PLR 200509004: Former green card holder avoids expatriation presumption, with actual purpose unresolved

Plain-English summary

A man relinquished his U.S. green card after returning to his country of birth and citizenship to work in a family business. His net worth exceeded the threshold that could trigger a presumption that expatriation was for tax avoidance. The IRS found that he qualified to seek a ruling and had made a complete, good faith submission, so the presumption under section 877(a)(2) would not apply. It expressly declined to decide whether avoiding U.S. taxes actually was a principal purpose because the information did not clearly establish the answer. The letter also gave no opinion on tax liability outside the cited expatriation provisions.

Ruling snapshot

• Question: Would the tax avoidance presumption apply, and did the IRS resolve the taxpayer's actual purpose?
• Outcome: Mixed: no presumption, but actual purpose left undecided.
• Key authorities: IRC §§ 877(a)(2), 877(c)(1), 2107, 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200509004
Third Party Communication: None
Release Date: 3/4/05
Date of Communication: Not Applicable
Index Number: 877.00-00
Person To Contact:
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-----------------------------, ID No. -------------
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Telephone Number:
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Refer Reply To:
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CC:INTL:01
PLR-125999-04
Date:
November 12, 2004

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

Legend

A = -----------------------------------
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Country B = ------------
Year 1 = -------
Date C = ------------------

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

This is in response to your letter dated May 1, 2004, 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. Additional information was submitted in letters dated July 20, September 15, September 28, and October 8, 2004. The information submitted for consideration is substantially as set forth below.

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 was born in, and is a citizen of, Country B. A became a permanent resident of the United States for employment reasons. In Year 1, A returned to Country B, where he is subject to tax on his worldwide income, in order to work in the family business. A relinquished his green card (expatriated) on Date C. 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 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

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"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 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 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, however, 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)(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.

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 to be submitted 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) to have had as one of his principal purposes for expatriating the avoidance of U.S. taxes. 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,

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no opinion is expressed as to whether A's expatriation had for one of its principal purposes the avoidance of such taxes.

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 the taxable years prior to or 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).

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,

Karen A. Rennie
Senior Technical Reviewer, Branch 1
Office of Associate Chief Counsel

(International)