PLR 200422049: Former resident's departure had no principal tax avoidance purpose

Plain-English summary

A foreign citizen gave up her U.S. permanent resident status after her husband's retirement and their permanent move back to her birth country. Her net worth exceeded the threshold that would ordinarily trigger a presumption of tax avoidance under the expatriation rules then in effect. She submitted the information required for a ruling, including details requested during IRS review. The IRS found her submission complete and in good faith, and concluded that avoiding U.S. tax was not a principal purpose of her departure. The ruling addressed the expatriation provisions, not her tax liability for other periods or under other Code sections.

Ruling snapshot

• Question: Did the former resident give up her U.S. tax residence for a principal purpose of avoiding U.S. tax?
• Outcome: Approved; the IRS found no principal tax avoidance purpose.
• 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: 200422049
Release Date: 5/28/04
Index Number: 877.00-00

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Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:INTL:1 – PLR-162593-03
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Date:
February 19, 2004

TY: ------------------

Legend

A = -------------------------
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Country B = ---------------------
Country C = --------------
Year 1 = -------
Year 2 = -------
Year 3 = -------
Year 4 = -------
Date D = ----------------------

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

This is in response to a letter dated October 17, 2003, requesting a ruling 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 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. The information submitted for consideration is substantially as set forth below.

A was born in, and is a citizen of, Country B. Due to her husband’s employment in the United States, A became a U.S. lawful permanent resident in Year 1. In Year 2, A relinquished her green card when she and her husband left the United States because
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he was assigned by his employer to work in Country C. A’s husband’s employer later asked him to return to the United States, and A obtained a new green card in Year 3. In Year 4, A’s husband retired, and they left the United States again, this time to return permanently with their family to Country B, where A is subject to tax on her worldwide income. She has since relinquished her green card. A’s date of expatriation is Date D, which is the date she began claiming tax treaty benefits as a resident of Country B. On the date of A's expatriation, her 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 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 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.

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

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) as having had as one of her principal purposes for expatriating the avoidance of U.S. taxes. We further conclude that A will not be treated under section 877(a)(2) as having had as one of her 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 taxable periods prior to her expatriation or for taxable periods after her 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 with this office, a copy of this letter is being sent to your authorized representative.

Sincerely,

Elizabeth U. Karzon
Chief, Branch 1
Office of Associate Chief Counsel
(International)