PLR 200020021: Proposed expatriation will not carry a tax avoidance presumption

Plain-English summary

A U.S. citizen living abroad asked about a proposed loss of U.S. citizenship. The person's net worth would exceed the statutory threshold that normally raises a presumption of a principal tax avoidance purpose. The IRS found that the person was eligible to request a ruling after spending fewer than 30 days in the United States in each of the preceding ten years, and had made a complete, good faith submission. The tax avoidance presumption therefore would not apply. The IRS gave no opinion on whether avoiding tax actually was a principal purpose; that issue remained open to later review of the facts.

Ruling snapshot

• Question: Does the proposed expatriation carry the statutory presumption of a tax avoidance purpose?
• Outcome: Mixed: the presumption was rebutted, but the IRS did not decide actual purpose.
• Key authorities: IRC §§ 877(a)(2), 877(c)(1), 2107(a)(2), 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 877.01-00 Washington, DC 20224
Number: 200020021
Release Date: 5/19/2000
Person to Contact:

Telephone Number:

Refer Reply To:
CC:INTL:Br1-PLR-113876-98
Date:
February 17, 2000

TY:

A
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Date B
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Year 1
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Country C
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Year 2
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Country D
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This is in response to your letter dated June 30, 1998, requesting a ruling under section 877(c) of the Internal Revenue Code of 1986 ("Code") that your proposed loss of U.S. citizenship (expatriation) will not have for one of its principal purposes the avoidance of U.S. taxes under subtitle A or subtitle B of the Code. Additional information was submitted in letters dated July 14, and August 21, 1998, and May 28 and June 2, 1999. 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.

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A was born in the United States on Date B. In Year 1, A moved to Country C.
In Year 2, A moved to Country D where A is now resident and domiciled. A became a citizen of Country D in Year 3. A will renounce U.S. citizenship when A obtains Country D citizenship. On the date of A’s expatriation, A’s net worth will exceed the net worth amount required under 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 A was present in the United States for less than 30 days during each of the ten years prior to A’s expatriation.

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 submitted all of the information required by Notice 97-19, including any additional information requested by the Service after review of the submission.

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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 97-19, as modified by 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 will have 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 or following A’s loss of citizenship 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 obtains 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 your authorized representative.

Sincerely,

W. Edward Williams
Senior Technical Reviewer
CC:INTL:Br1