PLR 200225035: Complete expatriation submission removes tax avoidance presumption

Plain-English summary

A former U.S. citizen renounced citizenship and became a citizen of his birth country, where he would be taxed on worldwide income. His net worth exceeded the threshold that could trigger a presumption of tax avoidance under the then applicable expatriation rules. The IRS found that he made a complete, good faith submission under IRC § 877(c)(1)(B) and Notice 98-34, so it would not presume tax avoidance. The IRS expressly declined to decide whether avoiding U.S. taxes was actually one of his principal purposes.

Ruling snapshot

• Question: Would the former citizen be treated as expatriating principally to avoid U.S. taxes?
• Outcome: Mixed: the presumption did not apply, but the IRS gave no opinion on his actual purpose.
• Key authorities: IRC §§ 877(a)(2), 877(c)(1)(B), 2107, 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200225035
Washington, DC 20224
Release Date: 6/21/2002
Index Number: 877.01-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:INTL:Br1-PLR-101339-02
Date:
March 22, 2002

TY:

A
=

Year 1
=

Country C
=

Year 2
=

Date D
=

Dear

This is in response to your letter dated January 2, 2002, requesting a ruling that A’s loss of U.S. citizenship (expatriation) did not have for one of its principal purposes the avoidance of U.S. taxes under subtitle A or subtitle B of the Code. Additional information was submitted in letters dated January 31, and March 13, 2002. 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 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 Year 1 in Country C. A became a naturalized U.S. citizen in Year

2. On Date D, A renounced his U.S. citizenship and obtained citizenship in Country C.
   A will be subject to Country C tax on his worldwide income. On the date of A’s expatriation, his net worth exceeded the applicable amount set forth in section 877(a)(2).

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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 subject to 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 U.S. citizen or former U.S. 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 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, 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 he is a citizen and resident, fully subject to tax in Country C, the country in which he was born.

A submitted all of the information required to be submitted by Notice 97-19, as modified by Notice 98-34, including additional information requested by the Service after review of the submission.

Accordingly, based solely 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. Therefore, A will not be presumed under section 877(a)(2) to have had as one of his 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

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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.

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 the taxable years prior to or after his 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 one of A’s authorized representatives.

Sincerely,
W. Edward Williams
Senior Technical Reviewer
CC:INTL:Br1