This action has resulted in thousands of taxpayers being caught and prosecuted for tax evasion because they have not declared their offshore assets. The number of US citizens renouncing their citizenship started to spike in 2009 after the infamous case of UBS Bank of Switzerland that was fined $780 million in compensation for its role in helping its US customers hide their taxable assets in their bank accounts.
More significantly, the bank was forced to divulge the names of thousands of American clients with bank accounts suspected of tax evasion to the American government. This entire episode came about after an ex-private banker of UBS, Bradley Birkenfeld blew the cover off what UBS was doing and subsequently helped the IRS identify thousands of suspected tax dodgers. This inevitably spooked those having foreign assets.
The number of those relinquishing citizenship is expected to increase next year when more legislation is put in force. Among them is one that makes it mandatory for foreign banks to inform the US government of Americans opening bank accounts with them. Some foreign banks are already prohibiting Americans from opening accounts.
One of those in the list of people announced by the IRS who had renounced their citizenship is Eduardo Saverin, the 30-year old billionaire co-founder of Facebook, that is about to make its shares public. Facebook expects to raise as much as $11.8 billion through its coming IPO, the biggest for an Internet company. Saverin’s share in the company is about 4% which would stand to earn Saverin about $3.84 billion after the IPO. All this money will not be subject to tax now that Saverin has given up his citizenship.
But Saverin will still be subject to an exit tax on the capital gains from his stock holdings, even if he does not sell the shares. Saverin plans to become a resident of Singapore, where he intends to live indefinitely. Singapore does not have a capital gains tax but it does tax certain “foreign-sourced income”.