IRS modifies expatriation ruling practice.

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. Determinations should be made more quickly, because rulings on the merits (whether positive or negative) are likely only in clear-cut cases.

It should be noted that Notice 98-34 also modifies the categories of individuals eligible to submit ruling requests and updates the information that must be submitted to reflect current IRS practice. Under the modified ruling procedure, the Service may issue a ruling that the expatriate (1) does not have a tax avoidance purpose, (2) does have a tax avoidance purpose or (3) has submitted a complete ruling requesting good faith. If the IRS issues a favorable ruling on the merits, the matter is over. An unfavorable ruling is subject to challenge in court. A ruling that the taxpayer has submitted a ruling takes the expatriation out of the statutory presumption of tax avoidance.

FROM RICHARD GORDON, J.D., WASHINGTON, D.C.