PLR 9935048: Expatriate rebuts tax avoidance presumption, but motive remains undecided

Plain-English summary

A former U.S. citizen who also held citizenship in another country asked the IRS to rule that renouncing U.S. citizenship was not principally motivated by avoiding U.S. taxes. His net worth exceeded the threshold that ordinarily triggered a tax avoidance presumption. The IRS found that he made a complete, good faith ruling submission under section 877(c) and Notice 98-34, so that presumption would not apply. It expressly declined to decide whether avoiding tax was in fact one of his principal purposes. The ruling therefore removed the presumption but left the ultimate motive question open under the income, estate, and gift tax rules.

Ruling snapshot

• Question: Did the taxpayer's expatriation lack a principal purpose of avoiding U.S. tax?
• Outcome: Mixed: the presumption was rebutted, but the IRS gave no opinion on actual tax avoidance purpose.
• Key authorities: IRC §§ 877, 2107, 2501(a)(3); Notice 98-34

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury

Index Number: 877.01-00 Washington, DC 20224

Number: 199935048
Person to Contact:
Release Date: 9/3/1999
Telephone Number:

Refer Reply To:
CC:INTL:Br1-PLR-122014-97
Date:
June 7, 1999

TY:

A
=

Country B =

Date C
=

Date D
=

Year 1
=

Dear :

This is in response to your letter dated October 21, 1997, 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. Additional information was submitted in a letter dated September 10, 1998, April 27 and April 30, 1999. The information submitted for consideration is substantially as set forth below.

The ruling contained in this letter is based upon information and representations submitted by the taxpayer and accompanied by penalty of perjury statements 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 became a U.S. citizen by reason of his birth on Date C in the United States to Country B Nationals. A is also a citizen of Country B. A renounced his U.S. citizenship (expatriated) on Date D. Prior to expatriation, A had not spent more than 30 days a year in the United States since Year 1. On the date of A’s expatriation, his net worth 2
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exceeded $500,000. A is domiciled in Country B and is subject to tax on his worldwide income.

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 subject to 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 U.S. 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 former citizen 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, 1998-27 I.R.B. 30, modifying Notice 97-19, 1997-1 C.B.
394, an eligible former citizen will not be presumed to have a principal purpose of tax avoidance if that former citizen 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 had not spent 30 or more days a year in the United States during the 10 year period ending on the date of his expatriation.

Notice 97-19, as modified by 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 by Notice 97-19, including any additional information requested by the Service after review of the submission.

Accordingly, based solely on the information submitted and the representations made, it is held that A has made a complete and good faith submission in accordance with section 877(c)(1)(B) and Notice 98-34, and therefore, A will not be presumed to 3
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have expatriated with a principal purpose of tax avoidance.

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 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).

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 expatriation or his United States tax liability for 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(j)(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 yours,

______
W. Edward Williams
Senior Technical Reviewer, Branch 1
Office of the Associate Chief Counsel
(International)