PLR 200406012: Planned loss of citizenship lacked a principal tax avoidance purpose

Plain-English summary

A U.S. citizen planning to relinquish her citizenship asked for a ruling under the expatriation rules then in force. Her net worth exceeded the statutory threshold that could trigger a presumption of tax avoidance, but she qualified to seek a ruling because she was a citizen of her husband's country of birth. The IRS found that her submission was complete and made in good faith, and that the information clearly showed no principal purpose to avoid U.S. income, estate, or gift taxes. It therefore ruled that § 877(a)(2) would not treat her planned expatriation as tax motivated on the stated facts. The ruling did not decide her tax liabilities for other periods or under other Code provisions.

Ruling snapshot

• Question: Would the planned loss of U.S. citizenship be treated as having a principal tax avoidance purpose?
• Outcome: The IRS ruled that it would not under the stated facts and former § 877 rules.
• Key authorities: IRC §§ 877, 2107, 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200406012
Release Date: 02/06/2004
Index Number: 877.01-00

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Person To Contact:
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Telephone Number:
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Refer Reply To:
In Re: CC:INTL:BR1 – PLR-132665-03
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Date:
------------------------------------ October 17, 2003
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TY: -------

Legend

A = ------------------
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Year B = -------
Country C = -----------

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

This is in response to your letter dated May14, 2002 requesting a ruling under section 877(c) of the Internal Revenue Code of 1986 (“Code”) that A’s loss of 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 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. The information submitted for consideration is substantially as set forth below.

A will expatriate within a year of receiving this ruling. She was born in the United States, and is a U.S. citizen. In Year B, she became a citizen of Country C.

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Section 877 generally provides that a person who loses his or her U.S. citizenship (an individual who “expatriates”) 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 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 citizen whose net worth or average tax liability exceeds these thresholds 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).

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’s net worth exceeded the section 877(a)(2) threshold at the time of her submission. A is eligible to request a ruling because A is a citizen of the country in which her husband was born.

A submitted all the information required by Notice 98-34. 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. Furthermore, we conclude that A will not be treated under section 877(a)(2) as having the avoidance of U.S. taxes a principal purpose for her expatriation 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 her loss of citizenship or for taxable periods after her loss of citizenship under sections of the Code other than sections 877, 2107, and 2501(a)(3).

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A copy of this letter must be attached to A’s U.S. income tax return for the year in which she 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 with this office, a copy of this letter is being sent to A.

Sincerely,

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