PLR 200209030: Former resident rebuts tax avoidance presumption

Plain-English summary

A former long-term U.S. resident gave up permanent resident status after living and working abroad for years. The person asked the IRS to rule that avoiding U.S. tax was not a principal purpose of the expatriation. The IRS found the request complete and made in good faith under Notice 98-34, so the statutory presumption of a tax avoidance purpose would not apply. It did not decide whether tax avoidance actually was a principal purpose, leaving that question open to examination under all the facts and circumstances.

Ruling snapshot

• Question: Does the former resident avoid the presumption that relinquishing permanent resident status had a principal tax avoidance purpose?
• Outcome: Mixed: the presumption was rebutted, but the IRS did not decide the underlying purpose.
• Key authorities: IRC §§ 877, 2107, and 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200209030
Washington, DC 20224
Release Date: 3/1/2002
Index Number: 877.01-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:INTL:Br.1-PLR-127210-01
Date:
November 30, 2001

DO:

TY:

Legend

A
=

City B =

Country C =

Country D =

Company E =

Year F =

Date G =

Date H =

Dear
:

This is in response to your letter dated May 3, 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 was born in City B and is a citizen of Country C. A’s father was born in country 2
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C and his mother was born in Country D. A came to the United States with his parents as a child, obtained a green card and completed high school and college here. When A graduated from college, he returned to City B and began working for Company E in Year F. A never worked in the United States after graduation. A was married in Year G to a citizen of Country C and does not intend to return to the United States to work or live. Most of A’s family members and friends live in Country C or in other countries outside the United States. A gave up his green card on Date H. A is a resident fully liable to tax in Country C.

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 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 three categories of individuals eligible to submit ruling requests. First, A is eligible to submit a request because A was born in Country C. Second, A is also eligible to submit a request because A’s father was born in Country C. Finally, A is eligible to submit a request because A’s spouse was born in Country C.

A submitted all the information required by Notice 98-34, including any 3
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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).

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)