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Ex-Pat Act to Close the Door

In reaction to Facebook co-founder Eduardo Saverin’s U.S. citizenship withdrawal, Senate Democrats have unveiled the Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy (Ex-Patriot) Act. Sens. Bob Casey (PA) and Charles Schumer (NY) outlined the bill that would impose a capital gains tax on U.S. investments for those who renounce their citizenship to avoid taxes and bar the ex-pat’s from returning to the U.S. If passed, the IRS will presume that those with either a net worth of $2 million or an average income liability of at least $148,000 over the last five years who renounce their citizenship are doing so to avoid taxes. Individuals who meet specified requirements would have an opportunity to prove otherwise to the IRS. If the motives were found to be legitimate, no penalties will be applied. On the other hand, if the IRS rules that an individual gave up their passport for tax purposes, then the individual could face taxes of 30% on future investment gains, regardless of where they reside. Further, so long as the individual avoids their tax responsibilities, they will not be allowed to return to the U. S.

While the genesis of the bill is in reaction to Saverin’s announcement, if passed, it could retroactively involve an estimated 3,000 people, namely those who have renounced their citizenship to avoid taxes in the 10-year period prior to passage. “This is a small, narrow group,” Schumer stated. “And they deserve to get the treatment we’re giving them.” Under the current system, the expatriates have been able to evade their tax liability and still return to the U. S. for 60 days per year; this new bill hopes to close the loophole and the door.

Kundra & Associates