PLR 200052029: Young dual citizen's renunciation lacked tax avoidance purpose

Plain-English summary

A person born in the United States also held citizenship in another country through his parents and lived there for income tax purposes. He renounced U.S. citizenship before turning eighteen and one-half. Although his net worth exceeded the statutory threshold for a tax avoidance presumption under the law then in effect, his age made him eligible to seek a ruling. The IRS found his submission complete and in good faith and concluded that avoiding U.S. taxes was not one of his principal purposes. The letter required him to attach it to his U.S. income tax return for the ruling year.

Ruling snapshot

• Question: Did a young dual citizen's loss of U.S. citizenship have a principal purpose of avoiding U.S. taxes?
• Outcome: Approved; the IRS found no principal tax avoidance purpose on the submitted facts.
• Key authorities: IRC §§ 877(a)(2), 877(c)(2)(C), 2107, 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200052029
Washington, DC 20224
Release Date: 12/29/2000
Person to Contact:
Index Number: 877.01-00
Telephone Number:

Refer Reply To:
PLR-116620-00/CC:INTL:B1
Date:
September 29, 2000

Legend

A
=
Date B =
Date C =
Country D =

This is in response to your letter dated
, 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 the United States, and became a dual citizen of Country D on the basis of his parents being citizens of Country D. A is a citizen and a resident of Country D for income tax purposes. A renounced his United States citizenship on Date C, before reaching the age of eighteen and one-half. 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

2
PLR-116620-00

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, 1998-2 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 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 lost his U.S. citizenship before reaching the age of eighteen and one-half. See section 877(c)(2)(C).

A submitted all the information required by Notice 98-34, including any additional information requested by the Service. Accordingly, based solely on the information 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 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 resident status or for taxable periods after his loss of permanent residence status under sections of the Code other than sections 877,

3
PLR-116620-00

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 authorized representative.

Sincerely,

W. Edward Williams
Senior Technical Reviewer, Branch 1
Office of the Associate Chief Counsel
(International)