PLR 200019008: Expatriation submission rebuts tax-avoidance presumption

Plain-English summary

A former U.S. citizen who had returned to his birth country asked the IRS to rule that tax avoidance was not a principal purpose of giving up his citizenship. His net worth exceeded the threshold that would otherwise create a tax-avoidance presumption under section 877. The IRS found his request complete and made in good faith, so the presumption would not apply. It declined to decide whether tax avoidance was in fact a principal purpose of his expatriation. The ruling left that question open to a later review of all the facts and circumstances.

Ruling snapshot

• Question: Did the expatriation avoid the tax-avoidance presumption, and did the IRS find that tax avoidance was not a principal purpose?
• Outcome: Mixed. The presumption was rebutted, but the IRS gave no opinion on actual purpose.
• Key authorities: IRC §§ 877, 2107, and 2501(a)(3); Notices 97-19 and 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 877.01-00 Washington, DC 20224

Number: 200019008
Person to Contact:
Release Date: 5/12/2000
Telephone Number:

Refer Reply To:
PLR-119319-99: CC:INTL:B01
Date:
February 7, 2000
Re:

Tax Year: 1998

A
=
TIN:

Country B
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Date C
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Date D
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Year E
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Year F
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Year G
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Date H
=

Dear
:

This is in response to your letter dated November 22, 1999, on behalf of A, requesting a ruling under section 877(c) of the Internal Revenue Code of 1986 ("Code") that A’s loss of U.S. citizenship 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 a penalty of perjury statement executed by an appropriate party. While this office has not verified any of the material submitted
PLR-119319-99
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in support of the request for rulings, it is subject to verification on examination.

A was born in Country B on Date C. Upon A’s marriage to his first wife, a U.S. citizen and resident, A moved to the United States. A was naturalized as a U.S. citizen on Date D. In Year E, A divorced his first wife and married his current wife. A’s current wife is a citizen by birth of Country B, and was naturalized as a U.S. citizen in Year F. From Year E to Year G, A and his current wife resided in the United States. In Year G, A and his current wife moved back to Country B. On Date H, A formally renounced his U.S. citizenship at the United States Embassy in Country B. On the date of his expatriation, A’s net worth exceeded the amount prescribed in section 877(a)(2).

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 subject to 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, modifying Notice 97-19, 1997-1 C.B.
394, an eligible former citizen will not be presumed to have a principal purpose of tax avoidance if that former citizen 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.

A is eligible to request a ruling under section 877 because he is a citizen of Country B, the country in which he was born. See section 877(c)(2)(A)(ii)(I).

Notice 97-19 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.
PLR-119319-99
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A submitted all of the information required by Notice 97-19, as modified by Notice 98-34.

Accordingly, based solely on the information submitted and the representations made, it is 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 purpose 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 the taxable years prior to expatriation or his United States tax liability for periods after his expatriation 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 representative.

Sincerely yours,

ALLEN GOLDSTEIN
Reviewer
Office of the Associate Chief Counsel
(International)