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Michael Pfeifer Quoted in CNBC article, Chasing Saverin's Winnings Is a Losing Battle

May 17, 2012, CNBC
Excerpt taken from the article.

When it comes to taxing a major Facebook founder's windfall, Sens, Chuck Schumer and Bob Casey are so eight years ago.

The legislators held a press conference today to unveil a bill they are calling the "Ex-Patriot Act" (Expatriation Prevention by Abolishing Tax-Related Incentives for Offshore Tenancy"), aimed at preventing wealthy Americans from dropping their citizenship in order to avoid taxes. Last week, it was discovered that Facebook co-founder Eduardo Saverin had expatriated in September of last year.

"Eduardo Saverin wants to defriend the United States of America just to avoid paying taxes," Schumer said. "We aren't going to let him get away with it."

The senators' bill seeks to reapply a mandatory 30 percent capital gains tax on anyone who abandons the United States, and it would renew an existing law, rarely enforced, that bars those people from setting foot on U.S. soil.

If the bill becomes law, it would return tax policy on expatriating citizens to a more punitive approach than existed before 2004.

Before that year, certain tests were applied to expatriating citizens' finances to determine whether they were leaving for the "principal purpose of tax avoidance." If the person was worth at least $2 million, or had an average income of $145,000 or more in the two previous years, they could be taxed on their U.S. gains for the next 10 years.

In the mid-1990s, the IRS noticed that some wealthy individuals were working around the principle-purpose definition by migrating their trust funds abroad. "I asked whether they were doing this because the beneficiaries were expatriating," recalls Michael Pfeifer, former Special Assistant to the Associate Chief Counsel (International) at the IRS, and now a partner at Caplin & Drysdale, a Washington, D.C. law firm.

Out of Pfeifer's investigation came the current policy, which was updated to its present form in 2008. Known as "mark to market," it is a cleaner process that imposes an exit tax on the expatriator's worldwide assets at the time citizenship is relinquished.

It's not likely that Congress will take up the Schumer-Casey bill, not only because the current policy was enacted so recently, but because it is widely seen as sensible and fair. "Tax law is not supposed to be a fence that keeps people in the United States," says Pfeifer.

To read the rest of the article about the Eduardo Saverin's expatriation and it's impact on his U.S. tax obligations, click here.

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