PLR 200032032: Planned expatriation found to lack a principal tax avoidance purpose

Plain-English summary

A naturalized U.S. citizen living abroad planned to renounce his citizenship. His expected net worth would exceed the threshold that creates a presumption of tax avoidance under the expatriation rules. The IRS found that his ruling submission was complete and made in good faith, removing that presumption. It also concluded that the information clearly showed that avoiding U.S. income, estate, or gift tax was not one of his principal purposes for expatriating. The letter limits its conclusions to the specified expatriation provisions.

Ruling snapshot

• Question: Would the planned loss of U.S. citizenship be treated as having a principal U.S. tax avoidance purpose?
• Outcome: Approved: the presumption is rebutted, and the IRS found no principal tax avoidance purpose under section 877(a)(1).
• Key authorities: IRC §§ 877(a), 877(c), 2107, 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: 200032032
Person to Contact:
Release Date:8/11/2000
Telephone Number:

Refer Reply To:
PLR-114779-99/CC:INTL:B1
Date:
May 16, 2000

Re:

Tax Year:

A
=

Country B =
Country C =
Year D
=
Year E
=
Year F
=
Date G
=

Dear Mr.

This is in response to your letter dated August 31, 1999, on behalf of A, 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. Additional information was submitted in letters dated January 5, 2000 and January 25, 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 born in Country B in Year D. A was naturalized as a citizen of the United States in Year E. In Year F, A established residence in Country C. A intends to formally renounce his United States citizenship on Date G. On the date of his intended expatriation, A’s net worth will exceed the amount prescribed in section 877(a)(2).

Section 877 generally provides that a citizen who loses U.S. citizenship or a U.S.

PLR-114779-99
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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 he became a citizen of Country B, the country in which A was born. See section 877(c)(2)(A)(ii)(I).

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 98-34, including any additional information requested by the Service after review of the submission.

Accordingly, based on the facts submitted and 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. Therefore, A will not be presumed under section 877(a)(2) to have as one of his principal purposes for expatriating the avoidance of U.S. taxes. We further conclude that A will not be treated under section 877(a)(1) as having as one of his principal purposes for 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.

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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 the taxable years prior to expatriation or his United States tax liability for periods after his expatriation 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 A.

Sincerely yours,

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

cc:

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