4. In the letter, Floyd Williams related that these estimates are factors in determining the IRS' decision with respect to the letter-ruling request. Please elaborate on the factors that are used in analyzing a letter-ruling request. Is there a main criterion? What factors are most relevant?

Notices 97-19 and 98-34 contain information explaining the process for requesting a ruling under IRC § 877(c)(1). The latter describes information that an individual must include in a request in response to 23 specific questions. As explained in Commissioner Rosott's letter dated May 5, 2000, after we make a determination that a submission is complete and submitted in good faith, we examine the request tö determine whether we can make a substantive determination in the ruling process as to whether one of the principal purposes of expatriating was to avoid U.S. taxes. Under IRC § 877(1), a taxpayer must prove the absence of a principal purpose of tax avoidance, if the IRS establishes that it is reasonable to believe that a taxpayer's expatriation will result in a significant reduction in taxes on his probable income.

We examine all the facts submitted with a request for a ruling before we reach a conclusion on whether an expatriate had a principal purpose of avoiding US tax. No single factor is determinative, although a substantial and verifiable nontax reason for expatriation will carry substantial weight. In certain circumstances, the facts clearly establish the existence of a principal purpose of tax avoidance. For example, the submission might indicate that the taxpayer might significantly reduce taxes (including transfer taxes, which are not specifically referred to in section 877(1) by expatnaung, with no objective evidence of significant non-tax avoidance purposes. In some cases, it might be clear that no principal purpose of tax avoidance existed, either because the facts do not indicate a significant reduction in taxes, or because objective evidence is presented of significant non-tax avoidance purposes. In other cases, the facts submitted in the ruling process do not clearly indicate either the absence or existence of a principal purpose of tax avoidance.

....

FOR OFFICIAL USE ONLY

Questions relating to information in the letter of August 14, 2002, from
Commissioner Charles O. Rossoti to Lindy Paull

1. For all the individuals referenced in the letter of August 14, 2002, provide the individual's date of expatriation and age on the date of expatriation.

See Enclosure I.

How many of these individuals are subject to the 1996 expatriation tax rules as compared with the pre-1996 expatriation tax rules?

All of the individuals were subject to the 1996 expatriation rules. In this regard, the 1996 expatriation rules (IRC Sections 877, 2107 and 2501, as amended by the Health Insurance Portability and Accountability Act of 1996) apply to individuals who expatriate after February 5, 1995, and to individuals subject to § 511(b)(1)(A) of the Act. Section 511(b)(1)(A) of the Act provides a special transition provision in the case of a former citizen who performed an expatriating act specified in Paragraphs (1) – (4) of § 349(a) of the Immigration and Nationality Act before February 6, 1995, but who did not, on or before that date, confirm the act by providing the U.S. Department of State a signed statement voluntarily relinquishing his or her U.S. nationality. Such an individual would not come within the general effective date of the amendments to §§ 877 and 6039F because, under the provisions for determining the date of loss of citizenship (which were not modified by the Act), the date of loss of citizenship is retroactive to the date of the expatiating act (i.e., prior to February 6, 1995).

པ...

2. For all the individuals referenced in the letter of August 14, 2002, describe in detail how the individual was identified as potentially subject to the expatriation tax rules.

The information requested in Questions 2-5 (Pages 8-9 of this memorandum). is contained in Enclosure II.

During 1996, former International District Office developed a database to capture information from the Department of State on Certificate of Loss of Nationality (CLN) forms. During 1999, we conducted a Compliance Initiative Project (CIP) to determine levels of compliance with the expatnation tax laws. The test sample was pulled from the CLN database. During investigation of internal information on the sample cases, we determined that many of these cases were already in the examination process. Column 3 on Enclosure Il identifies the onginal source for each of the individuals: regular classification by DIF score, referrals, or other compliance projects.

FOR OFFICIAL USE ONLY