PLR 200309023: IRS removes expatriation presumption but leaves tax purpose undecided

Plain-English summary

A former long-term U.S. resident retired, returned to his birth country, and surrendered his green card. His net worth exceeded the threshold that ordinarily created a presumption of a principal tax avoidance purpose under the then-applicable expatriation rules. The IRS found that he had made a complete and good-faith submission under Notice 98-34, so that presumption would not apply. It expressly declined to decide whether avoiding U.S. taxes was actually one of his principal purposes because the information did not clearly establish either answer. The letter warns that a principal tax avoidance purpose could still be found later.

Ruling snapshot

• Question: Did the former resident's green card surrender lack a principal purpose of avoiding U.S. taxes?
• Outcome: Mixed: the tax avoidance presumption was rebutted, but the IRS gave no opinion on the actual purpose.
• Key authorities: IRC §§ 877, 2107, 2501(a)(3); Notices 97-19 and 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Number: 200309023
Washington, DC 20224
Release Date: 2/28/2003
Index Number: 877.00-00 Person to Contact:

Telephone Number:

Refer Reply To:
CC:INTL:BR1-PLR-147417-02
Date:
November 22, 2002

Legend

A
=

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

Dear :

This is in response to your letter dated July 15, 2002, as supplemented by additional information provided on October 15, 2002 and November 15, 2002, requesting a ruling under section 877(c) of the Internal Revenue Code of 1986 (the “Code”) that A’s loss of lawful permanent resident status (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. 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.

A was born in, and is a citizen of, Country B. A was transferred to the United States by his employer, and in Year C he obtained a green card. In Year D, A retired and returned to Country B, where he is subject to tax on his worldwide income. A relinquished his green card on Date E. On the date of A’s expatriation, his net worth exceeded the applicable amount set forth in section 877(a)(2).

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)(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.

A is eligible to request a ruling pursuant to Notice 98-34 because he is a resident fully subject to income tax in Country B, the country in which he was born.

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 of the information required 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 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 a 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). 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 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 Associate Chief Counsel
(International)