PLR 200137030: Expatriation found to lack a principal tax avoidance purpose

Plain-English summary

A former U.S. citizen asked the IRS to find that her loss of citizenship did not have a principal purpose of avoiding U.S. taxes. Her net worth exceeded the threshold for a tax avoidance presumption, but she had been a citizen of her birth country since birth and qualified to request an individual ruling. The IRS found her submission complete and made in good faith. Based on her representations, it ruled that she would not be treated as expatriating for a principal tax avoidance purpose under § 877. The ruling did not address her tax liabilities for other periods or under unrelated Code provisions.

Ruling snapshot

• Question: Did the former citizen's expatriation lack a principal U.S. tax avoidance purpose?
• Outcome: Approved: the IRS found no principal tax avoidance purpose under § 877.
• Key authorities: IRC §§ 877(c), 2107, 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200137030
Release Date: 9/14/2001
Index No.: 877.01-00
Person to Contact:

Telephone Number

Refer Reply to
PLR-126750-01/CC:INTL:B1
Date:
June 15,2001
A
=
Date B =
Country C =
Date D =
Year E =
Date F =

Dear
:

This is in response to your representative’s letter of Date B, requesting a ruling under section 877(c) of the Internal Revenue Code of 1986 ("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 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 became at birth a citizen of Country C, by virtue of her birth in Country C on Date D. A applied for and received U.S. citizenship in Year E by virtue of her mother’s U.S. citizenship. A relinquished her U.S. citizenship ("expatriated") on 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 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). On the date of A’s expatriation, A’s net worth exceeded the net worth required under section 877(a)(2).
PLR-126750-01
Page 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).

A is eligible to request a ruling because on the date of expatriation, A became at birth a citizen of Country C and continues to be a citizen of Country C. Section 877(c)(2)(A).

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 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. It is further concluded that A will not be treated under section 877(a)(2) as having as one of her principal purposes of expatriating the avoidance of U.S. taxes.

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

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