PLR 200050031: Former resident's expatriation lacked a principal tax avoidance purpose

Plain-English summary

A long-term U.S. resident gave up permanent resident status and sought a ruling about the tax avoidance purpose test for expatriation. His net worth exceeded the threshold that ordinarily raises a presumption of tax avoidance. He and both parents had been born in the same foreign country, where he was a lifelong citizen and represented he would become a resident fully liable to income tax. The IRS found his submission complete and made in good faith under section 877(c) and Notice 98-34. It further concluded that the evidence clearly established that avoiding U.S. income, estate, or gift tax was not one of his principal purposes for expatriating.

Ruling snapshot

• Question: Did the former resident expatriate with a principal purpose of avoiding U.S. tax?
• Outcome: No, based on the submitted facts and representations.
• Key authorities: IRC §§ 877(a)(2), 877(c), 2107, 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200050031
Release Date: 12/15/2000
Index No.: 877.01-00
Person to Contact:

Telephone Number

Refer Reply to
PLR-119481-99/CCINTL:B1
Date:
9/15/2000

A
=

Date B =
Date C =
Country D =

Dear

This is in response to your letter dated November 9, 1999, requesting a ruling under section 877(c) of the Internal Revenue Code of 1986 ("Code") that A’s loss of long-term resident status 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 is a long-term resident of the United States within the meaning of section 877(e), who relinquished his U.S. lawful permanent resident status ("expatriated") on Date B. A has been a citizen of Country D during all of his life by reason of his birth on Date C in Country D. A, and A's father and mother were born in Country D. 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 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.
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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, 1998-2 C.B. 29, 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 A will become, not later than the close of a reasonable period after his expatriation, a resident fully liable to income tax in Country D, the country where A and A’s father and mother were born.

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 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. We further conclude that A will not be treated under section 877(a)(2) as having as one of his 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.

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 permanent residence status or for taxable periods after his loss of permanent residence status under sections of the Code other than
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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’s power of attorney.

Sincerely yours,

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

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