PLR 200439040: Former resident's departure was not principally for tax avoidance

Plain-English summary

A foreign citizen who had become a U.S. permanent resident for work planned to return to his birth country, where he would be taxed on worldwide income. His net worth exceeded the threshold that could create a presumption of tax avoidance under the expatriation rules then in force. The IRS found that he made a complete, good faith ruling request and would not be presumed to have departed principally to avoid U.S. tax. Based on his submitted facts, the IRS also concluded that avoiding U.S. income, estate, or gift taxes was not one of his principal purposes for expatriating. The ruling did not address his tax liability for other periods or under other Code provisions.

Ruling snapshot

• Question: Did the loss of permanent resident status have a principal purpose of avoiding U.S. tax?
• Outcome: Approved: no such principal tax avoidance purpose was found on the submitted facts.
• Key authorities: IRC §§ 877, 2107, 2501(a)(3); Notice 97-19; Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200439040
Release Date: 9/24/04
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:
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CC:INTL:BR1 – PLR-171482-03
Date:
June 02, 2004

TY:-------

Legend

A = ------------------------
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Country B = -------

Dear ----------------,

This is in response to a letter dated December 10, 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 was born in, and is a citizen of, Country B. A became a permanent resident of the United States for employment reasons. A will return with his wife to Country B, where he will be subject to tax on his worldwide income, within a year of receiving this ruling. On the date of A's ruling request, his 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 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

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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 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 he is a resident fully liable to income tax in Country B, the country in which he 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 his 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 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 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).

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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,

Grace Fleeman
Senior Counsel
Office of Office of Associate Chief Counsel (International)

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