PLR 200137029: Expatriation tax presumption rebutted, actual purpose unresolved

Plain-English summary

A dual citizen who had lived outside the United States since infancy planned to relinquish her U.S. citizenship. Her net worth exceeded the threshold that would normally presume a tax avoidance purpose, so she requested an individual ruling under § 877(c). The IRS found that her submission was complete and made in good faith, removing that presumption. It expressly declined to decide whether tax avoidance was in fact a principal purpose of her planned expatriation. The question could still be examined later under the facts and circumstances.

Ruling snapshot

• Question: Would the taxpayer be treated as expatriating principally to avoid U.S. tax?
• Outcome: Mixed: the statutory presumption was rebutted, but actual tax avoidance purpose was not decided.
• Key authorities: IRC §§ 877(a), (c), 2107, 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200137029
Washington, DC 20224
Release Date: 9/14/2001
Index Number: 877.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
PLR-118632-01/CC:INTL:B1
Date:
June 15, 2001

A
=

Date B =
Country C =
Country D =

Dear
:

This is in response to your letter dated B, as 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 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 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. The information submitted for consideration is substantially as set forth below.

A, a United States citizen, intends to relinquish her U.S. citizenship ("expatriate").
A became at birth both a citizen of the United States and a citizen of Country C. A and her husband and children reside in Country D. A has not resided in the United States since infancy and has no intention to return to the United States to live.

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 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) also provide special estate and gift tax regimes 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), 2

2107(a)(2)(A); 2501(a)(3)(B). On the date of A’s expatriation, her net worth exceeded the threshold amount stated in section 877(a)(2).

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). 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 section 877(c)(2)(A) 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. A also submitted her request within one year of her anticipated expatriation. 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 her principal purposes for expatriating the avoidance of U.S. taxes.

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 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).

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 her loss of U.S. citizenship or for taxable periods after her loss of U.S. citizenship 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 3

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, the original of this letter will be sent to A’s representative and a copy of this letter will be sent to A.

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