PLR 200020028: Former citizen rebuts expatriation tax avoidance presumption

Plain-English summary

A former U.S. citizen born abroad sought a ruling after losing her citizenship. Her net worth exceeded the threshold that normally triggered a presumption that expatriation had a principal purpose of avoiding U.S. tax. She was a resident of her birth country and liable there for tax on her worldwide income. The IRS found that she had made the required complete, good faith submission, so the statutory presumption would not apply. It did not decide whether tax avoidance actually was one of her principal purposes. That question could still be resolved later from all the facts and circumstances.

Ruling snapshot

• Question: Does the former citizen's submission rebut the tax avoidance presumption, and was tax avoidance a principal purpose?
• Outcome: Mixed: the presumption was rebutted, but the IRS gave no opinion on 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: 200020028
Person to Contact:
Release Date: 5/19/2000
Telephone Number:

Refer Reply To:
CC:INTL:Br1-PLR-119401-99
Date:
February 15, 2000

TY:

A
=

Country B
=

Date C
=

Date D
=

:

This is in response to a letter from your authorized representative dated December 7, 1999, requesting a ruling under section 877(c) of the Internal Revenue Code of 1986 ("Code") that your loss of citizenship (expatriation) did 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 a letter dated January 11, 2000. 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 was a U.S. citizen by reason of her birth to a U.S. citizen in Country B on Date C. A expatriated on Date D. A will be subject to Country B taxes on her worldwide income. On the date of A’s expatriation, her net worth exceeded the requisite amount set forth in section 877(a)(2).

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PLR-119401-99

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 U.S. citizen or former U.S. 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, a former long-term resident whose net worth or average tax liability exceeds the applicable thresholds will not be presumed to have a principal purpose of tax avoidance if that former 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 she is a resident and fully liable to tax on her worldwide income in Country B, the country in which she was born.

A submitted all of the information required to be submitted by Notice 97-19, as modified by Notice 98-34, including additional information requested by the Service after review of the submission.

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.

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PLR-119401-99

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 her 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 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.

Pursuant to a power of attorney on file in this office, a copy of this letter is being sent to your authorized representative.

Sincerely yours,

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