Expatriation was not to avoid tax.

• Author: Laffie, Lesli S.
• Position: Foreign Income & Taxpayers

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...