PLR 200137043: Expatriation found to have a principal tax avoidance purpose

Plain-English summary

A former U.S. citizen asked the IRS to rule that his renunciation of citizenship did not have a principal purpose of avoiding U.S. tax. He was also a citizen of the country where he was born, but his net worth exceeded the threshold that triggered special expatriation rules. The IRS found that he had submitted a complete, good-faith request for a ruling. It nevertheless concluded that the submitted information clearly established a principal tax avoidance purpose. The former citizen was therefore subject to the cited expatriation income, estate, and gift tax provisions.

Ruling snapshot

• Question: Did the former citizen's expatriation lack a principal purpose of avoiding U.S. taxes?
• Outcome: Denied: the IRS found a principal tax avoidance purpose despite a complete, good-faith submission.
• Key authorities: IRC §§ 877, 2107, 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200137043
Washington, DC 20224
Release Date: 9/14/2001
Index Number: 877.01-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:INTL:Br1-PLR-132145-00
Date:
June 20, 2001

TY:

A
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Country B
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Date C
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Date D
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Dear:

This is in response to a letter from your authorized representative dated December 6, 2000, requesting a ruling under section 877(c) of the Internal Revenue Code (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. Additional information was submitted in letters dated June 13 and June 19, 2001. The information submitted for consideration is substantially as set forth below.

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.

A was born in Country B on Date C and became a U.S. citizen by reason of his birth to a U.S. citizen. A also has been a citizen of Country B since birth by virtue of his birth in Country C. A formally renounced his U.S. citizenship on Date D. On the date of A's expatriation, his net worth exceeded the applicable threshold in section 877.

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. 2 PLR-132145-00

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 exceeds 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, 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.

A is eligible to request a ruling pursuant to Notice 98-34 because he is described in the categories of individuals eligible to submit ruling requests. On the date of A’s expatriation, A was, and continues to be, a citizen of Country B, the country where A was born.

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 of 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, it is concluded that A has made a complete and good faith submission in accordance with section 877(c)(1)(B). However, it is further concluded that A will, nevertheless, be treated under section 877(a)(1) as having as one of his principal purposes for expatriating the avoidance of U.S. taxes because the information submitted clearly establishes a principal purpose to avoid taxes under subtitle A or B of the Code. Accordingly, A will be subject to the provisions of section 877(b) and the applicable provisions of sections 2107 and 2501(a)(3). 3 PLR-132145-00

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 his loss of U.S. citizenship or for taxable periods after his 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 (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, a copy of this letter is being sent to your authorized representatives.

Sincerely yours,
W. Edward Williams
Senior Technical Reviewer
CC:INTL:Br1

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