PLR 200206029: Expatriation ruling rebuts the tax avoidance presumption

Plain-English summary

A former long term resident who returned to the country of her citizenship asked the IRS to determine whether her loss of permanent resident status had a principal purpose of avoiding U.S. taxes. The IRS found that she made a complete and good faith submission under section 877(c)(1)(B) and Notice 98-34, so she would not be presumed to have expatriated for tax avoidance under section 877(a)(2). The ruling did not decide whether tax avoidance was actually one of her principal purposes, and that question could still be determined from all the facts and circumstances. The letter also required a copy to be attached to the taxpayer's U.S. income tax return for the year of the ruling.

Ruling snapshot

• Question: Does the taxpayer's complete and good faith submission rebut the statutory presumption that expatriation had a principal purpose of avoiding U.S. taxes?
• Outcome: Approved in part, the presumption was rebutted, but the IRS expressed no opinion on the underlying tax avoidance purpose.
• Key authorities: IRC §§ 877(a), 877(c), 2107, 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury

Number: 200206029 Washington, DC 20224
Release Date: 2/8/2002
Index Number: 877.01-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:INTL:Br.1-PLR-159370-01
Date:
November 8, 2001

DO:

TY:

Legend

A
=

Country B =

Company C =

Company D =

Business E =

Date F =

Year G =

Year H =

Year I =

Date J =

Date K =

Date L =

Dear
:
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PLR-159370-01

This is in response to your letter dated August 24, 2001, requesting a ruling on behalf of A under section 877(c) of the Internal Revenue Code of 1986 (the “Code”) that A’s loss of permanent resident status 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 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 is a citizen of Country B. A’s parents and spouse were all born in Country B.
In Year G, A’s spouse began working for Company C and in Year H he was transferred to the United States. In Year I, A obtained a green card and became a permanent resident of the United States. Company C and its subsidiaries are in business E. Country B agreed to deregulate the Business E industry beginning on Date J. A’s spouse was the senior executive for Company C’s operations in Country B, which accounted for the majority of its business. Therefore, Company C transferred A’s spouse back to Country B on Date K to help position the company to compete effectively beginning on Date K. A moved back to Country B with her spouse. A gave up her green card on Date L.

A has always maintained close ties with Country B and has had property there.
A’s spouse intends to complete his career and retire in Country B. A is a resident fully liable to tax in Country B.

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 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 exceeds a certain threshold. 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 one of these thresholds, however, will not be presumed to have a principal purpose of tax 3 PLR-159370-01

avoidance if that person 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, 1998-2 C.B. 29, modifying Notice 97-19, 1997-1 C.B. 394, an eligible former long-term resident will not be presumed to have a principal purpose of tax avoidance if that former long-term resident is described within certain categories and submits a complete and good faith request for a ruling within one year of the date of loss of long term residency status for the Secretary’s determination 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 A is described in two categories of individuals eligible to submit ruling requests. First, A is eligible to submit a request because A’s parents were born in Country B. Second, A is eligible to submit a request because A’s spouse was born in Country B

A submitted all the information required by Notice 98-34, including any additional information requested by the Service after review of the submission.

Accordingly, 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 A’s 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), or 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 United States tax liability for taxable periods prior to expatriation or A’s U.S. tax liability for periods after 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). 4 PLR-159370-01

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 A and an authorized representative.

Sincerely,
______
Senior Technical Reviewer CC:INTL:Br 01
Office of the Associate Chief Counsel
(International) cc: