PLR 200207001: Expatriation filing rebuts a tax avoidance presumption without deciding motive

Plain-English summary

A former long-term U.S. resident asked for a ruling that giving up resident status did not have tax avoidance as a principal purpose. Her net worth exceeded the threshold that created a presumption of tax avoidance under the rules discussed in the letter. The IRS concluded that she made a complete, good faith submission, which rebutted that presumption. The IRS did not decide whether tax avoidance was in fact one of her principal purposes, leaving that issue open for a later determination.

Ruling snapshot

• Question: Did the former resident's filing overcome the statutory tax avoidance presumption, and did it establish her motive?
• Outcome: Mixed
• Key authorities: IRC §§ 877, 2107, 2501; Notice 98-34

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200207001
Washington, DC 20224
Release Date: 2/15/2002
Index Number: 877.01-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:INTL:Br1-PLR-116448-01
Date:
July 17, 2001

Legend

A
=

Date B =
Country C =

This is in response to A’s letter dated March 13, 2001 requesting a ruling under section 877(c) of the Internal Revenue Code of 1986 (“Code”) that A’s loss of long-term 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 a ruling, it is subject to verification on examination.

A is a long-term permanent resident of the United States within the meaning of section 877(e) who relinquished her U.S. lawful permanent resident status (“expatriated”). A became a permanent resident of the United States and obtained her green card. A expatriated to Country C, where she has been a citizen all her life, on Date B. On that date, her net worth exceeded the net worth required under section 877(a)(2).

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 2

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).

A former 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 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), 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, 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 A became, not later than the close of a reasonable period after his expatriation, a resident fully liable to income tax in Country C, the country of her birth.

A submitted all the information required by Notice 98-34. Based on the facts 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. 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 a 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). See section 877(c)(1).

Except as expressly provided herein, no opinion is expressed or implied 3

concerning the tax consequences 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 permanent resident status or for taxable periods after her loss of permanent resident status 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.

This letter is being sent in accordance with the Power of Attorney on file with this office.

Sincerely,
W. Edward Williams
Senior Technical Reviewer
Office of the Associate Chief Counsel
(International)