PLR 9940038: Expatriate's submission rebuts tax avoidance presumption

Plain-English summary

A former U.S. citizen sought a ruling that renouncing citizenship was not principally motivated by avoiding U.S. taxes. His net worth exceeded the threshold that normally creates a tax avoidance presumption under section 877. The IRS held that he had made a complete, good faith submission under Notice 98-34, which rebutted that presumption. It expressly declined to decide whether tax avoidance was in fact a principal purpose, because the submitted information did not clearly establish the answer. The ruling therefore left that factual question open for later review.

Ruling snapshot

• Question: Did the former citizen's ruling request rebut the statutory tax avoidance presumption, and did it establish his motive?
• 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)

199940038

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Index No.: 642.03-03
Person to Contact:

Telephone Number:

Refer Reply to:
PLR-122544-98
Date:
July 12, 1999
A =
Date B =
Date C =
Date D =
Date E =
Country F =
Dear

This is in response to your letter dated December 14, 1998, 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. 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 was born on Date B and became a U.S. citizen at birth on the basis of being born in the United States. A has been a resident of Country F since Date C. A became a citizen of Country F on Date D. A renounced his United States citizenship on Date E. On the date of A's expatriation, his net worth exceeded the net worth required under 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 “expatriate") within the 10-year period immediately preceding the close of the taxable year will be taxed on U.S. source income (as modified by 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 or former 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 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. 40, 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.

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 under section 877 because for each year in the 10year period ending on the date of loss of U.S. citizenship, A was present in the United States for 30 days or less. See section 877(c)(2)(B).

A submitted all the information required by Notice 98-34. 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.

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 taxable periods prior to his loss of U.S. citizenship or for taxable periods after his loss of U.S. citizenship 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 A.

Sincerely yours,

ALLEN GOLDSTEIN
Office of the Associate Chief Counsel
(International)

cc: Assistant Commissioner (International)
International District Operations OP:IN:D
Chief, Examination Division