PLR 200303037: Expatriate rebuts tax avoidance presumption, but purpose remains open

Plain-English summary

A former U.S. citizen who had spent little time in the United States asked the IRS to rule that giving up citizenship was not principally motivated by avoiding U.S. tax. The IRS found that the person made a complete, good faith submission under section 877(c) and Notice 98-34. As a result, the statutory presumption of tax avoidance would not apply. But the IRS said the information did not clearly establish whether tax avoidance was an actual principal purpose, so it gave no opinion on that question. The ruling also was not conclusive for the related estate and gift tax provisions.

Ruling snapshot

• Question: Did the loss of U.S. citizenship lack a principal purpose of avoiding U.S. taxes?
• Outcome: Mixed. The tax avoidance presumption was rebutted, but the IRS did not resolve actual purpose.
• Key authorities: IRC §§ 877(a), 877(c), 2107, 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200303037
Washington, DC 20224
Release Date:1/17/03
Index Number: 877.00-00; 2107.00-00
Person to Contact:
2501.00-00
Telephone Number:

Refer Reply To:
CC:INTL:Br.1-PLR-101876-02
Date:
October 10, 2002
Legend

A
=

Country B =

Date C
=

Year D
=

Area E
=

Area F
=

Date G
=

Date H
=

TY:

Dear :

This is in response to the letter from your authorized representative dated December 18, 2001, and subsequent letters dated December 28, 2001 and April 17, 2002, 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. 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 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 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.

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A was born in Country B on Date C and he is a citizen of Country B. A’s wife and his parents were all born in Country B and are citizens of Country B. A only resided in the United States during his college years. A obtained his green card in Year D because he thought his skills would be valuable in the United States. A’s employers, however, sent him instead to Area E and Area F. Following those employments, A has lived and worked in Country B and intended to retire there with his family. In anticipation of retirement at the close of his final contract of employment that ended on Date G, A expatriated on Date H.

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).

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

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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.

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
Senior Technical Reviewer, Branch 1
Office of the Associate Chief Counsel
(International)