PLR 200250035: Expatriation filing rebuts tax avoidance presumption

Plain-English summary

A person who had been a citizen of both the United States and another country since birth planned to relinquish U.S. citizenship. The person's expected net worth would trigger a statutory presumption that the expatriation had a principal purpose of avoiding U.S. taxes. The IRS found the person's submission complete and made in good faith, provided the expatriation occurred within one year of the letter. That finding rebutted the presumption, but the IRS expressly gave no opinion on whether tax avoidance was in fact a principal purpose. The issue could still be decided later from all the facts and circumstances.

Ruling snapshot

• Question: Does the taxpayer's submission overcome the tax avoidance presumption for expatriation?
• Outcome: mixed; presumption rebutted, actual purpose unresolved
• Key authorities: IRC §§ 877(a) and 877(c), 2107, and 2501(a)(3); Notice 98-34

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200250035
Release Date: 12/13/2002
Index No.: 877.01-00
Person to Contact:

Telephone Number

Refer Reply to
CC:INTL:Br1/PLR-120253-02
Date:
September 10, 2002

Legend:

A
=

Date B =

Country C =

Dear :

This is in response to your letter dated March 21, 2002, as supplemented by additional information provided on June 26, 2002, requesting a ruling under section 877(c) of the Internal Revenue Code of 1986 ("Code") that A’s loss of U.S. citizenship 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 is a dual United States / Country C citizen by birth who has resided in Country C since birth. A’s spouse, parents and siblings also reside in Country C. A intends to relinquish United States citizenship on Date B.

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
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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 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 is expected to exceed the section 877(a)(2) amount on Date B. A is eligible to request a ruling because A became at birth a citizen of the United States and Country C and will continue to be a citizen of Country C, as described in I.R.C. § 877(c)(2)(A).

Provided that A expatriates within one year of the date of this letter ruling, and 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,

______
M. GRACE FLEEMAN
Senior Counsel, Branch 1
Office of the Associate Chief Counsel
(International)

cc: