In a tragic twist of events, Facebook co-founder Eduardo Saverin has found himself locked into a tax nightmare, as Forbes reports.
Essentially, by renouncing his U.S. citizenship to avoid paying more taxes, he has locked himself into paying more in taxes than he otherwise would have. When one renounces U.S. citizenship, one is taxed as if one’s assets were sold (even though they are not sold).
In Saverin’s case, when he renounced citizenship, his Facebook stock was worth $2.4 billion, resulting in a cemented-in $365 million tax bill. However, as Facebook’s share price has fallen, Saverin’s shares are now only worth about $1.2 billion, resulting in a doubling of his capital gains tax rate to an effective 30%.
One has to wonder if his tax advisers explained this potential outcome to him…and if he understood it. The moral of the story here is to get good professional advice, because bad advice can be very costly.