PLR 200508003: Former resident rebuts expatriation tax presumption, but purpose remains open

Plain-English summary

A former U.S. permanent resident returned to the country of his birth and citizenship, where he would be taxed on worldwide income. His net worth exceeded a threshold that would ordinarily raise a presumption of tax avoidance under IRC § 877. He asked the IRS to rule that avoiding U.S. taxes was not a principal purpose of ending his resident status. The IRS found that he made a complete, good-faith submission under the applicable guidance, which rebutted the statutory presumption. It said the information did not clearly show whether he actually had a tax-avoidance purpose and gave no opinion on that issue. The IRS expressly warned that its ruling was not conclusive on a later finding about his purpose.

Ruling snapshot

• Question: Would the former resident face the tax-avoidance presumption on expatriation?
• Outcome: The presumption was rebutted; actual purpose was not decided.
• 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: 200508003
Third Party Communication: None
Release Date: 2/25/05
Date of Communication: Not Applicable
Index Number: 877.00-00
Person To Contact:
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Telephone Number:
------------------------------------------------------ --------------------- Refer Reply To:
CC:INTL:BR1
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PLR-112623-04
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Date:
November 8, 2004

Legend

Taxpayer = ---------------------
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Country B = --------
Date C = --------------------------

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

This is in response to a letter dated December 23, 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 became a permanent resident of the United States for employment reasons. A expatriated to Country B on Date C, where he will be subject to tax on his worldwide income. A was born in, and is a citizen of, Country B. On the date of A's expatriation, 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 2501(a)(3) provide special estate and gift tax regimes for individuals who expatriate with a principal purpose to avoid U.S. taxes.

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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 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. However, because the information submitted does not clearly establish 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 a 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). See section 877(c)(1).

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,

/S/ Elizabeth U. Karzon
Chief, Branch 1
Office of CC:INTL:Br1
(International)

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cc: -----------------------------------------------
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