IRS modifies expatriation ruling practice.

• Author: Gordon, Richard

The Service has issued Notice 98-34, modifying its ruling practice for expatriating individuals. Under Notice 97-19, an individual was required to obtain a favorable ruling to rebut the presumption of expatriating to avoid tax. Due to the high volume of ruling requests received by the IRS and the factual nature of the determinations, the Service has had difficulty issuing rulings (whether favorable or unfavorable) in a timely fashion. According to the IRS, because an individual needs a favorable determination not to be subject to Sec. 877, 2107 or 2501, the Service's inability to render a determination is tantamount to a finding that the individual expatriated to avoid tax.

As a practical matter, the ability to overcome the presumption of tax avoidance by requesting a ruling permits expatriating individuals to avoid filing requirements after they leave the U.S. If the individual no longer has any U.S. assets, the filing requirement is the primary issue presented by Sec. 877. This also permits the IRS to infer an individual's purpose for expatriating from subsequent actions...