Earlier this year, it was revealed that Eduardo Saverin had renounced his US Citizenship. The popular theory was that Saverin did so to save himself taxes on his large stake in Facebook. With Facebook dropping in price, it turns out that Saverin will end up paying more in taxes and do so sooner than he otherwise would have to the US government had he just remained a Citizen. Follow me below the squiggle to understand why.
Typically the way the IRS taxes you on making money off of a stock is when you actually sell. If you buy a stock for $10 and it rises to $20 a year later, you won't get taxed on it until you actually sell it. If the stock goes to $25 and you sell it, you get taxed on the $15 gain. At the same time, if it then goes to $15, you get taxed on a $5 gain. All of this happens when you sell and you don't owe tax until you sell.
However, when you renounce your citizenship, things work a little differently. The IRS does what is known as a deemed disposition of your assets. If you buy a stock for $10 and it goes to $20 and on that day you renounce your citizenship, the IRS taxes you on the $10 that the stock went up. If you later sell at $25, $15 or whatever, the IRS doesn't care any more because you are no longer a citizen. The other point is that you pay that tax right then and there, even if you hold onto that stock for another 50 years.
Saverin got his shares in Facebook for nothing or next to nothing. He owns about 2% of Facebook. Now given that Facebook wasn't public when he renounced his Citizenship, it's a little more difficult to ascertain what Facebook was worth on the day that he renounced his Citizenship, but here are some data points:
January 2011 - Goldman Sachs and a Russian investor invest in Facebook giving it a value of $50 Billion.
September 2011 - Saverin renounces US Citizenship
April 15, 2012 - Tax Day
May 18, 2012 - Facebook IPOs at a valuation of about $90B.
Today (Sept 26, 2012) - Facebook is worth about $45 Billion.
So the million dollar question is how much was Facebook worth in September 2011 when Saverin renounced his citizenship? And to note that he would have told the IRS what HE thought it was worth on April 15 before all of the carnage in the stock. (The IRS, of course, could beg to differ).
Saverin renounced at about the mid-point of the $50 billion valuation in January 2011 and the IPO valuation of about $90 billion. Thus it could be argued that Facebook was worth $75 billion when he renounced. There is a market for private stock called Secondmarket that conducts trades between insiders who want to sell and outsiders who desire to own, however, I haven't seen if they have a valuation in or around September 2011.
Any which way, the valuation was definitely higher than $50 billion. As such, Saverin paid taxes based on a gain of much more than the stock is worth today and he paid it long before he even had the ability to sell his stake.