PLR 200128041: Former resident's departure lacked a principal tax avoidance purpose

Plain-English summary

A former U.S. lawful permanent resident asked whether relinquishing that status had a principal purpose of avoiding U.S. tax. His net worth exceeded the threshold that could trigger a tax avoidance presumption under the rules then in effect. The IRS found that he qualified to request a ruling, had submitted the information required by Notice 98-34 in good faith, and would not be presumed to have left for tax avoidance. It also concluded that the submitted facts showed no principal purpose to avoid income, estate, or gift taxes under the cited provisions.

Ruling snapshot

• Question: Was the former resident's loss of permanent resident status principally motivated by avoiding U.S. tax?
• Outcome: Approved; no principal tax avoidance purpose was found on the submitted facts.
• 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

Number: 200128041
Washington, DC 20224
Release Date: 7/13/2001
Index Number: 877.08-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:INTL:BR1-PLR-112543-01
Date:
April 16, 2001

TY:

Legend

A
=

Date B =

Country C =

Date D =

Year E =

Date F =

Dear
:

This is in response to a letter dated February 25, 2001, submitted 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 U.S. lawful permanent residence will 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 rulings, it is subject to verification on examination.

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A was born on Date B in Country C. A came to the United States in Year E and became a lawful permanent resident of the United States on Date D. A relinquished his lawful permanent residence (“expatriated”) on Date F. On the date A submitted his ruling request, his net worth exceeded the applicable threshold set forth in section 877(a)(2)(B) of the Code.

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 if 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 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 or former long-term resident 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, 1998-27 I.R.B. 30, 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.

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 he became at birth a citizen of Country C, and continues to be a citizen of Country C. In addition, A’s parents and spouse were also born in Country C.

A submitted all the information required by Notice 98-34. Accordingly, based on the facts submitted and representations made, we conclude that A has made a complete

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and good faith submission in accordance with section 877(c)(1)(B) and Notice 98-34, and therefore A will not be presumed to have expatriated with a principal purpose of tax avoidance.

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, because the information submitted clearly established the lack of a principal purpose to avoid taxes under subtitle A or B of the Code.

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 your authorized representative.

A copy of this letter must be attached to any income tax return to which it is relevant.

Sincerely,

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

cc:

bcc: Area Compliance
Territory 3
S:C:15:T3