PLR 200030021: Minor's expatriation rebuts tax avoidance presumption only

Plain-English summary

A former U.S. citizen renounced citizenship before age 18½ and had net worth above the threshold that triggered a presumption of tax avoidance under the law then in force. The taxpayer sought a ruling based on a timely, complete, good faith submission under section 877(c) and Notice 98-34. The IRS concluded that the submission rebutted the statutory presumption. It expressly declined to decide whether avoiding U.S. tax was in fact one of the principal purposes of the expatriation. That question could still be decided later from all the facts and circumstances, including for the special estate and gift tax rules.

Ruling snapshot

• Question: Did the former citizen's submission overcome the presumption that expatriation principally sought to avoid U.S. tax?
• Outcome: Mixed: presumption rebutted; actual purpose left open.
• Key authorities: IRC §§ 877(a)-(c), 2107, and 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service                         Department of the Treasury
Washington, DC 20224
Index No.: 877.01-00
Number: 200030021
Release Date: 7/28/2000                          Person to Contact:

Telephone Number

Refer Reply to
PLR-100042-00/CC:INTL:B1
Date:
May 1, 2000

A             =

Date B        =
Country C     =
Date D        =

Dear              ;

This is in response to a letter from A’s power of attorney dated December 17,
1999, 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 in Country C and became a U.S. citizen at birth on the
basis of his mother’s U.S. citizenship. A renounced his United States citizenship on
Date D. On the date of A's expatriation, A was less than 18½ years of age and 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 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.

PLR-100042-00                                -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 or former long term-resident 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), 2107(a)(2)(B), and
2501(a)(3)(C).

Under Notice 98-34, 1998-27 I.R.B. 40, 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 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 loss of United
States citizenship occurred before he attained the age of 18½. See section
877(c)(2)(C).

Accordingly, based on the facts submitted and the representations made, we
conclude 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 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).

PLR-100042-00                                -3-

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).

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 your power of attorney.

Sincerely yours,

________________
W. EDWARD WILLIAMS
Senior Technical Reviewer
Branch 1
Office of the Associate Chief Counsel
(International)

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