PLR 200111002: Planned renunciation lacks principal U.S. tax avoidance purpose

Plain-English summary

A person who held U.S. citizenship and another country's citizenship from birth planned to renounce U.S. citizenship. She had not lived in the United States since infancy and submitted a ruling request under the then-applicable expatriation rules. The IRS found the submission complete and made in good faith. It also concluded that avoiding U.S. taxes was not a principal purpose of the planned renunciation. On the stated facts, the special expatriation provisions of §§ 877, 2107, and 2501(a)(3) would not apply.

Ruling snapshot

• Question: Was avoiding U.S. taxes a principal purpose of the planned loss of citizenship?
• Outcome: Approved: the IRS found no principal tax avoidance purpose on the represented facts.
• Key authorities: IRC §§ 877(a)(1), 877(c), 2107, and 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200111002
Washington, DC 20224
Release Date: 3/16/2001
Index Number: 877.01-00
Person to Contact:
Amanda A. Ehrlich ID 50-18395
Telephone Number:
(202)622-3880
Refer Reply To:
CC:INTL:B01-PLR-119835-00
Date:
October 31, 2000

TY:

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

Dear :

This is in response to a letter dated September 26, 2000, submitted by your authorized representative requesting a ruling under section 877(c) of the Internal Revenue Code (“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 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 a ruling, it is subject to verification upon examination.

A was born in the United States on Date B. She also became a citizen of C at birth. A continues to be a citizen of C. A is a resident of D. A has not resided in the United States since infancy. A plans to renounce her U.S. citizenship in Date F.

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 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 U.S. citizen 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 2 PLR-119835-00

exceeds 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, 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 she became at birth a citizen of the United States and a citizen of another country and continues to be a citizen of such other country. Section 877(c)(2)(A)(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.

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). We further conclude that A will not be treated under section 877(a)(1) as having as one of her principal purposes for expatriating the avoidance of U.S. taxes under subtitle A or B of the Code. Accordingly, A will not be subject to the provisions of section 877(b) and the applicable provisions of sections 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(s) 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 the taxpayer.
Sincerely,
W. Edward Williams
Senior Technical Reviewer, Branch 1
Office of the Associate Chief Counsel
(International)