PLR 200220017: Former resident rebuts expatriation tax avoidance presumption

Plain-English summary

A former U.S. lawful permanent resident gave up that status and returned to his birth country. His net worth exceeded the threshold that ordinarily creates a presumption of a tax avoidance purpose under IRC § 877. The IRS found that his timely request was complete and made in good faith, so the presumption was rebutted. The submitted information did not clearly establish whether avoiding U.S. tax actually was a principal purpose, and the IRS expressed no opinion on that question. The ruling left open a later finding based on all the facts and circumstances.

Ruling snapshot

• Question: Did the former resident's submission rebut the expatriation tax avoidance presumption?
• Outcome: approved as to rebutting the presumption; no opinion on actual purpose
• Key authorities: IRC §§ 877(a)(2), 877(c), 2107, and 2501(a)(3); Notices 97-19 and 98-34

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200220017
Release Date: 5/17/2002
Washington, DC 20224
Index No.: 877.01-00
Person to Contact:

Telephone Number

Refer Reply to
CC:INTL:B1/PLR-100274-02
Date:
February 14, 2002

A
=

Date B =

Country C =

Dear

This is in response to your letter dated December 12, 2001, requesting a ruling under section 877(c) of the Internal Revenue Code of 1986 ("Code") that A’s loss of U.S. lawful permanent residence will 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 relinquished his United States lawful permanent residence (“expatriated”) on Date B. A was born in Country C and is currently a citizen and resident of 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 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
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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 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 or former long term-resident 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).

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.

A’s net worth exceeded the section 877(a)(2) amount on Date B. A is eligible to request a ruling because he returned to Country C, the country in which he was born. Section 877(c)(2)(A)(ii)(I), as extended to lawful permanent residents through Notice 97-19, 1997-1 C.B. 394, as modified by Notice 98-34, 1998-2 C.B. 29. A submitted his ruling request within one year of expatriation, as required by section 877(c)(1)(B).

Based solely on the information submitted and the representations made, A has made a complete and good faith submission in accordance with section 877(c)(1)(B). However, because the information submitted does not clearly establish either 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), and 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 U.S. tax liability for taxable periods prior to his loss of permanent residence status or for taxable periods after his loss of permanent residence status under sections of the Code other than sections 877, 2107, and 2501(a)(3).
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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’s representative.

Sincerely yours,

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

cc: