PLR 200252080: Former resident rebuts tax avoidance presumption, but purpose remains open

Plain-English summary

A former U.S. permanent resident who lived and worked primarily abroad requested a ruling about the tax purpose of giving up that status. The IRS found that he made a complete, good faith submission under section 877(c) and the applicable notice, so he would not be presumed to have expatriated mainly to avoid U.S. taxes. The IRS did not decide whether avoiding tax actually was one of his principal purposes, saying the submitted information did not clearly establish either answer. That distinction matters because rebutting a presumption does not settle the ultimate facts and circumstances inquiry.

Ruling snapshot

• Question: Did the former resident give up U.S. status without a principal purpose of avoiding U.S. taxes?
• Outcome: Mixed; the tax avoidance presumption was rebutted, but the IRS gave no conclusion on actual purpose.
• Key authorities: IRC §§ 877(a), 877(c), 2107, 2501(a)(3); Notices 97-19 and 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200252080
Washington, DC 20224
Release Date: 12/27/2002
Index Number: 877.01-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:INTL:Br1-PLR-161062-01
Date:
September 25, 2002

A
=
Taxpayer ID No. =

Date B
=

Country C =

Company D =

Year E
=

Area F
=

Date G
=

Date H
=

Date I
=

TY:

Dear . :

This is in response to the your letter dated November 1, 2001, concerning a request for a ruling under section 877(c) of the Internal Revenue Code of 1986 ("Code") that A's loss of U.S. permanent 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 rulings contained in this letter are based upon information and representations submitted by the taxpayer and accompanied by a penalty of perjury

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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 on Date B in Country C. Both A and his wife are Country C nationals. A has always lived in Country C. A went to work for Company D (a United States company) in Country C during Year E and obtained his green card because they expected for him to work on several major projects in the United States. A has, however, continued to work only in Area F on company projects. A has lived and worked primarily in Country C and has always intended to retire there with his family.

A has been in the United States less that 30 days in every year since obtaining his green card. To maintain his green card status A had to travel to the United States three times a year on a very long flight. This has become increasingly difficult as he nears retirement age. In anticipation of retirement at the close of his final contract of employment that ended on Date G, A expatriated on Date H. A anticipates visiting the United States to see two of his children only once a year for less than 30 days. A filed his request for a ruling under section 877 on Date I, beyond the statute of limitations for filing such a request, and was granted relief under section 9100 in PLR-161057-01.

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 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).

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Under Notice 98-34, 1998-2 C.B. 29, modifying Notice 97-19, 1997-1 C.B. 394, an eligible former citizen will not be presumed to have a principal purpose of tax avoidance if that former citizen 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 97-19 because A was present in the United States less than thirty (30) days in each of the ten years in the period ending on the date of his loss of U.S. residency. See section 877(c)(2)(B).

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, we conclude 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 purpose of tax avoidance.

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), or 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 A’s loss of U.S. citizenship or for taxable periods after A’s loss of U.S. citizenship under sections of the Code other than sections 877, 2107, and 2501(a)(3).

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.

A copy of this letter must be attached to any income tax return to which it is relevant.

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In accordance with the Power of Attorney on file with this office, a copy of this letter is being sent to you and the original to your authorized representative.

Sincerely,

W. Edward Williams