PLR 200307083: IRS finds no principal tax avoidance purpose in expatriation

Plain-English summary

A former U.S. citizen requested a ruling after renouncing citizenship while having net worth above the threshold in the expatriation rules then in force. He had lived outside the United States and was taxed on worldwide income in his country of residence. He qualified to request a ruling because he had spent no more than 30 days in the United States in each of the preceding ten years. The IRS found his submission complete and made in good faith, and concluded that avoiding U.S. income, estate, or gift taxes was not a principal purpose of his expatriation. The letter required him to attach the ruling to his U.S. income tax return for the year he received it.

Ruling snapshot

• Question: Was avoidance of U.S. taxes a principal purpose of the former citizen's expatriation?
• Outcome: Approved.
• Key authorities: IRC §§ 877, 2107, and 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200307083
Washington, DC 20224
Release Date: 2/14/2003
Index Number: 877.01-00
Person to Contact:

Telephone Number:

Refer Reply To:
CC:INTL:Br1-PLR-144990-02
Date:
November 13, 2002

Legend

A
=

Country B =
Year C =
Year D =
Country E =
Date F =

Dear :

This is in response to your letter dated July 5, 2002, and your subsequent submission dated August 7, 2002, requesting 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 a ruling, it is subject to verification on examination.

A was born in Country B and became a naturalized citizen of the United States in Year C. In Year D, he left the United States and is now a resident of Country E, where he is subject to taxation on his worldwide income. A renounced his U.S. citizenship (“expatriated”) on Date F. On that date, his net worth exceeded the net worth required under 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 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 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 or former U.S. 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 person 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, a former citizen 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 citizen 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.

A is eligible to request a ruling pursuant to Notice 98-34 because A is an individual who, for each year in the ten-year period ending on the date of loss of United States citizenship, was present in the United States for 30 days or less.

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. Accordingly, based 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. We further conclude that A will not be treated under section

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877(a)(2) as having as one of his principal purposes of expatriating the avoidance of U.S. taxes because the information submitted clearly establishes the lack of a principal purpose to avoid taxes under subtitle A or B of the Code.

Except as expressly provided herein, no opinion is expressed or implied concerning the tax consequences 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 expatriation or for taxable periods 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.

Sincerely,

W. Edward Williams
Senior Technical Reviewer, Branch 1
Office of the Associate Chief Counsel
(International)