Expatriation was not treated as having a principal purpose of avoiding U.S. taxes

Plain-English summary

An individual who was a long term resident of the United States planned to relinquish lawful permanent resident status and return a green card to the U.S. Embassy in the country of citizenship. The individual expected to exceed the net worth threshold relevant to the expatriation tax rules and requested a ruling under section 877(c). The IRS concluded that the submission was complete and made in good faith, so the individual would not be presumed to have expatriated with a principal purpose of avoiding U.S. taxes under section 877(a)(2). The ruling also addressed the related estate and gift tax provisions in sections 2107 and 2501(a)(3). The decision matters because the statutory presumption can affect the U.S. tax treatment of certain former citizens and former long term residents.

Ruling snapshot

• Question: Did the individual's planned loss of long term resident status have a principal purpose of avoiding U.S. taxes?
• Outcome: Approved
• Key authorities: IRC §§ 877, 877(c), 2107, and 2501(a)(3); Notice 98-34

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200109009
Release Date: 3/2/2001
Index No.: 877.01-00
Person to Contact:
Amanda A. Ehrlich, ID 50-18395
Telephone Number
(202) 622-3880
Refer Reply to
PLR-118036-00
Date:
November 24, 2000

A
=
Date B =
Date C =
Country D =
Date E =
Date F =

Dear
:

This is in response to a letter dated B, 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 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, a long-term resident of the United States within the meaning of section 877(e), plans to relinquish his U.S. lawful permanent resident status ("expatriate") on Date C by returning his green card to the U.S. Embassy in Country D. A has been a citizen of Country D during his entire life by reason of his birth on Date E in Country D. A, A's spouse and parents were born in Country D. A became a permanent resident of the U.S. and obtained his green card in Date F. On the date of A’s expatriation, his net worth is expected to exceed 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
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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, 1998-2 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 on the date of expatriation, A intends to be a resident and fully liable to income tax in Country D, the country where A was born.

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

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. 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. It is further concluded 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

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
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after his loss of permanent residence status 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.

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 representative.

Sincerely yours,

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

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