PLR 200133046: Former resident rebuts presumption of tax motivated expatriation

Plain-English summary

A former long-term U.S. resident asked whether surrendering his green card had a principal purpose of avoiding U.S. income, estate, or gift taxes. He had returned to his birth country to manage a family business and submitted the information required by the IRS notices for former residents. The IRS ruled that his complete, good faith submission rebutted the statutory presumption of tax avoidance under § 877(a)(2). It did not decide whether tax avoidance was in fact a principal purpose, because the submitted information did not clearly establish either answer. The distinction mattered because he could still be found to have a tax avoidance purpose under §§ 877, 2107, and 2501 based on all the facts and circumstances.

Ruling snapshot

• Question: Did the former resident's departure lack a principal purpose of avoiding U.S. taxes?
• Outcome: Mixed: the presumption was rebutted, but the IRS gave no opinion on actual purpose.
• Key authorities: IRC §§ 877, 2107, 2501(a)(3); Notices 97-19 and 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200133046
Washington, DC 20224
Release Date: 8/17.2001
Index Number: 877.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:INTL:Br1-PLR-108291-00
Date:
March 23, 2001

TY:

Dear :

This is in response to your letter of April 7, 2000, requesting a ruling that A’s surrender of his U.S. Alien Registration Card (Green Card) did not have for one of its principal purposes the avoidance of U.S. taxes under subtitle A or subtitle B of the Code. Additional information was submitted in a letters dated April 10, 2000 and April 18,2000. 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.

A was born in Country B on Date C. A has been involved with Business D for over 40 years. In Year E, he moved to City F in the United States and started Company G in Business D. In Year H, he contracted to work for Company I , a Country J company, for five years and was give the option to purchase Company K, a Country B subsidiary of Company J in Business D, on a fully leveraged basis. He purchased Company K and was its chief executive officer, but it was managed by his son, daughters and other family members while he completed his five-year contract with Company J. In Year L, he returned to Country B and took over active management of Company K. A has always maintained close family, personal and business ties with Country B and intends to live there the rest of his life and to work there until he retires. A expatriated on Date M.

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 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,

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respectively, for individuals who expatriate with a principal purpose to avoid U.S. taxes.

A former U.S. citizen or former U.S. 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, 1998-27 I.R.B. 30, 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 he is a resident of Country B and his worldwide income is subject to Country B tax, the country in which he was born. Also, both of A’s parents were born in Country B.

A submitted all of the information required to be submitted by Notice 97-19, as modified by Notice 98-34, including additional information requested by the Service after review of the submission.

The taxpayer has made a complete and good faith submission in accordance with section 877(c)(1)(B) and Notice 97-19, as modified by 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 will have for one of its principal purposes the avoidance of such taxes. While this ruling rebuts the 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 2501(a)(3)(A) based on all the facts and circumstances. See section 877(c)(1).

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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 the taxable years prior to or after his expatriation 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.

In accordance with the Power of Attorney on file with this office, copies of this letter are being sent to A and one of A’s representatives .

Sincerely,

W. Edward Williams
Senior Technical Reviewer CC:INTL:Br1
Office of the Associate Chief Counsel
(International)