Expatriation Was Not to Avoid Tax

A was born on Date B in Country C. He came to the U.S. for employment reasons and obtained a green card. A is also a citizen of C, where he now lives. On Date D, A relinquished his green card. A will be subject to C tax on his worldwide income. On the date of his expatriation, his net worth exceeded the applicable amount set forth in Sec. 877(a)(2).

Analysis

Sec. 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 tax year will be subject to Sec. 877(d) for such year, unless such loss did not have as one of its principal purposes the avoidance of U.S. taxes. Secs. 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.

Under Secs. 877(a)(2), 2107(a)(2)(A) and 2501(a)(3)(B), 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 if his or her (1) average income tax liability or (2) net worth on the date of expatriation exceeds certain thresholds.

However, Secs. 877(c)(1), 2107(a)(2)(B) and 2501(a)(3)(C) provide that a former U.S. citizen whose net worth or average tax liability exceeds these thresholds will not be presumed to have a principal purpose of tax avoidance if he or she is described within certain statutory categories and submits a ruling request within a year of the date of loss of U.S. citizenship.

Under Notice 98-34, 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 he or she is described within certain categories and submits a complete and good-faith ruling request 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 as one of its principal purposes the avoidance of U.S. taxes.

A is eligible to request a ruling pursuant to Notice 98-34, because he is a citizen and resident, fully subject to tax in C, the country in which he was born. A submitted all of the information required to be submitted by Notice 97-19 (as modified by Notice 98-34).

Accordingly, we conclude that A has made a complete and good faith submission in accordance with Sec. 877(c)(1)(B) and Notice 98-34. Thus, A will not be presumed under Sec. 877(a)(2) to have 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 Sec. 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. No opinion is expressed as to A's U.S. tax liability for the tax years prior to or after his expatriation under sections of the Code other than Secs. 877, 2107 and 2501(a)(3).

Letter Ruling 200230021 (4/22/02)