PLR 200031036: Tax avoidance was not a principal purpose of planned expatriation

Plain-English summary

A U.S. citizen who had lived primarily in another country since 1959 planned to relinquish her U.S. citizenship. Her net worth exceeded the threshold that could trigger a presumption of tax avoidance under the expatriation rules then in effect. She requested a ruling and submitted the information required by Notice 98-34. The IRS found her submission complete and made in good faith, so it did not apply the presumption. It further concluded that the information clearly showed that avoiding U.S. income, estate, or gift taxes was not one of her principal purposes for expatriating. The ruling addressed her stated circumstances and planned loss of citizenship.

Ruling snapshot

• Question: Would the planned loss of U.S. citizenship be treated as having a principal purpose of avoiding U.S. taxes under section 877?
• Outcome: Approved. The IRS declined to apply the presumption and found no principal tax avoidance purpose on the submitted facts.
• Key authorities: IRC §§ 877, 2107, and 2501(a)(3); Notices 98-34 and 97-19.

Full text (IRS public release)

Internal Revenue Service                          Department of the Treasury

Index Number:        877.07-00                    Washington, DC 20224



Number: 200031036                                 Person to Contact:
Release Date: 8/4/2000                            Telephone Number:

                                                  Refer Reply To:
                                                  CC:INTL:BR1-PLR-116160-99
                                                  Date:
                                                  May 5, 2000




         DO:         TY:

Legend

A                    =


Date B               =

Country C            =



Dear :

This is in response to a letter dated September 23, 1999, and a supplemental letter dated
February 16, 2000, submitted by A’s authorized representative requesting a ruling under
section 877(c) of the Internal Revenue Code of 1986 ("Code") that A’s loss of U.S.
citizenship will 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
in support of the request for rulings, it is subject to verification on examination.

A was born on Date B in the United States. A became a citizen of Country C by reason
of her marriage to a citizen of Country C in 1959. A has lived primarily in Country C
since 1959. A intends to relinquish her U.S. citizenship (“expatriate”) upon receipt of
this ruling. On the date A submitted her ruling request, her net worth exceeded the
applicable threshold set forth in section 877(a)(2)(B) of the Code.
                                             2
PLR-116160-99

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 taxed on U.S. source income (as modified by section 877(d)) for such
taxable year, unless such loss did not have for one if 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 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 or former long-term resident 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.

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 she narrowly misses the
criteria in section 877(c)(2)(B). See Notice 97-19, sec. IV, example 3.

A submitted all the information required by Notice 98-34, including any additional
information requested by the Service after review of the submission.


Accordingly, based solely on the information submitted and the representations made, it is
concluded 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.
                                               3
PLR-116160-99

It is further concluded that A will not be treated under section 877(a)(2) as having as
one of her principal purposes of expatriating the avoidance of U.S. taxes, because the
information submitted clearly established the lack of a principal purpose to avoid taxes
under subtitle A or B of the Code.

This ruling is directed only to the taxpayer(s) requesting it. Section 6110(k)(3) of the
Code provides that it may not be used or cited as precedent.

A copy of this letter must be attached to any income tax return to which it is relevant.

In accordance with the Power of Attorney on file with this office, a copy of this letter is
being sent to the taxpayer.




                                               Sincerely,


                                               ______________________________
                                               W. E. Williams
                                               Senior Technical Reviewer, Branch No. 1
                                               Associate Chief Counsel (International)


cc:




      Assistant Commissioner (International)
      International District Operations
      OP:IN:D