PLR 200221037: Planned citizenship loss found to lack a tax avoidance purpose

Plain-English summary

A U.S. citizen who had become a resident and citizen of another country planned to give up her U.S. citizenship. Her expected net worth exceeded the threshold that could trigger a presumption of tax avoidance under the expatriation rules. She requested a ruling and submitted the information required by Notice 98-34. Based on her facts and representations, the IRS found her submission complete and in good faith and concluded that the information clearly showed no principal purpose to avoid U.S. income, estate, or gift taxes. The ruling addressed her planned expatriation under the cited provisions but expressed no view on other tax consequences.

Ruling snapshot

• Question: Would her planned loss of citizenship be treated as having a principal tax avoidance purpose?
• Outcome: Approved; the IRS found no such principal purpose on the submitted facts.
• Key authorities: IRC §§ 877, 2107, 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200221037
Washington, DC 20224
Release Date: 5/24/2002
Index Number: 877.00-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:INTL:Br1-PLR-166006-01
Date:
February 22, 2002

Legend

A
=

Date B =
Date C =
Year D =
Country E =

Dear
:

This is in response to your letter dated November 29, 2001 requesting a ruling under section 877(c) of the Internal Revenue Code of 1986 (“Code”) that A’s loss of 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.

The ruling contained in this letter is 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. The information submitted for consideration is substantially as set forth below.

A intends to expatriate by Date B. A was born in the United States, and is a U.S. citizen. In Year D, she became a resident of Country E. On Date C, she became a citizen of Country E.

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)

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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 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’s net worth is expected to exceed the section 877(a)(2) threshold on Date B. A is eligible to request a ruling because A has formed a definite intention to expatriate, and is a citizen of the country in which her husband was born.

A submitted all the information required by Notice 98-34. Accordingly, 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. We further conclude that A will not be treated under section 877(a)(2) as having as one of her principal purposes of expatriating the avoidance of U.S. taxes because the information submitted clearly establishes the lack of a principal purpose to avoid taxes under subtitle A or B of the Code.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences of any transaction or item discussed or referenced in

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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 residence 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.

In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to A.

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