PLR 200519010: IRS finds no principal tax avoidance purpose in expatriation

Plain-English summary

A U.S. citizen moved to another country to live with his wife, later became a citizen there, and relinquished U.S. citizenship. His net worth exceeded the threshold that could trigger a presumption of tax avoidance under the expatriation rules discussed in the letter. He qualified to request a ruling because he had spent no more than 30 days in the United States in each of the preceding ten years. The IRS found his submission complete and made in good faith. It concluded that avoiding U.S. income, estate, or gift taxes was not one of his principal purposes for expatriating. The letter did not decide his tax liability for other periods or under other provisions.

Ruling snapshot

• Question: Did the taxpayer relinquish U.S. citizenship with a principal purpose of avoiding U.S. taxes?
• Outcome: Approved; the IRS found no such principal purpose.
• Key authorities: IRC §§ 877, 2107, and 2501(a)(3); Notice 98-34.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224
Number: 200519010
Third Party Communication: None
Release Date: 5/13/2005
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:BR1
PLR-129038-04
In Re:
Date:
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February 09, 2005
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TY: -------

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

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

This is in response to a letter dated -------------------requesting a ruling that A’s loss of United States citizenship 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.

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. The information submitted for consideration is substantially as set forth below.

A acquired United States citizenship at birth in Year 1. Both of A’s parents are U.S. citizens. A met his wife, a citizen of Country B, while a student in Country B, and in Year 2, A moved to Country B, to live with his wife. A has been a resident of Country B since Year 2, and is fully subject to tax on his worldwide income there. In Year 3, A applied for and was granted citizenship in Country B. A relinquished his citizenship (expatriated) at the American Embassy office in Country B on Date C. On the date of A's expatriation, his net worth exceeded the applicable amount set forth in section 877(a)(2).

PLR-129038-04
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 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 U.S. citizen or former U.S. 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 U.S. citizen or former U.S. long-term resident 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 former 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 U.S. citizen or U.S. 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 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 under section 877 because he is an individual who for each year in the 10-year period ending on the date of loss of United States citizenship, was present in the United States for 30 days or less. See section 877(c)(2)(B).

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 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.

PLR-129038-04
3

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) 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).

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,

Elizabeth U. Karzon
Chief, Branch 1
Office of Associate Chief Counsel
(International)