PLR 200504023: Former citizen rebuts expatriation tax-avoidance presumption

Plain-English summary

A U.S. citizen who had long lived in another country relinquished her U.S. citizenship. Her net worth exceeded the threshold for a presumption that avoiding U.S. tax was a principal purpose. She qualified to request a ruling because she had spent no more than 30 days in the United States in each of the ten years before expatriation. The IRS found that her submission was complete and made in good faith, so the presumption would not apply. It did not rule on her actual purpose, which could still be examined under all the facts and circumstances.

Ruling snapshot

• Question: Did the former citizen's ruling submission remove the presumption of a tax-avoidance purpose, and did the IRS determine her actual purpose?
• Outcome: Mixed: presumption rebutted, but no opinion on actual purpose.
• Key authorities: IRC §§ 877(a), 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: 200504023
Third Party Communication: None
Release Date: 1/28/05
Date of Communication: Not Applicable
Index Number: 877.01-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
CC:INTL:BR1
PLR-168298-02
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Date: October 7, 2004
October 07, 2004

Legend

A = --------------------------
Date B = -------------------------
Date C = -----------------
Date D = ----------------------
Date E = --------------------------
Date F = -------------------
Date G = --------------------------
Country H = ---------------------

Dear ------------------

This is in response to a letter from A’s authorized representative dated B, as supplemented by letters dated C, D, and E, 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 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.

A is a U.S. citizen by virtue of her birth in the United States on Date F. She is a long-term resident of Country H, where she became a citizen on Date G. A relinquished her U.S. citizenship (“expatriated”) on Date G. On the date of A’s expatriation, her net worth exceeded the threshold required under section 877(a)(2).
PLR-168298-02
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 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 or former 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).

Under Notice 98-34, 1998-2 C.B. 29, modifying Notice 97-19, 1997-1 C.B. 394, a former U.S. citizen or former long-term resident whose net worth or average tax liability exceeds the applicable threshold will not be presumed to have a principal purpose of tax avoidance if that former citizen or 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 because for each year in the 10-year period ending on the date of loss of United States citizenship, A was present in the United States for 30 days or less.

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 the information required by Notice 98-34, including any additional information requested by the Service after review of the submission.

Based solely on the information 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) to have as one of her principal purposes for expatriating the avoidance of U.S. taxes.

However, because the information submitted does not clearly establish either the existence or lack of a principal purpose to avoid taxes under subtitle A or B of the Code, no opinion is expressed as to whether A's expatriation had for one of its principal purposes the avoidance of such taxes. While this ruling rebuts the presumption of tax avoidance under section 877(a)(2), it is not conclusive as to whether A subsequently may be found to have a principal purpose of tax avoidance under sections 877(a)(1), 2107(a)(1), and 2501(a)(3)(A) based on all the facts and circumstances. See section 877(c)(1).
PLR-168298-02
3

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 loss of U.S. citizenship or for taxable periods after her loss of U.S. citizenship under sections of the Code other than sections 877, 2107, and 2501(a)(3).

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’s representative.

Sincerely,

_______
/S/ Karen A. Rennie
Senior Technical Reviewer
Office of Associate Chief Counsel
(International)