PLR 200510021: Expatriate avoids tax avoidance presumption, but purpose remains undecided

Plain-English summary

A former U.S. citizen who had become a citizen of her husband's birth country sought a ruling that avoiding U.S. taxes was not a principal purpose of her expatriation. Her net worth exceeded the threshold that otherwise triggered a tax avoidance presumption under the law addressed in the letter. The IRS found that she qualified to request a ruling and had made a complete, good faith submission. It ruled that the presumption would not apply to her. The IRS expressly declined to decide whether avoiding U.S. taxes actually was a principal purpose because the submitted information did not clearly establish either answer.

Ruling snapshot

• Question: Did the expatriation avoid the statutory tax avoidance presumption and establish a non tax purpose?
• Outcome: Mixed: the presumption was lifted, while actual purpose was 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: 200510021
Third Party Communication: None
Release Date: 3/11/05
Date of Communication: Not Applicable
Index Number: 877.00-00
Person To Contact:
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Telephone Number:
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Refer Reply To:
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CC:INTL:B01
PLR-144769-03
Date:
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November 29, 2004

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Legend

A = ------------------------
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Year 1 = ---------
Year 2 = -------
Country B = -----------
Year 3 = -------
Date 4 = -------------------

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

This is in response to a letter dated June 17, 2003, requesting a ruling that A's loss of U.S. citizenship (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 September 10, 2003, October 30, 2003, and October 25, 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, born in Year 1, was a U.S. citizen by birth. In Year 2, A became a citizen of Country B, the country in which her husband was born. A, who currently resides in Country B and has resided there continuously since Year 3, renounced her U.S. citizenship on Date 4. On the date of A's expatriation, her net worth exceeded the applicable amount set forth in section 877(a)(2).

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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 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 Section 877(a) because she was a U.S. citizen who became a citizen of the country in which her husband 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

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877(a)(2) to have had as one of her 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, 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 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,

/S/Elizabeth U. Karzon
Chief, Branch 1
Office of Associate Chief Counsel

(International)