PLR 200336024: Former citizen's expatriation lacked a principal tax avoidance purpose

Plain-English summary

A person born in another country later became a U.S. citizen, returned to the country of birth, and relinquished U.S. citizenship. His net worth exceeded the statutory threshold that could trigger a presumption of expatriation for tax avoidance. Because he was a citizen of his birth country when he expatriated, he qualified to request a determination under section 877(c). The IRS found that his submission was complete and made in good faith, and that the submitted information established no principal purpose to avoid U.S. income, estate, or gift taxes. It ruled that the tax avoidance presumption would not apply and that the expatriation lacked that principal purpose under the provisions addressed.

Ruling snapshot

• Question: Did the former citizen's loss of U.S. citizenship have a principal purpose of avoiding U.S. tax?
• Outcome: Approved: the IRS found no principal tax avoidance purpose under the cited expatriation rules.
• Key authorities: IRC §§ 877(a)(2), 877(c), 2107, 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200336024
Release Date: 9/5/2003
Index Number: 877.00-00

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Person To Contact:
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Telephone Number:
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CC: INTL: B01 – PLR-106518-03
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Date:
June 03, 2003

TY: -------

Legend

A = -------------------------
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Country B = -----------------------------------------
Year 1 = -------
Date 2 = ------------------------

Dear -----------:

This is in response to a letter dated January 27, 2003, and a subsequent submission dated May 1, 2003, 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 ruling contained in this letter is 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, and is a citizen of, Country B. A became a naturalized citizen of the United States. In Year 1, A returned to Country B, and he relinquished his U.S. citizenship on Date 2. 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

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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 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 exceeds certain thresholds. See sections 877(a)(2), 2107(a)(2)(A), and 2501(a)(3)(B).

A former U.S. citizen 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)(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 threshold will not be presumed to have had 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 under section 877 because on the date of his expatriation he was a citizen of Country B, the country in which he was born. See section 877(c)(2)(A)(ii)(I).

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 to be submitted 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) as having had as one of his principal purposes for expatriating the avoidance

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of U.S. taxes. We further conclude that A will not be treated under section 877(a)(2) as having had as one of his principal purposes for 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 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 the taxable years prior to or 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.

In accordance with the Power of Attorney on file in this office, a copy of this letter will be sent to your authorized representative.

Sincerely,

M. Grace Fleeman
Senior Counsel, Branch 1
Office of Associate Chief Counsel
(International)

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