PLR 200024033: IRS accepts expatriate's submission but finds a tax avoidance purpose

Plain-English summary

A former U.S. citizen asked the IRS to rule that avoiding U.S. tax was not a principal purpose of giving up his citizenship. His net worth exceeded the threshold that would ordinarily trigger a presumption of tax avoidance, but his limited presence in the United States made him eligible to request a ruling under section 877(c). The IRS found that he had submitted the required information completely and in good faith. It nevertheless concluded that the information clearly established a principal purpose to avoid U.S. income, estate, or gift taxes, so it would treat him as an expatriate with that purpose under section 877(a)(1). The letter describes his related filing obligations for the ten years following expatriation, subject to the conditions stated in the ruling.

Ruling snapshot

• Question: Did the former citizen's loss of U.S. citizenship lack a principal purpose of avoiding U.S. taxes under section 877(c)?
• Outcome: Mixed. The submission was complete and in good faith, but the IRS found a principal purpose of tax avoidance.
• Key authorities: IRC §§ 877, 2107, 2501; Notices 97-19 and 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200024033
Release Date: 6/16/2000
Index No.: 877.00-01
Person to Contact:

Telephone Number

Refer Reply to
CC:INTL:B01 -PLR-121942-98
Date:
March 17, 2000

A
=
TIN:
Date B =
Year C =
Date D =
Country E =

Dear

This is in response to your letter dated November 25, 1998, 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 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 born on Date B and became a U.S. citizen at birth on the basis of his father being a citizen of the United States. A has been a resident of Country E since Year C. A renounced his United States citizenship on Date D. A was present in the United States for no more than 30 days during each year of the 10-year period ending on the date of expatriation. On the date of A’s expatriation, his net worth exceeded the net worth 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.

PLR-121942-98
-2-

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 97-19, 1997-1 C.B. 394, as modified by Notice 98-34, 1998-2 C.B.
29, 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.

Notice 97-19, as modified by 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 under section 877 because A was present in the United States for no more than 30 days during each year of the 10-year period ending on the date of expatriation. See section 877(c)(2)(B).

A submitted all the information required by Notice 97-19, as modified by Notice 98-34, including any additional information requested by the Service. 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 8-34. However, it is further held that A will, nevertheless, be treated under section 877(a)(1) as having as one of his principal purposes of expatriating the avoidance of U.S. taxes because the information submitted clearly established a principal purpose to avoid taxes under subtitle A or B of the Code.

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 U.S. citizenship or for taxable periods after his loss of U.S. citizenship under sections of the Code other than sections 877, 2107, and 2501(a)(3).

PLR-121942-98
-3-

Because A is treated under section 877(a)(1) as having as one of his principal purposes for expatriating the avoidance of U.S. taxes, he must annually file a U.S. income tax return (Form 1040NR), with the information described in Notice 97-19, section VII, Annual Information Reporting, for each year in the 10-year period following expatriation if he is liable for U.S. tax under any provision of the Code, as modified by section 877. For purposes of computing the tax due under section 877, A must recognize the realized or unrealized gains as a result of any “exchange” described in section 877(d)(2)(B), (d)(2)(E)((i), or (d)(2)(E)(ii) in the year of the exchange. For further information, A should refer to the Instructions to Form 1040NR, U.S. Nonresident Income Tax Return.

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), and to any other return required to be filed during the ten-year period following the date of A’s expatriation.

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.

Sincerely yours,

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

cc: Assistant Commissioner (International) International District Operations OP:IN:D Chief, Examination Division