PLR 200003027: Submission rebuts expatriation tax avoidance presumption

Plain-English summary

A former long-term U.S. resident planned to give up permanent resident status and requested a ruling that tax avoidance was not a principal purpose. The person's net worth and average tax liability exceeded thresholds that otherwise created a presumption of tax avoidance under the law discussed in the letter. The IRS found a complete, good faith submission under Notice 98-34 and ruled that the presumption would not apply. It expressly declined to decide whether avoiding U.S. tax was in fact a principal purpose, which could still be determined from all the facts and circumstances. The letter required a copy of the ruling to be attached to the person's U.S. income tax return for the year of the ruling.

Ruling snapshot

• Question: Would the former resident avoid the statutory presumption that expatriation had a principal purpose of tax avoidance?
• Outcome: Mixed: the presumption was rebutted, but the IRS gave no opinion on the person's actual purpose.
• Key authorities: IRC §§ 877(c)(1), 2107, and 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service                          Department of the Treasury

Index Number:          877.08-00                  Washington, DC 20224



Number: 200003027                                 Person to Contact:
Release Date: 1/21/1999                           Telephone Number:

                                                  Refer Reply To:
                                                  CC:INTL:1-PLR-113037-99
Re                                                Date:
                                                  October 25, 1999




         DO:           TY:


A              =

Date B         =

Country C      =

Date D         =

Year E         =


Dear               :

This is in response to a letter dated June 20, 1999, submitted by A’s authorized
representative requesting a ruling under section 877(c) of the Internal Revenue Code of
1986 ("Code") that A’s loss of long-term resident status did not have for one of its principal
purposes the avoidance of U.S. taxes under subtitle A or subtitle B of the Code. The
information submitted for consideration is substantially as set forth below.

The ruling contained in this letter is based upon information and representations submitted
by the taxpayer and accompanied by penalty of perjury statements executed by an
appropriate party. While this office has not verified any of the material submitted in
support of the request for rulings, it is subject to verification on examination.

A, a former long-term resident of the United States within the meaning of section 877(e),
intends to relinquish his U.S. lawful permanent resident status ("expatriate") on Date B. A
has been a citizen of Country C all of his life by reason of his birth on Date D in Country C.
A's parents were also born in Country C. A became a permanent resident of the U.S. and
obtained his green card during Year E. On the date of A’s expatriation, his net worth and

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his average annual tax liability for the five-year period prior to expatriation will exceed the
applicable thresholds in section 877.

Section 877 generally provides that a citizen who loses U.S. citizenship or a U.S. long-
term resident who ceases to be taxed as a lawful permanent resident (individuals who
"expatriate") within the 10-year period immediately preceding the close of the taxable year
will be taxed under section 877(b) and the special rules of section 877(d) for such taxable
year, unless such loss did not have for one of its principal purposes the avoidance of U.S.
taxes. Sections 2107 and 2501(a)(3) provide special estate and gift tax regimes,
respectively, for individuals who expatriate with a principal purpose to avoid U.S. taxes.

A former citizen or former long term-resident will be treated as having expatriated with a
principal purpose to avoid U.S. taxes for purposes of sections 877, 2107 and 2501(a)(3) if
the individual’s average income tax liability or the individual’s net worth on the date of
expatriation exceed certain thresholds. See sections 877(a)(2), 2107(a)(2)(A) and
2501(a)(3)(B).

A former U.S. citizen whose net worth or average tax liability exceeds these thresholds,
however, will not be presumed to have a principal purpose of tax avoidance if that former
citizen is described within certain statutory categories and submits a request for a ruling
within one year of the date of loss of U.S. citizenship for the Secretary’s determination as
to whether such loss had for one of its principal purposes the avoidance of U.S. taxes.
See sections 877(c)(1), 2107(a)(2)(B), and 2501(a)(3)(C).

Under Notice 98-34, 1998-27 I.R.B. 30, a former long-term resident whose net worth or
average tax liability exceeds the applicable thresholds will also not be presumed to have a
principal purpose of tax avoidance if that former long-term resident is described within
certain categories and submits a complete and good faith request for a ruling as to
whether such loss had for one of its principal purposes the avoidance of U.S. taxes.

Notice 98-34 requires that certain information be submitted with a request for a ruling that
an individual’s expatriation did not have for one of its principal purposes the avoidance of
U.S. taxes.

A is eligible to request a ruling pursuant to Notice 98-34 because he is described in three
categories of individuals eligible to submit ruling requests. First, within a reasonable
period after A’s expatriation, A will be a resident fully liable to income tax in Country B, the
country where A was born. Second, within a reasonable period after A’s expatriation, A
will be a resident fully liable to income tax in Country B, the country where A’s spouse was
born. Third, A is eligible to submit a request because within a reasonable period after his
expatriation, A will be a resident fully liable to tax in Country B, the country where his
parents were born.

A submitted all the information required by Notice 98-34, including any additional
information requested by the Service after review of the submission.

Accordingly, based solely on the information submitted and the representations made, it is

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held that A has made a complete and good faith submission in accordance with section
877(c)(1)(B) and Notice 98-34, and therefore, A will not be presumed to have expatriated
with a principal purposes of tax avoidance.

However, because the information submitted does not clearly establish the existence or
lack of a principal purpose to avoid taxes under subtitle A or B of the Code, no opinion is
expressed as to whether A’s expatriation had for one of its principal purposes the
avoidance of such taxes. While this ruling rebuts the presumption of tax avoidance under
section 877(a)(2), it is not conclusive as to whether A subsequently may be found to have
a principal purpose of tax avoidance under sections 877(a)(1), 2107(a)(1), and
2501(a)(3)(A) based on all the facts and circumstances. See section 877(c)(1). Except as
expressly provided herein, no opinion is expressed or implied concerning the tax
consequences of any aspect of any transaction or item discussed or referenced in this
letter. In addition, no opinion is expressed as to A’s U.S. tax liability for taxable periods
prior to his loss of permanent resident status or for taxable periods after his loss of
permanent resident status under sections of the Code other than sections 877, 2107, and
2501(a)(3).

A copy of this letter must be attached to A’s U.S. income tax return for the year in which A
obtained the ruling (whether or not A is otherwise required to file a return).

This ruling is directed only to the taxpayer requesting it. Section 6110(k)(3) of the Code
provides that it may not be used or cited as precedent.

In accordance with the power of attorney on file with this office, a copy of this letter is
being sent to A’s authorized representative.


                                                Sincerely,



                                                Ed Williams
                                                Senior Technical Reviewer
                                                CC:INTL:Br1


cc: