PLR 200125051: Expatriation presumption rebutted, motive left undecided

Plain-English summary

A former US long-term resident asked for a ruling under the expatriation rules then in force after giving up permanent resident status. His net worth exceeded the threshold that could create a presumption of tax avoidance. The IRS found that his submission under Notice 98-34 was complete and made in good faith, so the statutory presumption was rebutted. The IRS said the information did not clearly establish whether tax avoidance was a principal purpose and gave no opinion on his actual motive. It also left open a later finding of a tax avoidance purpose.

Ruling snapshot

• Question: Did giving up US permanent residence lack a principal purpose of avoiding US taxes?
• Outcome: Mixed: the presumption was rebutted, but the IRS did not decide the person's actual purpose.
• Key authorities: IRC §§ 877(c), 2107, 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200125051
Washington, DC 20224
Release Date: 6/22/2001
Index Number: 877.01-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:INTL:Br1-PLR-105381-01
Date:
March 22, 2001

Legend

A
=

Date B =
Country C =
Year D =

:

This is in response to A’s letter dated December 18, 2000 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 rulings contained in this letter are 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 on examination.

A is a long-term permanent resident of the United States within the meaning of section 877(e) who relinquished his U.S. lawful permanent resident status (“expatriated”). A became a permanent resident of the United States and obtained his green card in Year D. A expatriated to Country C, where he has been a citizen all his life, on Date B. On that date, 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
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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.

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 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 person 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 became, not later than the close of a reasonable period after his expatriation, a resident fully liable to income tax in Country C, the country of his birth.

A submitted all the information required by Notice 98-34. 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. However, because the information submitted does not clearly establish the existence or lack of a principal purpose to avoid taxes under subtitle A or B of the Code, no opinion is expressed as to whether A’s expatriation had for one of its principal purposes the avoidance of such taxes. While this ruling rebuts a presumption of tax avoidance under section 877(a)(2), it is not conclusive as to whether A subsequently may be found to have a principal purpose of tax avoidance under sections 877(a)(1), 2107(a)(1), and 3
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2501(a)(3)(A). See section 877(c)(1).

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, 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.

This letter is being sent in accordance with the Power of Attorney on file with this office.

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