PLR 200221039: Former resident rebuts tax avoidance presumption through good faith submission

Plain-English summary

A former U.S. long-term resident gave up lawful permanent resident status while exceeding the net-worth threshold for the expatriation tax rules. He sought a ruling that the loss of status did not have tax avoidance as a principal purpose. The IRS found that he made a complete, good faith submission under Notice 98-34, so the statutory presumption of a tax avoidance purpose would not apply. The IRS could not determine from his submission whether tax avoidance actually was a principal purpose, and it left that question open under sections 877, 2107, and 2501. The ruling therefore removed a presumption without deciding his ultimate tax liability.

Ruling snapshot

• Question: Did the former resident's submission rebut the presumption of a tax avoidance purpose for expatriation?
• Outcome: Approved as to rebutting the presumption; no opinion on his actual purpose.
• Key authorities: IRC §§ 877, 2107, 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200221039
Washington, DC 20224
Release Date: 5/24/2002
Index Number: 877.08-00
Person to Contact:

Telephone Number:
(202) 622-3880
Refer Reply To:
CC:INTL:1- PLR-161073-01
Date:
February 25, 2002

DO: TY:

A
=

Date B =

Country C =

Date D =

Year E =

Country F =

Dear
:

This is in response your letter dated August 30, 2001, as amended by a letter dated August 30, 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 ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements executed by the taxpayer. 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, a former long-term resident of the United States within the meaning of section 877(e), relinquished his U.S. lawful permanent resident status ("expatriated") on Date B. A has been a citizen of Country C all of his life by reason of his birth on Date D in Country C. A's parents were also born in Country C. A’s spouse is a citizen of Country F and A intends to become a citizen of Country F within a reasonable period after his loss of long-term

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resident status. A became a permanent resident of the United States and obtained his green card in Year E. On the date of A’s expatriation, his net worth exceeded the applicable thresholds in section 877 of the Code.

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 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 certain thresholds. 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 these thresholds, however, will not be presumed to have a principal purpose of tax avoidance if that former citizen 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, a former long-term resident whose net worth or average tax liability exceeds the applicable thresholds will also 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 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 he is described in a category of individuals eligible to submit ruling requests. On the date of A’s expatriation, A was, and continues to be, a resident fully liable to income tax in Country F, the country in which A’s spouse was born.

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, it is held that A has made a complete and good faith submission in accordance with section 877(c)(1)(B) and Notice 98-34, and therefore, A will not be presumed to have expatriated with a principal purposes of tax avoidance.

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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), 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 resident status or for taxable periods after his 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) and any other income tax return to which it is relevant.

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.

Sincerely,
Ed Williams
Senior Technical Reviewer, Branch No. 1
Associate Chief Counsel (International)