PLR 200434011: Former resident's green card surrender lacked tax avoidance purpose

Plain-English summary

A former U.S. permanent resident returned with her husband to a country where she was taxed on her worldwide income and surrendered her green card. Her net worth exceeded the threshold that could trigger a presumption of tax avoidance under the expatriation rules then discussed in section 877. The IRS found that her ruling request was complete and made in good faith under Notice 98-34, so the presumption would not apply. It also concluded that the submitted information clearly showed she did not have a principal purpose of avoiding U.S. income, estate, or gift taxes in ending her resident status. The letter did not decide her tax liability for other periods or under other Code provisions.

Ruling snapshot

• Question: Did the former resident surrender her green card principally to avoid U.S. taxes?
• 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: 200434011
Release Date: 8/20/04
Index Number: 877.01-00

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Person To Contact:
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Telephone Number:
In Re: ---------------------
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Refer Reply To:
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CC:INTL:BR1 – PLR-154231-03
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April 20, 2004

TY: -------

Legend

A = ----------------------
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Country B = -----------
Date C = ----------------------------

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

This is in response to a letter dated October 9, 2003 requesting a ruling that A’s loss of permanent resident status did not have for one of its principal purposes the avoidance of U.S. taxes under subtitles A or 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 is a citizen of, Country B. A became a permanent resident of the United States when her husband came to the United States for employment reasons. A has returned to Country B with her husband, where she is subject to tax on her worldwide income. A relinquished her green card on Date C. 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 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

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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 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).

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.

A is eligible to request a ruling pursuant to Notice 98-34 because she is a resident fully liable to income tax in Country B, the country in which her spouse was born. A submitted all of the information required by Notice 97-19, as modified by Notice 98-34. We conclude, based solely on the facts submitted and the representations made, that A has made a complete and good faith submission in accordance with section 877(c)(1)(B) and Notice 98-34. Accordingly, 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

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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,

W. Ed Williams
Senior Technical Reviewer
Office of Office of the Associate Chief
Counsel
(INTL)