PLR 9946019: Citizenship renunciation lacked a principal tax avoidance purpose

Plain-English summary

A former US citizen who had lived abroad since birth asked whether her renunciation of citizenship had a principal purpose of avoiding US taxes. Her net worth exceeded the threshold that could trigger a tax avoidance presumption, but she qualified to request a ruling as a person who had been a citizen of another country since birth. The IRS found her submission complete and made in good faith under Notice 98-34. It ruled that the information clearly established no principal tax avoidance purpose for her expatriation under the income, estate, and gift tax provisions addressed in the letter.

Ruling snapshot

• Question: Did the former citizen renounce US citizenship with a principal purpose of avoiding US taxes?
• Outcome: Approved: no principal tax avoidance purpose was found on the submitted facts.
• 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
Index No.: 877.01-00
Person to Contact:
Number: 199946019
Release Date: 11/19/1999

Telephone Number

Refer Reply to
CC:INTL: - PLR-107354-99
Date:
August 20, 1999

A
=

Date B =
Date C =
Country D =

Dear

This is in response to your letter dated March 25, 1999, 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 her parents being citizens of the United States. A has been a resident of Country D since Date B. A renounced her United States citizenship on Date C. On the date of A’s expatriation, her 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.

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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 A became at birth a citizen of the United States and a citizen of another country and continues to be a citizen such other country. See section 877(c)(2)(A).

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.

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. It is further held that A will not be treated under section 877(a)(2) as having as one of her principal purposes of expatriating the avoidance of U.S. taxes because the information submitted clearly established 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 her loss of U.S. citizenship or for taxable periods after her loss of U.S. citizenship under sections of the Code other than sections 877, 2107, and 2501 (a)(3).

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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 61100)(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)

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