Notice 97-19

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http://www.irs.ustreas.gov/prod/tax_regs/
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The comments you submit will be
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DRAFTING INFORMATION
The principal authors of this notice
are Wendy Stanley and Michael Kirsch
of the Office of Associate Chief Counsel
(International). For further information
regarding this notice, contact Ms.
Stanley or Mr. Kirsch on (202) 622–
3860 (not a toll-free call).
Guidance for Expatriates Under
Sections 877, 2501, 2107 and
6039F
Notice 97–19
PURPOSE
The Health Insurance Portability and
Accountability Act of 1996 (the ‘‘Act’’)
recently amended sections 877, 2107
and 2501 of the Internal Revenue Code
(‘‘Code’’), and added new information
reporting requirements under section
6039F.1 This notice provides guidance
regarding certain federal tax consequences under these sections and section
7701(b)(10) for certain individuals who
lose U.S. citizenship, cease to be taxed
as U.S. lawful permanent residents, or
are otherwise subject to tax in the
manner provided by section 877.
This notice has eleven sections. Section I provides background regarding the
general application of sections 877,
2107 and 2501. Section II explains how
to compute tax under section 877. Section III explains how an individual must
determine his or her tax liability and net
worth for purposes of sections 877,
2107 and 2501. Section IV explains the
procedures that an individual must use
to request a private letter ruling that the
individual’s loss of U.S. citizenship did
not have for one of its principal purposes the avoidance of U.S. taxes. Section IV also provides that certain former
long-term U.S. residents may use this
ruling procedure to request a ruling that
cessation of long-term U.S. residency
did not have for one of its principal
1

There are currently two provisions of the Internal
Revenue Code designated as section 6039F. Treasury intends to seek a technical correction to the
Act to redesignate section 6039F, as added by the
Act, as section 6039G. All subsequent references
to section 6039F in this notice relate to section
6039F as contained in the Act.

purposes the avoidance of U.S. taxes.
Section V provides that certain transactions are treated as exchanges of property under section 877 and explains how
to enter into a gain recognition agreement to avoid the immediate recognition
of gain on exchanges of property. Section VI provides anti-abuse rules that
apply to contributions made to certain
foreign corporations. Section VII sets
forth annual filing requirements for certain individuals subject to section 877.
Section VIII explains how new section
877 interacts with certain U.S. income
tax treaties. Section IX explains how to
file information statements in accordance with section 6039F and describes
the information that must be included on
such statements. Section X explains how
the transition provision of the Act affects certain individuals who performed
an expatriating act prior to February 6,
1995. Section XI explains the application of section 7701(b)(10) and how that
section interacts with section 877, as
amended by the Act.
Treasury and the Service expect to
issue regulations under sections 877 and
6039F, and amend regulations under
sections 2107 and 2501, to incorporate
the guidance set forth in this notice.
Until regulations are issued, taxpayers
must comply with the guidance set forth
in this notice.
SECTION I. GENERAL APPLICATION
OF SECTIONS 877, 2107 and 2501
Section 877 generally provides that a
citizen who loses U.S. citizenship or a
long-term resident who ceases to be
taxed as a U.S. resident (collectively,
individuals who ‘‘expatriate’’) within the
10-year period immediately preceding
the close of the taxable year will be
taxed on all of his or her U.S. source
income (as modified by section 877(d))
for such taxable year, unless such loss
or cessation did not have for one of its
principal purposes the avoidance of U.S.
taxes.
Section 877(a)(2) provides that a
former citizen is considered to have lost
U.S. citizenship with a principal purpose
to avoid U.S. taxes if the former citizen’s tax liability or net worth exceeded
certain amounts on the date of expatriation. However, a former citizen will not
be considered to have expatriated with a
principal purpose to avoid U.S. taxes as
a result of the individual’s tax liability
or net worth if he or she qualifies for an
exception under section 877(c). To
qualify for an exception, a former citi-

40

zen must be described in certain statutory categories and submit a ruling
request for a determination by the Secretary as to whether the individual’s
expatriation had for one of its principal
purposes the avoidance of U.S. taxes.
Section 877(c).
Section 2107(a)(1) generally provides
that U.S. estate tax will be imposed on
the transfer of the taxable estate of
every nonresident decedent if, within the
10-year period ending with the date of
death, the decedent lost U.S. citizenship,
unless such loss did not have for one of
its principal purposes the avoidance of
U.S. taxes. Unless a former citizen
qualifies for an exception as provided
by section 877(c), such individual will
be considered to have expatriated with a
principal purpose to avoid U.S. taxes for
purposes of section 2107 if the individual’s tax liability or net worth exceeded
certain amounts on the date of expatriation. Sections 2107(a)(2)(A) and
(a)(2)(B).
Section 2501(a)(1) generally provides
that a tax will be imposed for each
calendar year on the transfer of property
by gift during such calendar year by any
individual, resident or nonresident. Section 2501(a)(2) provides that section
2501(a)(1) will not apply to the transfer
of intangible property made by a nonresident not a citizen of the United
States. Section 2501(a)(3)(A) provides
that this exception does not apply in the
case of a donor who, within the 10-year
period ending with the date of a transfer, lost U.S. citizenship, unless such
loss did not have for one of its principal
purposes the avoidance of U.S. taxes.
Unless a former citizen qualifies for an
exception as provided by section 877(c),
such individual shall be treated as having a principal purpose to avoid U.S.
taxes for purposes of section 2501 if the
individual’s tax liability or net worth
exceeded certain amounts on the date of
expatriation. Sections 2501(a)(3)(B) and
(a)(3)(C).
Section 877(e) provides comparable
treatment for long-term residents. A
long-term resident of the United States
will be treated as if such resident lost
U.S. citizenship for purposes of sections
877, 2107, 2501 and 6039F if the
resident (i) ceases to be a lawful permanent resident of the United States, or (ii)
commences to be treated as a foreign
resident under the provisions of an income tax treaty between the United
States and a foreign country and does

not waive the benefits of such treaty
applicable to residents of the foreign
country.
Section 877(e)(1) defines a long-term
resident as a non-U.S. citizen who was a
lawful permanent resident of the United
States in at least 8 taxable years during
the period of 15 taxable years, ending
with the taxable year in which such
individual ceases to be a lawful permanent resident of the United States or
commences to be treated as a resident of
another country under an income tax
treaty and does not waive the benefits of
such treaty applicable to residents of the
foreign country. For purposes of section
877, an individual is considered a lawful
permanent resident in a taxable year if
he or she is a lawful permanent resident
during any portion of that year.
Section 877(e)(3)(B) provides that
property held by a long-term resident on
the date that such individual first became a resident of the United States
(whether or not a lawful permanent
resident) shall be treated for purposes of
section 877 as having a basis of not less
than the fair market value of the property on such date. A long-term resident
may elect not to have this treatment
apply. Such an election, once made, is
irrevocable.
Sections 877, 2107 and 2501, as
amended by the Act, apply to individuals who expatriate after February 5,
1995, and to individuals subject to section 511(g)(3)(A) of the Act (see section
X of this notice).
SECTION II. COMPUTING TAX
UNDER SECTION 877
Individuals who expatriate with a
principal purpose to avoid U.S. taxes
will be subject to tax on U.S. source
income (as modified by section 877(d))
under sections 1, 55 or 402(d)(1)2 of the
Code (the ‘‘alternative tax’’), or under
section 871 of the Code, depending on
which method results in the highest total
tax. Sections 877(a)(1) and (b).
An expatriate is subject to the alternative tax under section 877 only if the
total tax imposed thereunder on all
items of income for the taxable year
exceeds the total tax under section 871
2

Section 402(d)(1) of the Code generally provides
for 5-year income averaging with respect to certain lump-sum distributions from qualified retirement plans. Section 1401(b)(1) of the Small
Business Job Protection Act of 1996 amended
section 877(b) by striking ‘‘section 1, 55, and
section 402(d)(1)’’ and inserting ‘‘section 1 or 55.’’
This amendment applies to taxable years beginning after December 31, 1999.

for those same items of income. The
following example illustrates how to
compute tax under section 877.
Example 1. A, a former U.S. citizen, expatriated
with a principal purpose to avoid U.S. taxes on
December 31, 1996. In 1997, A earns $100,000 of
U.S. source dividend income and $50,000 of U.S.
source interest income that qualifies as portfolio
interest under section 871(h). After taking into
account the deductions and credits allowed under
section 877(b)(2), A’s net tax liability under section 1 on the dividend and portfolio interest
income is $40,000.
The tax imposed under section 871 on A’s
dividend income is $30,000 (30 percent of
$100,000). Section 871(a)(1)(A). No tax is imposed on A’s portfolio interest under section 871
because section 871(h)(1) exempts portfolio interest received by a nonresident alien from U.S. tax.
Thus, A’s tax liability under section 871 is
$30,000.
Since A’s total tax liability computed under
section 1 exceeds A’s total tax liability computed
under section 871, A must pay the higher tax.
Thus, A must report $40,000 of U.S. tax on his
1997 U.S. income tax return (Form 1040NR) as a
result of section 877.

SECTION III. TAX LIABILITY AND
NET WORTH TESTS
Background. Section 877(a)(2) provides that a former citizen is considered
to have expatriated with a principal
purpose to avoid U.S. taxes if (i) the
individual’s average annual net U.S.
income tax (as defined in section
38(c)(1)) for the five taxable years prior
to expatriation is greater than $100,000
(the ‘‘tax liability test’’), or (ii) the
individual’s net worth on the date of
expatriation is $500,000 or more (the
‘‘net worth test’’). The $100,000 and
$500,000 amounts are subject to cost-ofliving adjustments determined under
section 1(f)(3) for calendar years after
1996. An individual who does not satisfy the tax liability or net worth test,
but expatriates with a principal purpose
to avoid U.S. taxes, is also subject to
section 877.
Section 2107(a)(2)(A) provides that
an individual shall be treated as having
a principal purpose to avoid U.S. taxes
for purposes of section 2107 if such
individual satisfies either the tax liability
test or the net worth test under section
877(a)(2).
Likewise,
section
2501(a)(3)(B) provides that an individual shall be treated as having a
principal purpose to avoid U.S. taxes for
purposes of section 2501 if such individual satisfies either the tax liability
test or the net worth test under section
877(a)(2). The tax liability and net
worth tests also apply for purposes of
determining whether a former long-term
resident is subject to sections 877, 2107,
and 2501. Section 877(e)(1).

41

Determination of tax liability. For
purposes of the tax liability test, an
individual’s net U.S. income tax is determined under section 38(c)(1). An individual who files a joint income tax
return must take into account the net
income tax that is reflected on the joint
income tax return for purposes of the
tax liability test.
Determination of net worth. For purposes of the net worth test, an individual
is considered to own any interest in
property that would be taxable as a gift
under Chapter 12 of Subtitle B of the
Code if the individual were a citizen or
resident of the United States who transferred the interest immediately prior to
expatriation. For this purpose, the determination of whether a transfer by gift
would be taxable under Chapter 12 of
Subtitle B of the Code must be determined without regard to sections
2503(b) through (g), 2513, 2522, 2523,
and 2524.
An interest in property includes
money or other property, regardless of
whether it produces any income or gain.
In addition, an interest in the right to
use property will be treated as an interest in such property. Thus, a
nonexclusive license to use property is
treated as an interest in the underlying
property attributable to the value of the
use of such property.
Valuation of interests in property. In
determining the values of interests in
property for purposes of the net worth
test, individuals must use the valuation
principles of section 2512 and the regulations thereunder without regard to any
prohibitions or restrictions on such interest. Although individuals must use good
faith estimates of values, formal appraisals are not required.
Special rules for determining beneficial interests in trusts. An individual’s
beneficial interest in a trust must be
included in the calculation of that individual’s net worth. For this purpose, the
value of an individual’s beneficial interest in a trust will be determined using a
two-step process. First, all interests in
property held by the trust must be
allocated to beneficiaries (or potential
beneficiaries) of the trust based on all
relevant facts and circumstances, including the terms of the trust instrument,
letter of wishes (and any similar document), historical patterns of trust distributions, and any functions performed by
a trust protector or similar advisor. Interests in property held by the trust that
cannot be allocated based on the factors
described in the previous sentence shall

be allocated to the beneficiaries of the
trust under the principles of intestate
succession (determined by reference to
the settlor’s intestacy) as contained in
the Uniform Probate Code, as amended.
Second, interests in property held by a
trust that are allocated to the expatriate
must be valued under the principles of
section 2512 and the regulations thereunder without regard to any prohibitions
or restrictions on such interest. The
following example illustrates this special
rule.
Example 2. B, a former long-term resident,
expatriated on December 31, 1996. B is a potential
beneficiary of two trusts during his lifetime. Trust
1’s sole asset is an apartment building. Under the
terms of Trust 1, B is entitled to receive 100
percent of the income generated by the apartment
building during B’s life. B’s brother, C, is the
remainderman. For purposes of computing B’s net
worth, Trust 1’s interest in the apartment building
is allocated between B and C. B is treated as
owning a life interest in the apartment building.
The value of the life interest must be determined
under the principles of section 2512 and the
regulations thereunder.
Trust 2 was established by B’s father for the
benefit of B and C. Under the terms of Trust 2,
the trust income and corpus may be distributed at
the trustee’s discretion to either B or C. For
purposes of determining B’s net worth, all of the
interests in property owned by Trust 2 must first
be allocated to either B or C based on all relevant
facts and circumstances. If the facts and circumstances do not indicate how the interest in the
trust’s property should be allocated between B and
C, the trust property will be allocated under the
rules of intestate succession (determined by reference to B’s father’s intestacy) as contained in the
Uniform Probate Code. If B’s father had died
intestate, the Uniform Probate Code would have
allocated his property equally between B and C.
Thus, for purposes of determining B’s net worth,
B will be treated as owning half of the interests in
property owned by Trust 2. The value of these
interests in property will be determined under the
principles of section 2512.

SECTION IV. RULING REQUESTS
Background. Section 877(c) provides
that a former U.S. citizen who satisfies
either the tax liability test or the net
worth test will not be considered to
have a principal purpose of tax avoidance as a result of one of those tests if
that former citizen submits a request for
a ruling within one year of the date of
loss of U.S. citizenship for the Secretary’s determination as to whether such
loss had for one of its principal purposes the avoidance of U.S. taxes. To be
eligible to request a ruling, an individual
must be within one of the following
categories: (1) the individual became at
birth a citizen of the United States and a
citizen of another country and continues
to be a citizen of such other country, (2)
the individual becomes (not later than
the close of a reasonable period after

loss of U.S. citizenship) a citizen of the
country in which the individual, the
individual’s spouse or one of the individual’s parents was born, (3) the individual was present in the United States
for no more than 30 days during each
year of the 10-year period ending on the
date of expatriation, (4) the individual
lost U.S. citizenship before reaching age
18 1/2, or (5) the individual is described
in a category prescribed by regulation.
For purposes of sections 2107 and 2501,
a former citizen who meets the requirements of section 877(c)(1) will not be
considered to have expatriated with a
principal purpose to avoid U.S. taxes.
Sections
2107(a)(2)(B)
and
2501(a)(3)(C).
Section 877(e)(3)(A) provides that the
exception set forth in section 877(c)
with respect to U.S. citizens shall not
apply to former long-term residents.
However, section 877(e)(4) gives the
Secretary the authority to exempt categories of former long-term residents
from section 877. In addition, section
877(e)(5) authorizes the Secretary to
prescribe appropriate regulations to
carry out the purposes of section 877(e).
Additional categories of individuals
eligible to submit ruling requests. Treasury and the Service expect to issue
regulations that will permit a former
long-term resident who is within certain
categories to request a ruling under
sections 877, 2107 and 2501 as to
whether the individual’s expatriation had
for one of its principal purposes the
avoidance of U.S. taxes. Until such
regulations are issued, a former longterm resident may request a ruling if:
(1) on the date of expatriation, the
individual is a citizen of:
(a) the country in which the individual was born,
(b) the country where the individual’s
spouse was born, or
(c) the country where either of the
individual’s parents was born, and
the individual becomes (not later than
the close of a reasonable period after the
individual’s expatriation) fully liable to
tax in such country by reason of the
individual’s residence;
(2) the individual was present in the
United States for no more than 30 days
during each year of the 10-year period
prior to expatriation; or
(3) the individual ceases to be taxed
as a lawful permanent resident, or commences to be treated as a resident of
another country under an income tax
treaty and does not waive the benefits of

42

such treaty applicable to residents of the
foreign country, before the individual
reaches age 18 1/2.
In addition, former long-term residents and former citizens who narrowly
fail to satisfy the criteria of an enumerated category may also submit ruling
requests. The Secretary, in his or her
sole discretion, may decline to rule on
any request if the Secretary determines
that the individual does not narrowly
fail to satisfy the criteria of one of those
categories. If the Secretary declines to
rule on an individual’s ruling request for
this reason, the individual will not be
considered to have ‘‘submitted’’ a ruling
request within the meaning of section
877(c)(1)(B). Accordingly, if that individual satisfies either the tax liability or
net worth test, the individual will be
considered to have expatriated with a
principal purpose to avoid U.S. taxes
under section 877(a)(2).
Examples. The following examples
illustrate circumstances in which an individual narrowly fails to satisfy the
criteria of an enumerated category, and
thus eligible to request a ruling.
Example 3. D, a former citizen of the United
States by birth, expatriated on February 15, 1997.
D satisfied the tax liability test on the date of her
expatriation and thus, will be considered to have
expatriated with a principal purpose to avoid U.S.
taxes unless she qualifies for an exception under
section 877(c). D has resided in the United
Kingdom since 1985. D is not a citizen by birth of
another country and does not plan to become a
citizen of a country in which one of her parents or
her spouse was born. D did not spend any time in
the United States during the 10-year period prior
to her expatriation, except for one year when she
vacationed in Hawaii for 35 days. D narrowly fails
to satisfy the criteria of section 877(c)(2)(B)
because she spent only 35 days in the United
States during one year of the 10-year period
ending on the date of her expatriation. Thus, D is
eligible to submit a ruling request.
Example 4. E is a citizen of France and a
long-term resident of the United States. E’s parents emigrated from Africa to France in 1950 and
acquired French citizenship in 1960. E’s parents
were employed by the French government and
often travelled outside of France. In 1965, E was
born while E’s parents were stationed outside of
France on a short-term assignment. By virtue of
his parents’ French citizenship, E became a citizen
of France at birth. E resided in France from age 1
until age 21. E became a lawful permanent
resident of the United States at age 21. E is now
31 years old and wishes to relinquish his green
card and return to France. E will satisfy the net
worth test on the date of his expatriation.
Although E is not a citizen of France by virtue
of being born in France, E narrowly fails to satisfy
the criteria of an enumerated category because he
was born outside of France only because his
parents were temporarily absent from France during an overseas assignment for the French government. E is a citizen of France by birth, became a
resident of France at age 1, and plans to become a

resident of France after terminating his U.S.
residency. Thus, E is eligible to submit a ruling
request.

Effect of rulings and pending ruling
requests. An expatriate who satisfies the
tax liability or net worth test will be
subject to new sections 877, 2107 or
2501, unless such individual obtains a
favorable ruling, rather than merely submits a request, that the individual did
not expatriate with a principal purpose
to avoid U.S. taxes. If an individual’s
ruling request is pending before the
Service at the time prescribed for filing
the individual’s income tax return for a
particular year, the individual must report income on his or her U.S. income
tax return for that year as if section 877
applied to him or her. If the individual
obtains a favorable ruling at a later date,
the individual may then amend that
previous year’s U.S. income tax return
accordingly.
Challenging an adverse ruling. An
individual who obtains an adverse ruling
may challenge the ruling by initiating a
refund suit to recover any taxes paid by
reason of section 877. See H.R. Conf.
Rep. No. 736, 104th Cong., 2d Sess.
325 (1996).
Time for submitting ruling requests.
Ruling requests must be submitted no
later than one year following the date of
expatriation. If an individual does not
submit a ruling request within this prescribed period and satisfies either the
tax liability test or the net worth test,
such individual will be treated as having
a principal purpose to avoid U.S. taxes.
However, an individual subject to new
section 877 who expatriated after February 5, 1994, but on or before July 8,
1996, and who wishes to submit a ruling
request as to whether such expatriation
had for one of its principal purposes the
avoidance of U.S. taxes must do so by
July 8, 1997.
Ruling requests may be submitted
prior to the expected date of expatriation, provided that the individual submitting the request has formed a definite
intention to expatriate. The Service will
not rule on requests involving alternative plans of proposed transactions or
hypothetical situations. See section 7.02
of Rev. Proc. 97–1, 1997–1 I.R.B. 11,
24.
Procedures for submitting ruling requests. Individuals should refer to section 8 of Rev. Proc. 97–1, 1997–1 I.R.B.
11, 25, for general instructions on the
proper procedures to follow when submitting ruling requests. Individuals
should also consult section 15 of Rev.

Proc. 97–1, 1997–1 I.R.B. 11, 46, for
information on user fees.
Information that must be included in
ruling requests. The burden of proof is
on the individual requesting the ruling
to establish to the satisfaction of the
Secretary that the individual’s expatriation did not (or will not) have for one of
its principal purposes the avoidance of
U.S. taxes under Subtitle A or Subtitle B
of the Code. Therefore, individuals
should submit any relevant information
that will help the Secretary make a
determination as to whether the individual’s expatriation (or planned expatriation) had (or will have) for one of its
principal purposes the avoidance of U.S.
taxes. The ruling request must include
the following information:
(1) the date (or expected date) of
expatriation;
(2) a full explanation of the individual’s reasons for expatriating;
(3) the individual’s date of birth;
(4) all foreign countries where the
individual is a resident for tax purposes
and/or intends to obtain residence for
tax purposes;
(5) all foreign countries of which the
individual is a citizen and/or intends to
acquire citizenship after expatriation;
(6) the countries where the individual’s spouse (if any) and parents were
born;
(7) a description of the individual’s
ties to the United States and the individual’s ties to the foreign country
where the individual resides (or intends
to reside) for the period that begins five
years prior to expatriation and ends on
the date that the ruling request is submitted, including the location of the
individual’s permanent home, tax home
(within the meaning of section
911(d)(3)), family and social relations,
occupation(s), political, cultural, or other
activities, business activities, personal
belongings, the place from which the
individual administers property, the jurisdiction in which the individual holds
a driver’s license, the location where the
individual conducts routine personal
banking activities, the location of the
individual’s cemetery plot (if any), and
any other similar information;
(8) a balance sheet, at fair market
value, that sets forth by category (e.g.,
cash, marketable securities, closely-held
stock, business assets, qualified and
nonqualified deferred compensation arrangements, individual retirement accounts, installment obligations, U.S. real
property, foreign real property, etc.) the
individual’s assets and liabilities imme-

43

diately prior to expatriation. The balance
sheet must also set forth the following:
(i) the source of income and gain,
without applying the source provisions
of section 877, that such property would
have generated during the 5-year period
prior to expatriation and immediately
after expatriation,
(ii) the source of income and gain,
assuming that the source provisions of
section 877 applied (as modified by
section V of this notice), that such
property would have generated during
the 5-year period prior to expatriation
and immediately after expatriation, and
(iii) the gain or loss that would be
realized if the assets were sold for their
fair market values on the date of expatriation.
The individual must separately list
(not by category) each partnership in
which the individual holds an interest,
each trust that the individual is considered to own under sections 671 through
679, each trust that the individual is
considered to own under Chapter 12 of
Subtitle B of the Code, and each trust in
which the individual holds a beneficial
interest (as determined under the procedures described in section III of this
notice). The individual must also describe the types of assets held by each
partnership or trust, and indicate the
methodology (as described in section III
of this notice) used to determine the
individual’s beneficial interest in each
trust. In addition, the individual should
indicate whether there have been (or are
expected to be) significant changes in
the individual’s assets and liabilities for
the period that began five years prior to
expatriation and ends ten years following the date of expatriation. If so, the
individual should attach a statement explaining the changes in the individual’s
assets and liabilities during such period;
(9) a description of all exchanges
described in section 877(d)(2)(B) and all
removals of appreciated tangible personal property from the United States
(as described in section V of this notice), that:
(i) occurred at any time beginning 5
years prior to expatriation (but not including exchanges that took place prior
to February 6, 1995) and ending on the
date that the ruling request is submitted,
or
(ii) occurred, or are expected to occur, during the 10-year period following
expatriation.
If the individual is subject to new
section 877 because of section
511(g)(3)(A) of the Act (see section X

of this notice), the individual must also
include a description of all exchanges
described under section 877(d)(2)(B)
that occurred on or after the date of the
individual’s expatriating act (see section
X of this notice) and before February 6,
1995;
(10) a description of all occurrences
under section 877(d)(2)(E)(ii) that are
treated as exchanges under section
877(d)(2) (as described in section V of
this notice) that:
(i) occurred at any time beginning 5
years prior to expatriation (but not including occurrences that took place prior
to February 24, 1997) and ending on the
date that the ruling request is submitted,
or
(ii) occurred, or are expected to occur, during the 10-year period following
expatriation;
(11) a statement describing the nature
and status of any ongoing audits, disputes or other matters pending before
the Internal Revenue Service;
(12) a statement as to whether the
individual satisfied his or her U.S. tax
liability during the period that he or she
was a U.S. citizen or lawful permanent
resident of the United States;
(13) copies of the individual’s U.S.
tax returns for each of the three years
prior to expatriation;
(14) a copy of the information statement filed in accordance with section
6039F, as described in section IX of this
notice (if such statement has not yet
been filed, provide a draft copy of such
statement);
(15) in the case of an individual with
gross assets that have an aggregate fair
market value in excess of $10,000,000,
a calculation of the individual’s projected U.S. and foreign income tax
liability for the taxable year of expatriation (or expected expatriation) and the
two taxable years following expatriation
under each of the following circumstances:
(i) if it is determined that the individual expatriated with a principal purpose to avoid U.S. taxes under section
877,
(ii) if it is determined that the individual did not expatriate with a principal
purpose to avoid U.S. taxes under section 877, and
(iii) if the individual had remained a
U.S. citizen or U.S. lawful permanent
resident.
The individual must also indicate
whether the individual expects a substantial change in the individual’s projected U.S. and foreign income tax

liability as a result of a change in
income for the remainder of the 10-year
period following expatriation;
(16) in the case of an individual with
gross assets that have an aggregate fair
market value in excess of $10,000,000,
an actuarial estimate of U.S. and foreign
estate and other death taxes that would
be owed on the individual’s property,
calculated based on the assumption that
the individual owns the same property
on the date of death that the individual
owned (or expects to own) on the date
of expatriation, under each of the following circumstances:
(i) if it is determined that the individual expatriated with a principal purpose to avoid U.S. taxes under section
2107,
(ii) if it is determined that the individual did not expatriate with a principal
purpose to avoid U.S. taxes under section 2107, and
(iii) if the individual had remained a
U.S. citizen or U.S. lawful permanent
resident domiciled in the United States;
and
(17) in the case of an individual with
gross assets that have an aggregate fair
market value in excess of $10,000,000,
a statement as to whether the individual
expects to make a gift during any year
of the 10-year period following expatriation that would be subject to tax under
section 2501 if the individual is determined to have expatriated with a principal purpose to avoid U.S. taxes. If so,
the individual should describe the gift,
provide an estimate of its fair market
value, and indicate when and to whom
the individual expects to make the gift.
The foregoing list of information
must be provided with ruling requests
submitted after March 10, 1997. Although individuals must provide good
faith estimates of fair market values,
formal appraisals are not required. In
processing ruling requests, the Service
may ask individuals with gross assets
that have an aggregate fair market value
of $10,000,000 or less to supply the
information described in (15), (16) and
(17) above. If an individual fails to
provide the aforementioned information
or any other information that may be
reasonably required, the individual’s ruling request may be closed pursuant to
section 10.06(3) of Rev. Proc. 97–1,
1997–1 I.R.B. 11, 39. If an individual’s
ruling request is closed, that individual
will not be considered to have ‘‘submitted’’ a ruling request within the meaning
of section 877(c)(1)(B). Accordingly, if
that individual satisfies either the tax

44

liability test or the net worth test, the
individual will be considered to have
expatriated with a principal purpose to
avoid U.S. taxes under section
877(a)(2).
Finally, an individual must attach his
or her ruling to the individual’s U.S.
income tax return for the year in which
the individual expatriates. See section
8.05 of Rev. Proc. 97–1, 1997–1 I.R.B.
11, 33. If the individual has already
filed a U.S. income tax return for such
year, the individual must attach the
ruling to the individual’s U.S. income
tax return for the year in which he or
she obtains the ruling.
SECTION V. EXCHANGES AND GAIN
RECOGNITION AGREEMENTS
Background. Section 877(d)(1)(A)
provides that gains on the sale or exchange of property (other than stock or
debt obligations) located in the United
States shall be treated as from sources
within the United States. Section
877(d)(1)(B) provides that gains on the
sale or exchange of stock issued by a
domestic corporation or debt obligations
of United States persons, or of the
United States, a State, a political subdivision thereof, or the District of Columbia, shall be treated as from sources
within the United States. Section
877(d)(1)(C) provides that income or
gain derived from a foreign corporation
will be from sources within the United
States if an expatriate owned or is
considered to own (under the principles
of sections 958(a) and (b)), at any time
during the 2-year period ending on the
date of expatriation, more than 50 percent of (i) the total combined voting
power of all classes of stock entitled to
vote of such corporation, or (ii) the total
value of the stock of such corporation.
The amount of income or gain that is
considered U.S. source is limited, however, to the amount that does not exceed
the earnings and profits attributable to
such stock earned before the date of the
individual’s expatriation and during periods that the ownership requirements are
met.
Section 877(d)(2) generally provides
that certain property transferred in nonrecognition exchanges by an individual
subject to section 877 during the 10year period referred to in section 877(a)
will be treated as sold for its fair market
value on the date of the exchange. Thus,
any gain must be recognized by the
individual in the taxable year of the
exchange. Section 877(d)(2) applies to

exchanges that, without regard to section
877, are nontaxable under subtitle A of
the Code and involve the exchange of
property that would produce U.S. source
income or gain for property that would
produce foreign source income or gain.
Under section 877(d)(2)(C), however,
an individual is not required to immediately recognize gain if the individual
enters into an agreement with the Secretary specifying that any income or gain
derived from the property acquired in
the exchange (or any other property that
has a basis determined in whole or in
part by reference to such property) during the 10-year period referred to in
section 877(a) shall be treated as U.S.
source income. In addition, if the transferred property is disposed of by the
acquiror, the gain recognition agreement
will terminate and any gain not recognized by reason of the agreement must
be recognized by the individual as of
the date of such disposition.
Section 877(d)(2)(D) provides the
Secretary with regulatory authority to
substitute the 15-year period beginning
five years prior to expatriation for the
10-year period referred to in section
877(a), and to apply section 877(d)(2) to
all exchanges that occur during such
15-year period. Section 877(d)(2)(E)
also authorizes the Secretary to issue
regulations to treat as a taxable exchange the removal of appreciated tangible personal property from the United
States, and any other occurrence that
results in a change in the source of
income or gain from property from U.S.
source to foreign source without recognition of gain.
Fifteen-year period and expanded
definition of ‘‘exchanges’’. Treasury and
the Service expect to issue regulations
under sections 877(d)(2)(D) and (E) that
extend the 10-year period referred to
section 877(a) and provide an expanded
definition of exchanges. The regulations
will apply to individuals who expatriate
after February 5, 1995, and to individuals subject to section 511(g)(3)(A) of the
Act (see section X of this notice). Until
regulations are issued, taxpayers must
comply with the rules set forth below.
Section 877(d)(2) must be applied by
substituting the 15-year period beginning five years prior to expatriation for
the 10-year period referred to in section
877(a). In addition, removal of appreciated tangible personal property from the
United States with an aggregate fair
market value in excess of $250,000
within this 15-year period must be
treated as an exchange to which section

877(d)(2) applies. Accordingly, any gain
derived from removal of property with
an aggregate fair market value of
$250,000 or less during this 15-year
period will not be taxable under section
877. If an individual removes property
with an aggregate fair market value in
excess of $250,000 during this 15-year
period, the individual must recognize a
pro rata portion of the gain attributable
to the value in excess of $250,000,
unless he or she enters into a gain
recognition agreement. A pro rata portion of the gain must be calculated by
multiplying the total gain on the removed property by a fraction, the numerator of which is the excess of the
aggregate fair market values of all removed property over $250,000 and the
denominator of which is the aggregate
fair market values of all removed property. Removal of appreciated tangible
personal property during the 5-year period prior to expatriation (whether or not
the fair market values exceed $250,000)
will not be treated as an exchange if the
removal occurred prior to February 6,
1995.
Any other occurrence (within the
meaning of section 877(d)(2)(E)(ii))
within the 15-year period that results in
a change of the source of income or
gain from U.S. source to foreign source
must also be treated as an exchange to
which section 877(d)(2) applies. However, an occurrence during the 5-year
period prior to expatriation will not be
treated as an exchange if the occurrence
took place prior to February 24, 1997.
Determination of source of certain
gains. The principles of section
877(d)(1) generally apply for purposes
of determining whether any exchange of
property changes the source of income
or gain from U.S. source to foreign
source during the 15-year period beginning five years prior to expatriation.
Thus, solely for purposes of determining
the source of the expatriate’s income or
gain with respect to any exchange
within this 15-year period, (i) the source
of any gain on the sale or exchange of
tangible personal property will be based
on the physical location of the property,
(ii) the source of gain from the sale or
exchange of stock will be based on the
corporation’s place of incorporation (except as otherwise provided in section
877(d)(1)(C)), and (iii) the source of
gain from the sale or exchange of debt
obligations will be based on the residence of the issuer of such obligations.
The source of gain on the sale or
exchange of an interest in a partnership

45

during the 15-year period will be determined as if the partner directly disposed
of his or her share of the partnership’s
assets. In determining the partner’s share
of gain recognized from each partnership asset, the gain on the sale or
exchange of the partnership interest
shall be allocated among the assets of
the partnership in proportion to the gain
that the partner would have recognized
had the partnership sold each asset for
its fair market value. In all other cases,
the source of an expatriate’s income or
gain with respect to any other transaction will be determined under the general source provisions of the Code (e.g.,
sections 861 through 865).
Recognition of gain. Except as otherwise indicated below, an individual must
recognize any realized or unrealized
gains, but not losses, as a result of any
‘‘exchange’’ described in section
877(d)(2)(B), (d)(2)(E)(i), or (d)(2)(E)(ii), in the year of the exchange unless
that individual enters into a gain recognition agreement. If an exchange occurs
during the 5-year period prior to expatriation, the individual must recognize
any gain from the exchange in the
taxable year of the individual’s expatriation unless the individual enters into a
gain recognition agreement.
Examples. The following examples
illustrate transactions that are treated as
exchanges under section 877(d)(2) and
when gain from such transactions must
be recognized.
Example 5. F, a U.S. citizen by birth, enters into
a notional principal contract in March 1997. Under
the terms of that contract, F is obligated to make
specified annual payments to an unrelated party in
exchange for specified annual payments from the
unrelated party for a period of five years. F is a
calendar year taxpayer who uses the cash method
of accounting. F moves her tax home to a foreign
country in May 1997. F renounces her U.S.
citizenship in 1998 with a principal purpose to
avoid U.S. taxes.
The source of income from a notional principal
contract is generally determined by reference to
the residence of the taxpayer. For this purpose, the
residence of an individual is the country in which
the individual’s tax home is located. See Treas.
Reg. § 1.863–7(a)(1).
Before F changed her tax home in May 1997,
F’s income earned under the contract was treated
as U.S. source income. After F changed her tax
home, the source of this income became foreign
source. Because F’s change in tax home changed
the source of her income from U.S. source to
foreign source, it is an occurrence that is treated
as an exchange to which section 877(d)(2) applies.
Since this occurrence occurred in the 5-year period
prior to her expatriation, F must recognize any
gain from the contract in 1998 (the taxable year of
her expatriation), unless she enters into a gain
recognition agreement.
However, if F also owned stock in a foreign
corporation, her change in tax home coupled with
her expatriation would not be an occurrence that is

treated as an exchange to which section 877(d)(2)
applies with respect to such stock. Pursuant to the
special source rules described in this notice, the
source of gain on the sale or exchange of stock is
based on the corporation’s place of incorporation.
Thus, the gain on the sale or exchange of foreign
stock would be foreign source for the entire
15-year period beginning five years prior to expatriation. Accordingly, there would not be an occurrence during this period that would change the
source of such gain from U.S. source to foreign
source.
Example 6. G is a U.S. citizen by birth. G owns
a home in the United States that he uses as his
principal residence. In April 1997, G sells his
principal residence in the United States at a gain
of $1,000,000. In June 1997, G purchases a new
principal residence located abroad. G’s purchase of
the new residence satisfies the requirements of
section 1034, and thus G does not recognize the
$1,000,000 gain on the sale of his old residence.
G expatriates in 1999 with a principal purpose to
avoid U.S. taxes.
Under section 861(a)(5), gain from the disposition of a United States real property interest is
treated as U.S. source income. A United States
real property interest includes real property that is
located in the United States. Section 897(c). Gain
from the sale or exchange of real property located
outside the United States is considered foreign
source income. Section 862(a)(5).
Since G is not required to recognize the gain on
the sale of his old residence by reason of section
1034, and the source of this gain would change
from U.S. to foreign if G sold his new residence,
it is an occurrence that is treated as an exchange
to which section 877(d)(2) applies. Accordingly, G
must recognize the gain from the sale of his old
residence in 1999 (the taxable year of his expatriation), unless he enters into a gain recognition
agreement.
Example 7. H is a former long-term resident of
the United States. H owns a valuable painting that
she purchased in 1965 for $500,000. H became a
resident of the United States and brought the
painting to the United States in 1975. The fair
market value of the painting in 1975 was
$2,000,000. H became a lawful permanent resident
of the United States in 1980. On January 1, 1996,
H expatriates with a principal purpose to avoid
U.S. taxes. On January 1, 1997, H removes the
painting from the United States. On that date, the
fair market value of the painting is $5,000,000.
Under section 877(d)(1)(A), H’s unrealized gain
in the painting is U.S. source so long as the
painting is located in the United States. Since the
removal of H’s appreciated painting from the
United States changed the source of the unrealized
gain thereon from U.S. source to foreign source, it
is considered an exchange to which section
877(d)(2) applies. For purposes of section 877, H’s
basis in the painting is the painting’s fair market
value on the date that H first became a U.S.
resident (i.e., $2,000,000). Section 877(e)(3)(B).
Thus, H’s unrealized gain on the painting on the
date of removal is $3,000,000 ($5,000,000–
$2,000,000).
Because the value of H’s painting on the date of
removal exceeds $250,000, H must recognize a
pro rata portion of the gain attributable to the
value in excess of $250,000, unless she enters into
a gain recognition agreement. The pro rata portion
of such gain is $2,850,000, determined by multiplying the total gain ($3,000,000) by a fraction,
the numerator of which is the excess of the fair
market value of the painting over $250,000
($4,750,000) and the denominator of which is the
fair market value of the painting ($5,000,000).

Thus, H must recognize $2,850,000 in 1997 (the
taxable year of the removal) unless she enters into
a gain recognition agreement.
Example 8. J, a U.S. citizen by birth, expatriates
on January 1, 1999, with a principal purpose to
avoid U.S. taxes. On the date of J’s expatriation, J
owns appreciated stock in a domestic corporation.
On January 1, 2000, J creates a foreign trust, FT,
and contributes the stock to FT. Under the terms
of the trust instrument, the income and corpus
from FT may be distributed at the discretion of the
trustee to J, J’s spouse, or J’s children.
If J had directly disposed of the domestic stock
instead of contributing it to FT, the gain realized
thereon would be treated as U.S. source income.
Section 877(d)(1)(B). However, if FT disposed of
the stock, the gain realized would be foreign
source because FT is not a resident of the United
States. See sections 865(a)(2) and (g)(1)(B). If FT
then distributed the proceeds to J, his gain would
also be foreign source.
Since J’s contribution of the domestic stock to
FT is nontaxable under subtitle A of the Code and
changed the source of gain on the stock from U.S.
to foreign, it is an occurrence that is treated as an
exchange to which section 877(d)(2) applies. For
this purpose, J’s beneficial interest in FT is treated
as property acquired in the exchange, and the
stock contributed to FT is treated as property
transferred in the exchange. Therefore, J must
recognize the pre-contribution gain on the appreciated stock in 2000 (the taxable year of the
exchange), unless he enters into a gain recognition
agreement.

Guidance on gain recognition agreements. An individual who wishes to
enter into a gain recognition agreement
with the Secretary with respect to any
exchange described in section 877(d)(2)
must submit the agreement with the
individual’s U.S. income tax return (normally Form 1040NR) for the taxable
year of the exchange. If an exchange
occurred during the 5-year period prior
to expatriation, the individual must submit a gain recognition agreement with
his or her U.S. income tax return for the
taxable year of the individual’s expatriation. If an exchange occurred before the
individual’s 1996 taxable year, the individual must submit a gain recognition
agreement with his or her 1996 Form
1040NR to avoid the recognition of
gain.
The gain recognition agreement will
be triggered if the individual disposes of
the property to which the gain recognition agreement applies. In addition, any
disposition of the transferred property
by the acquiror of such property will
also trigger gain, even if the disposition
is otherwise part of a nonrecognition
transaction. For purposes of the gain
recognition agreement, property removed from the United States and property the source of income or gain from
which changed from U.S. to foreign will
be treated as property acquired in an
exchange.

46

All gain recognition agreements must
be signed under penalties of perjury and
set forth the following information:
(1) a description of all property subject to the agreement, (i.e., a description
of property both transferred and acquired in an exchange, a description of
any appreciated tangible personal property that was removed from the United
States, and/or a description of all property affected by an occurrence that
changed the source of income or gain
from the property from U.S. source to
foreign source);
(2) a good faith estimate of the relevant fair market values of the property
transferred and acquired in the exchange
(formal appraisals are not required),
their adjusted basis for U.S. tax purposes, and a calculation of the gain not
recognized by reason of the gain recognition agreement (the ‘‘deferred gain’’)
on a property-by-property basis;
(3) a statement that the individual
agrees to recognize, under section 877,
any income or gain during the 15-year
period that begins five years prior to
expatriation as U.S. source income if it
is derived from property that was acquired in an exchange (as described in
this notice);
(4) a statement that the individual
agrees to recognize, under section 877, a
proportionate amount of the deferred
gain as U.S. source income as of the
date of disposition if the acquiror of the
transferred property disposes of all or a
portion of the property in any manner
during the 15-year period beginning five
years prior to expatriation;
(5) a statement that the individual
agrees to file a U.S. income tax return
(normally Form 1040NR) for each year
of the 10-year period following expatriation (whether or not such individual is
otherwise required to file a return) that
includes an annual certification each
year describing any income or gain that
is taxable pursuant to the gain recognition agreement. If the individual did not
derive any income or gain that is taxable pursuant to the gain recognition
agreement, the certification must provide
a statement to that effect;
(6) if an exchange to which the gain
recognition agreement applies occurred
during the 5-year period prior to expatriation, a certification describing any
income or gain during this 5-year period
that is taxable pursuant to the gain
recognition agreement. If the individual
did not derive any income or gain that
is taxable pursuant to the gain recogni-

tion agreement during this period, the
certification must provide a statement to
that effect;
(7) a representation that all records
relating to the property to which the
gain recognition agreement applies, including those of the acquiror (if any),
will be made available for inspection by
the Service during the period that ends 3
years from the date on which a U.S.
income tax return is filed for the year(s)
in which any income or gain that is
taxable pursuant to the gain recognition
agreement is recognized;
(8) a statement that the individual
agrees to furnish a bond or other security that satisfies the requirements of
Treas. Reg. § 301.7701–1 if the District
Director determines that such security is
necessary to ensure the payment of tax
upon the deferred gain and any other
income or gain that is taxable pursuant
to the gain recognition agreement; and
(9) if applicable, the name, address,
and U.S. taxpayer identification number
(if any) of the acquiror of any property
subject to the agreement.
If, during the period that the agreement is in force, the individual disposes
of the property acquired in the exchange
in a transaction in which gain or loss is
not recognized under U.S. income tax
principles, then the individual shall not
be required to recognize gain, provided
that the individual notifies the Secretary
of the transfer with his or her next
annual certification and modifies the
gain recognition agreement accordingly.
Example. The following example illustrates how to enter into a gain recognition agreement.
Example 9. Assume the same facts as in
example 8 above. To avoid the immediate recognition of gain on the contribution of stock to FT, J
must attach a gain recognition agreement to his
U.S. tax return for the year 2000 (the taxable year
of the exchange). As part of such agreement, J
must agree to recognize any income or gain that J
derives from his beneficial interest in FT as U.S.
source income during the remainder of the 10-year
period following expatriation. J must also agree to
recognize the pre-contribution gain on the transferred stock as U.S. source income if FT directly
or indirectly disposes of the stock. In addition, J
must agree to file an annual certification for each
year of the remaining 10-year period following
expatriation that indicates whether J derived any
income or gain from his beneficial interest in FT
and whether FT disposed of the stock. J must
represent that all records relating to the transferred
stock, including the trust’s records, will be made
available for inspection by the Service for the
period ending 3 years from the date on which J
files a U.S. income tax return for the year in
which he recognizes the deferred gain as a result
of a direct or indirect disposition of the stock by
FT. J must also represent that all records relating
to his beneficial interest in FT will be made
available for inspection by the Service for the

period ending 3 years from the date(s) on which J
files a U.S. income tax return for the year(s) in
which he recognizes any income or gain from his
beneficial interest in FT.

SECTION VI. CONTRIBUTIONS TO
CONTROLLED FOREIGN
CORPORATIONS
Background. Section 877(d)(4) generally provides that when an expatriate
contributes U.S. source property (‘‘contributed property’’) to a corporation that
would be a controlled foreign corporation (as defined in section 957) and the
individual would be a United States
shareholder (as defined in section
951(b)) but for the individual’s expatriation, then any income or gain on such
property (or any other property that has
a basis determined in whole or in part
by reference to such property) received
or accrued by the corporation during the
10-year period following expatriation
shall be treated as received or accrued
directly by the individual and not by the
corporation. If the individual disposes of
any stock in the corporation (or other
stock that has a basis determined in
whole or part by reference to such
stock) during the 10-year period referred
to in section 877(a) and while the
contributed property is held by the corporation, the individual is taxable on the
gain that would have been recognized
by the corporation had it sold a pro rata
share of the property (determined by
comparing the value of the stock disposed of to the value of the stock held
by the individual immediately prior to
the disposition) immediately before the
disposition. Section 877(d)(4)(D) provides that the Secretary may prescribe
such regulations as may be necessary to
prevent the avoidance of the purposes of
section 877(d)(4), including where the
property is sold to the corporation and
where the contributed property is sold
by the corporation. Section 877(d)(4)(E)
provides that the Secretary shall require
such information reporting as is necessary to carry out the purposes of section
877(d)(4).
Anti-abuse rules and reporting requirement. Treasury and the Service intend to issue regulations under sections
877(d)(4)(D) and (E) that extend the
10-year period referred to in section
877(d)(4), set forth reporting requirements, and provide anti-abuse rules intended to prevent individuals from utilizing controlled foreign corporations to
hold or dispose of property that would
otherwise produce income or gain from
sources within the United States. The

47

regulations will provide that if an individual acts with a principal purpose to
avoid section 877(d)(4), then the Commissioner may redetermine the U.S. tax
consequences of that action as appropriate to achieve the purposes of section
877(d)(4). The regulations will apply to
individuals who expatriate after February 5, 1995, and to individuals subject
to section 511(g)(3)(A) of the Act (see
section X of this notice).
Until regulations are issued, individuals must comply with the rules set forth
below. Individuals must apply section
877(d)(4) by substituting the 15-year
period beginning five years prior to
expatriation for the 10-year period referred to in section 877(d)(4). However,
section 877(d)(4) will not apply to any
contribution during the 5-year period
prior to expatriation if the contribution
occurred prior to February 24, 1997.
Moreover, an individual who makes a
contribution described in section
877(d)(4)(A)(i) must attach the following information to the individual’s U.S.
tax return for the year in which such
contribution occurs (whether or not the
individual is otherwise required to file a
U.S. tax return):
(1) the date of the contribution;
(2) a description of the property contributed, including a good faith estimate
of its fair market value (formal appraisals are not required) and a statement of
its adjusted basis for U.S. tax purposes
on the date of the contribution;
(3) a description of the foreign corporation to which the property is contributed, including its name, address, place
of incorporation, and its U.S. employer
identification number, if any; and
(4) a description of the percentage
interest, by vote and by value, owned or
treated as owned by the individual under
section 958 (determined as if such individual were a U.S. person).
If a contribution occurs prior to expatriation, this statement must be attached
to the individual’s U.S. income tax
return for the taxable year of the individual’s expatriation. If a contribution
occurred prior to 1996, the individual
must attach this statement to the individual’s 1996 U.S. tax return (whether
or not the individual is otherwise required to file a U.S. tax return).
SECTION VII. ANNUAL
INFORMATION REPORTING
Background. Section 6001 generally
provides that the Secretary may require
any person, by notice upon such person

or by regulations, to make such returns,
render such statements, or keep such
records as the Secretary deems sufficient
to show whether or not the person is
liable for tax under the Code. Section
6011(a) generally provides that any person who is liable for tax imposed by the
Code, or with respect to the collection
thereof, shall make a return or statement
according to forms and regulations prescribed by the Secretary. Section
6012(a)(1) generally provides that every
individual whose gross income for the
taxable year equals or exceeds the exemption amount must file a U.S. income
tax return for such year. Section
6012(a)(1) further provides, in part, that
nonresident individuals subject to tax
imposed by section 871 may be exempted from making returns under section 6012 subject to conditions, limitations, and exceptions and under such
regulations as may be prescribed by the
Secretary. Treas. Reg. § 1.6012–
1(b)(2)(i) generally provides, in part,
that a nonresident alien individual who
was not engaged in a trade or business
in the United States during a taxable
year is not required to file a return for
such year if the nonresident’s tax liability for the year is fully satisfied by the
withholding of tax at the source under
Chapter 3 of the Code.
Section 874(a) generally provides that
a nonresident alien individual will receive the benefit of deductions and
credits allowed to him by Subtitle A of
the Code only if such individual files a
true and accurate return, including all
the information that the Secretary may
deem necessary for the calculation of
such deductions and credits.
Annual reporting of income. Because
an individual who is liable for U.S.
taxes is generally required to file a
return and other such statements as the
Secretary may prescribe, Treasury and
the Service intend to issue regulations
under section 877 that will require expatriates who are liable for tax to annually
report certain information for the 10year period following expatriation. Until
the issuance of such regulations, taxpayers must report information in compliance with the rules set forth below and
any other information that the Secretary
may require at a later date. At such time
that Form 1040NR is modified to reflect
the rules described below, taxpayers
must report information in accordance
with the instructions to Form 1040NR
instead of the procedures described below. The rules below apply to expatriates who are subject to section 877 as in

effect before the Act, as well as those
subject to section 877 as revised by the
Act.
Beginning with the 1996 taxable year,
an individual who expatriated with a
principal purpose to avoid U.S. taxes
under section 877 as in effect before the
Act must annually file a U.S. income
tax return (Form 1040NR), with the
information described below, for each
year of the remaining 10-year period
following expatriation if such individual
is liable for U.S. tax under any provision of the Code (e.g., section 871(a))
for such year. An individual who expatriated with a principal purpose to avoid
U.S. taxes under section 877 as
amended by the Act must also annually
file a U.S. income tax return (Form
1040NR), with the information described below, for each year of the
10-year period following expatriation if
such individual is liable for U.S. tax
under any provision of the Code (e.g.,
section 871(a)) for such year.3
The return must bear the statement
‘‘Expatriation Return’’ across the top of
page 1 of Form 1040NR. In addition, a
statement must be attached to the return
that sets forth by category (e.g., dividends, interest, etc.) all items of U.S.
and foreign source gross income
(whether or not taxable in the United
States). The statement must identify the
source of such income (determined under section 877 as modified by section
V of this notice) and those items of
income subject to tax under section 877.
In addition, any expatriate who has not
previously filed an information statement under section 6039F should also
attach to his or her first nonresident
return a statement containing the information described in section IX of this
notice.
Treasury and the Service intend to
amend Treas. Reg. § 1.6012–1(b)(2)(i)
in accordance with the rules of this
notice. Until the regulation is modified,
an expatriate who is otherwise required
to report information in accordance with
this section of the notice must attach a
statement to Form 1040NR, even if the
individual has fully satisfied his or her
tax liability through withholding of tax
at source.
An expatriate who fails to furnish a
complete statement in any year for
which he or she is liable for any U.S.
taxes will not be considered to have
3

Individuals should refer to Treas. Reg. § 1.6012–
1(b)(2)(ii) for guidance on how to file a U.S.
income tax return for the taxable year of the
individual’s expatriation.

48

filed a true and accurate return. Therefore, such an individual will not be
entitled to the benefit of any deductions
or credits if the individual’s tax liability
for that year is later adjusted. See
section 874(a).
An individual who is required to file
the above statement for the taxable year
that begins in 1995 will be considered
to have timely filed his or her statement
for that year if the individual files such
statement by the due date (including
extensions) for filing the individual’s
U.S. income tax return for the taxable
year that begins in 1996.
SECTION VIII. INTERACTION WITH
TAX TREATIES
Background. The legislative history of
the Act indicates that Congress believed
that section 877, as amended, is generally consistent with the underlying principles of U.S. income tax treaties to the
extent that section 877 provides for a
foreign tax credit for items taxed by
another country. To the extent that there
is a conflict with U.S. income tax
treaties in force on August 21, 1996 (the
date of enactment of section 877), Congress intended that ‘‘the purpose of
section 877, as amended...[is] not to be
defeated by any treaty provision.’’ H.R.
Rep. No. 496, 104th Cong., 2d Sess.
155 (1996). See also, H.R. Conf. Rep.
No. 736, 104th Cong., 2d Sess. 329
(1996). However, any conflicting treaty
provisions that remain in force 10 years
after August 21, 1996, will take precedence over section 877, as revised. Id.
Coordination with tax treaties. In accordance with Congressional intent,
Treasury and the Service will interpret
section 877 as consistent with U.S.
income tax treaties. To the extent that
there is a conflict, however, all provisions of section 877, as amended, prevail over treaty provisions in effect on
August 21, 1996. This coordination rule
is effective until August 21, 2006, and
applies to those provisions of section
877 that were amended by the Act as
well as those that were not amended by
the Act. In addition, Treasury and the
Service will interpret all treaties,
whether or not in force on August 21,
1996, that preserve U.S. taxing jurisdiction with respect to former U.S. citizens
or former U.S. long-term residents who
expatriate with a principal purpose to
avoid U.S. taxes as consistent with the
provisions of section 877, as amended.

SECTION IX. INITIAL INFORMATION
REPORTING
Background. Section 6039F(a) requires each individual who loses U.S.
citizenship to provide an information
statement to the U.S. Department of
State or a federal court, as applicable.
The information reporting requirements
of section 6039F apply to individuals
who expatriate after February 5, 1995,
and to individuals subject to section
511(g)(3)(A) of the Act (see section X
of this notice).
Section 6039F(a)(1) requires that this
information must be provided not later
than the earliest date on which such
individual (1) renounces the individual’s
U.S. nationality before a diplomatic or
consular officer of the United States, (2)
furnishes to the U.S. Department of
State a statement of voluntary relinquishment of U.S. nationality confirming an act of expatriation, (3) is issued a
certificate of loss of U.S. nationality by
the U.S. Department of State, or (4)
loses U.S. nationality because the individual’s certificate of naturalization is
cancelled by a U.S. court (collectively,
the ‘‘reporting date’’).
Section 6039F(b) requires a former
citizen to report his taxpayer identification number, mailing address of principal foreign residence, foreign country in
which the individual is residing, foreign
country of citizenship, information on
the individual’s assets and liabilities if
such individual’s net worth exceeds
$500,000 (as adjusted by section 1(f)(3)
for taxable years after 1996), and such
other information as the Secretary may
prescribe. Section 6039F(f) requires
long-term residents who expatriate after
February 5, 1995, to provide a similar
statement with their U.S. tax returns for
the taxable year of expatriation.
If a former citizen fails to provide the
required information statement, section
6039F(d) generally provides that the
individual will be subject to a penalty
equal to the greater of (1) five percent
of the tax required to be paid under
section 877 for the taxable year ending
during such year, or (2) $1,000. The
penalty will be assessed for each year
during which such failure continues for
the 10-year period beginning on the date
of loss of citizenship. The penalty will
not be imposed if it is shown that such
failure is due to reasonable cause and
not willful neglect. Section 6039F(f)
also applies this penalty to former longterm residents.

Information Statements. Until such
time that a form is issued for providing
the statement required by section 6039F,
individuals must file an information
statement that includes the information
set forth below.
(1) A former U.S. citizen whose reporting date is on or before March 10,
1997, must provide the information
statement to the Internal Revenue Service, 950 L’Enfant Plaza SW, Washington, D.C. 20224, ATTN: Compliance
Support & Services, by June 8, 1997.
Former U.S. citizens who furnished the
information enumerated in section
6039F(b) to the appropriate entity prior
to February 24, 1997, are not required
to provide an additional statement.
(2) A former U.S. citizen whose reporting date is after March 10, 1997,
and on or before June 8, 1997, must
provide the information statement to (i)
the American Citizens Services Unit,
Consular Section, of the nearest American Embassy or consulate, (ii) Office of
Policy Review and Interagency Liaison
(CA/OCS/PRI), Room 4817, Department
of State, Washington D.C., 20520–
4818, or (iii) a federal court (if the
expatriate’s certificate of nationality was
cancelled by such court), on or before
June 8, 1997.
(3) A former U.S. citizen whose reporting date is after June 8, 1997 must
provide the information statement to the
(i) American Citizens Services Unit,
Consular Section, of the nearest American Embassy or consul, or (ii) a federal
court (if the expatriate’s certificate of
nationality was cancelled by such court)
on or before such reporting date.
(4) A former long-term resident who
expatriated after February 5, 1995, and
before January 1, 1996, must attach the
information statement to either a 1996
Form 1040NR (whether or not the individual is otherwise required to file a
U.S. tax return) or an amended 1995
U.S. income tax return. To comply with
new section 877, an individual whose
1995 tax liability changed as a result of
new section 877 must amend the individual’s 1995 return accordingly and
include the information statement with
that amended return. A former long-term
resident who expatriated in the 1995
taxable year will be deemed to have
timely furnished the information statement if a statement is filed by the due
date (including extensions) for filing the
individual’s 1996 return. A former longterm resident who expatriated after 1995
must attach an information statement to
the former resident’s U.S. income tax

49

return for the year of expatriation.
Former long-term residents who have
already furnished the information enumerated in section 6039F(b) to the Internal Revenue Service prior to February
24, 1997, are not required to provide an
additional statement.
Former citizens and former long-term
residents must include the following
information in their information statements:
(1) name;
(2) date of birth;
(3) taxpayer identification number;
(4) mailing address prior to expatriation;
(5) address where the individual resided prior to expatriation, if different
from (4) above;
(6) mailing address of principal foreign residence, if any;
(7) address where the individual expects to reside after expatriation, if
different from (6) above;
(8) all foreign countries of which the
individual is a citizen and the dates and
methods by which such citizenship was
acquired;
(9) the number of days (including
vacation and nonwork days) that the
individual was physically present in the
United States during the year of expatriation (up to and including the date on
which the information statement is filed)
and each of the two preceding taxable
years;
(10) in the case of an individual
whose average annual net U.S. income
tax (as defined in section 38(c)(1)) for
the five taxable years prior to expatriation exceeded $100,000, the net U.S.
income tax for each of these years
(rounded to the nearest $50,000). If the
individual’s average annual net U.S.
income tax liability for the preceding
five taxable years did not exceed
$100,000, the individual must provide a
representation to that effect;
(11) in the case of an individual with
gross assets that have an aggregate fair
market value in excess of $500,000, a
balance sheet, using good faith estimates
of fair market values (formal appraisals
are not required), that sets forth by
category (e.g., cash, marketable securities, closely-held stock, business assets,
qualified and nonqualified deferred compensation arrangements, individual retirement accounts, installment obligations, U.S. real property, foreign real
property, etc.) the individual’s assets and
liabilities immediately prior to expatriation. The balance sheet must also set
forth the following:

(i) the source of income and gain,
without applying the provisions of section 877, that such property would have
generated during the 5-year period prior
to expatriation and immediately after
expatriation,
(ii) the source of income and gain,
assuming that the provisions of section
877 applied (as modified by section V
of this notice), that such property would
have generated during the 5-year period
prior to expatriation and immediately
after expatriation, and
(iii) the gain or loss that would be
realized if the assets were sold for their
fair market values on the date of expatriation.
The individual must separately list
(not by category) each partnership in
which the individual holds an interest,
each trust that the individual is considered to own under sections 671 through
679, each trust that the individual is
considered to own under Chapter 12 of
Subtitle B of the Code, and each trust in
which the individual holds a beneficial
interest (as determined under the procedures described in section III of this
notice). The individual must also describe the types of assets held by each
partnership or trust, and indicate the
methodology (as described in section III
of this notice) used to determine the
individual’s beneficial interest in each
trust. In addition, the individual should
indicate whether there have been significant changes in the individual’s assets
and liabilities for the period that began
five years prior to expatriation and ends
on the date that the information statement is filed. If so, the individual
should attach a statement explaining the
changes in the individual’s assets and
liabilities during such period;
(12) in the case of a former longterm U.S. resident, a representation as to
whether the former resident was treated
as a resident of a foreign country under
a U.S. income tax treaty for any year in
the preceding 15 years. If so, the individual must list the foreign countries
and years when this occurred. The individual must also list any year(s) that the
former resident waived the benefits of
that treaty; and
(13) a representation, signed under
penalties of perjury by the individual,
that the facts contained in the information statement are true, correct and complete to the best of the individual’s
knowledge and belief.
An individual who timely files a
statement in accordance with the above
guidelines will not be subject to the

penalties described in section 6039F(d).
All individuals whose reporting dates
occur after such time that a form is
issued for reporting information under
section 6039F must complete and submit that form to comply with their
reporting requirements under section
6039F.
SECTION X. TRANSITION
PROVISION
Background. Sections 877 and 6039F
generally apply to individuals who expatriate after February 5, 1995. However,
section 511(g)(3)(A) of the Act provides
a special transition provision in the case
of a former citizen who performed an
expatriating act specified in paragraph
(1), (2), (3), or (4) of section 349(a) of
the Immigration and Nationality Act (8
U.S.C. 1481(a)(1)–(4)) before February
6, 1995, but who did not on or before
such date furnish to the U.S. Department of State a signed statement of
voluntary relinquishment of U.S. nationality confirming the performance of
such act. Such an individual would not
come within the general effective date
of the amendments to sections 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 expatriating
act (i.e., prior to February 6, 1995). See
Treas. Reg. § 1.1–1(c).
The transition provision states that
section 6039F and the amendments
made to section 877 by the Act shall
apply to such an individual, except that
the 10-year period referred to in section
877(a) shall not expire before the end of
the 10-year period beginning on the date
the signed statement of voluntary relinquishment is furnished to the U.S. Department of State. Thus, such an individual is subject to new section 877 as
of the date of loss of citizenship and the
10-year period referred to in section
877(a) shall not expire before the end of
the 10-year period beginning on the date
the signed statement of voluntary relinquishment is furnished to the U.S. Department of State.
Section 511(g)(3)(B) of the Act states
that the transition provision of section
511(g)(3)(A) will not apply if the individual establishes to the satisfaction of
the Secretary of the Treasury that the
individual’s loss of U.S. citizenship occurred before February 6, 1994. Accordingly, section 6039F will not apply to
such an individual and he will be sub-

50

ject to section 877 as in effect before
the amendments made by the Act.
Example. The following example illustrates the application of section
511(g)(3)(A) of the Act.
Example 10. K joined a foreign army on
October 1, 1994, with the intent to relinquish his
U.S. citizenship, but did not furnish a statement of
voluntary relinquishment of citizenship to the U.S.
Department of State until October 1, 1995. K is
subject to new section 877 beginning on October
1, 1994, the date that K performed the expatriating
act. However, the 10-year period referred to in
section 877(a) will not expire before the end of
the 10-year period beginning on the date that K
furnished a statement of voluntary relinquishment
of citizenship to the U.S. Department of State. K
furnished this statement on October 1, 1995. Thus,
K is subject to new section 877 for the period that
began on October 1, 1994, and ends on September
30, 2005.

Special rule for individuals who claim
to be within the exception under section
511(g)(3)(B) of the Act. An individual
who (i) furnished a signed statement of
voluntary relinquishment of U.S. nationality to the U.S. Department of State
after February 5, 1995, and (ii) claims
that new section 877 does not apply
because of the exception to the transition provision in section 511(g)(3)(B) of
the Act, must (whether or not the individual is otherwise required to file a
U.S. tax return) attach a statement to
Form 1040NR for the year in which the
signed statement of voluntary relinquishment is furnished to the U.S. Department of State (or to the individual’s
1996 Form 1040NR if the statement of
voluntary relinquishment was furnished
during 1995). The return must bear the
statement ‘‘Expatriation Return’’ across
the top of page 1 of such return. The
statement attached to the return must
include the nature and date of the
expatriating act, the date the signed
statement of voluntary relinquishment
was furnished to the U.S. Department of
State, and a copy of the individual’s
certificate of loss of nationality. An
individual who does not file a statement
in the manner prescribed above will not
be considered to have established to the
satisfaction of the Secretary of the Treasury that the individual lost U.S. citizenship before February 6, 1994.
SECTION XI. INTERACTION WITH
SECTION 7701(b)(10)
Background. Section 7701(b)(10) applies to an alien individual who was
treated as a resident of the United States
during any period that includes at least
three consecutive calendar years (the
‘‘initial residency period’’) and ceased to
be treated as a U.S. resident, but subse-

quently becomes a U.S. resident before
the close of the third calendar year
beginning after the initial residency period. Under section 7701(b)(10), such an
individual will be taxed in the manner
provided by section 877(b) for the period after the close of the initial residency period and before the date on
which the individual subsequently becomes a U.S. resident. This provision
applies only if the tax imposed pursuant
to section 877(b) exceeds the tax imposed under section 871.
Application of section 7701(b)(10).
An individual described in section
7701(b)(10) will be subject to tax on
U.S. source income in the manner provided by section 877(b) (as modified by
section 877(d)) for the period after the
close of the initial residency period and
before the date on which the individual
subsequently becomes a U.S. resident
(the ‘‘intervening period’’). Because the
tax imposed by reason of section
7701(b)(10) applies regardless of
whether the individual had a principal
purpose to avoid U.S. taxes, sections
877(a), (c), and (f), as amended, do not
apply to an individual who is subject to
tax in the manner provided by section
877(b) solely by reason of section
7701(b)(10).
Section 877(e) also does not generally
apply to an individual who is subject to
tax in the manner provided by section
877(b) solely by reason of section
7701(b)(10). However, to treat former
residents who are subject to tax by
reason of section 7701(b)(10) in a similar manner as former long-term residents
who are subject to section 877, all
property held by an individual on the
date that such individual first became a
resident of the United States shall be
treated solely for purposes of section
7701(b)(10) as having a basis of not less
than the fair market value of the property on such date, unless the individual
elects not to have this treatment apply.
Reporting requirements for individuals subject to section 7701(b)(10). An
individual who is liable for U.S. tax by
reason of section 7701(b)(10) during
any year of the intervening period must
file U.S. income tax returns (Form
1040NR) reporting such tax liability for
each of those years by the due date
(including extensions) for filing the individual’s U.S. income tax return for the
year that the individual subsequently
becomes a U.S. resident. If tax returns
for the years of the intervening period
have already been filed, the individual

must amend those returns accordingly to
comply with section 7701(b)(10).
An individual described in section
7701(b)(10) who is liable for U.S. taxes
under any provision of the Code during
the intervening period (e.g., section
871(a)) must attach a statement to his or
her U.S. tax return that sets forth, by
category (e.g., dividends, interest, etc.),
all items of U.S. and foreign source
gross income (whether or not taxable in
the United States) derived during each
year of the intervening period. Such
statement must identify the source of
such income (determined under section
877 as modified by section V of this
notice), the items of income subject to
tax in the manner provided by section
877(b), and any other information that
the Secretary may prescribe at a later
date.
The statement must be filed even if
the individual has fully satisfied his or
her U.S. tax liability for a taxable year
through withholding at source. As discussed in section VII of this notice,
Treasury and the Service expect to
modify Treas. Reg. § 1.6012–1(b)(2)(i)
in accordance with rules of this notice.
Any individual who fails to furnish a
complete statement, as described above,
for the years of the intervening period
will not be considered to have filed a
true and accurate return. Therefore, such
an individual will not be entitled to the
benefit of any deductions or credits if
the individual’s return is later adjusted.
See section 874(a).
An individual who is required to file
the above statement for the taxable year
that begins in 1995 will be considered
to have timely filed his or her statement
for that year if the individual files such
statement by the due date (including
extensions) for filing the individual’s
U.S. income tax return for the taxable
year during which the individual subsequently becomes a U.S. resident.
Exchanges under section 877(d)(2)
and contributions under section
877(d)(4). An individual subject to tax
by reason of section 7701(b)(10) must
recognize any gain realized during the
intervening period on exchanges of
property described in section 877(d)(2),
unless the individual enters into a gain
recognition agreement in accordance
with section V of this notice. The gain
recognition agreement must be submitted with the individual’s U.S. income
tax return (Form 1040NR) for the year
of the exchange. The gain recognition
agreement and the return must be filed
by the due date (including extensions)

51

for filing the individual’s U.S. income
tax return for the year during which the
individual subsequently becomes a U.S.
resident. If a tax return for the year of
the exchange has already been filed, the
individual must amend that return and
attach a gain recognition agreement to
the amended return to comply with
section 7701(b)(10).
The period of such a gain recognition
agreement will be for the intervening
period, and not the 15-year period beginning five years prior to expatriation.
Moreover, annual certification is not
required. Rather, the individual must
submit with the gain recognition agreement a certification that the acquiror (if
any) has not disposed of the transferred
property, and that the individual did not
dispose of the property acquired in the
exchange (or any other property that has
a basis determined in whole or in part
by reference to such property). In addition, the certification must also state
whether the individual derived any income or gain from the property acquired
in the exchange during the intervening
period.
If any property to which the gain
recognition applies was disposed of during any year of the intervening period,
the individual must recognize gain for
the year of disposition. Any income or
gain derived during the intervening period from a contribution described under
section 877(d)(4) must also be recognized for the relevant year. However,
section 7701(b)(10) will not cause an
individual to recognize any income or
gain with respect to any exchange under
section 877(d)(2) or contribution of
property under section 877(d)(4) that
occurred prior to the beginning of the
individual’s initial residency period or
after the date on which the individual
subsequently becomes a U.S. resident.
Example. The following example illustrates how section 7701(b)(10) interacts with section 877 and when income
that arises by reason of section
7701(b)(10) must be recognized.
Example 11. L was a resident alien of the
United States in 1994, 1995 and 1996 because she
satisfied the substantial presence test of section
7701(b)(3) for each of those years. In 1997 and
1998, L was not a resident of the United States. In
1999, L re-establishes residency in the United
States. L is subject to tax in the manner provided
by section 877(b) by reason of section
7701(b)(10). On February 1, 1997, L contributed
property to a ‘‘controlled foreign corporation’’ in a
transaction described in section 877(d)(4).
Any income or gain derived from the property
that L contributed to the foreign corporation
during the intervening period is subject to tax in
the manner provided by section 877(d)(4). Thus, L

must report such income or gain by filing income
tax returns for 1997 and 1998 by the due date
(including extensions) for filing her 1999 U.S.
income tax return. If income tax returns for 1997
and 1998 have already been filed, L must amend
those returns to comply with section 7701(b)(10).
Any income or gain derived after the intervening
period is not taxable under section 877(d)(4).

Coordination with income tax treaties.
The rules of section VIII (interaction
with tax treaties) of this notice do not
apply to an individual who is subject to
tax in the manner provided by section
877(b) solely by reason of section
7701(b)(10). Accordingly, such an individual may claim benefits under a U.S.
income tax treaty for transactions that
occur during the intervening period if
such individual is otherwise eligible for
benefits as a foreign resident under the
terms of such treaty.
Effective date. New section 877 will
apply to an individual subject to tax
thereunder by reason of section
7701(b)(10) if the individual’s initial
residency period ended after August 20,
1996.
REQUEST FOR COMMENTS
Treasury and the Service invite public
comments on the guidance provided in
this notice. Comments should be submitted by June 8, 1997, to:
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Attn: CC:CORP:T:R, (Notice 97–19)
Room 5228
Washington, D.C. 20044;
or, alternatively, via the internet at:
http://www.irs.ustreas.gov/prod/tax_regs/
comments.html
The comments you submit will be
available for public inspection and copying.
DRAFTING INFORMATION
The principal authors of this notice
are Trina L. Dang and Michael Kirsch
of the Office of Associate Chief Counsel
(International). For further information
regarding this notice, contact Ms. Dang
or Mr. Kirsch at (202) 622–3860 (not a
toll-free call).
PAPERWORK REDUCTION ACT
The collections of information contained in this notice have been reviewed
and approved by the Office of Management and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C.
3507) under control number 1545–1531.

An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information displays a valid control number.
The collection of information related
to the submission of ruling requests is
required to help the Secretary make a
determination as to whether an individual expatriated with a principal purpose to avoid U.S. taxes. The collections
of information related to gain recognition agreements, initial information reporting and reporting of information
with respect to contributions to certain
foreign controlled foreign corporations
are prescribed by statute. The collection
of annual reporting information is necessary to monitor compliance with the
provisions of section 877, as amended.
The collections of information for individuals subject to section 7701(b)(10)
are necessary to administer the provisions of section 7701(b)(10) that interact
with section 877. This information will
be used by the Service for tax administration purposes.
The respondents will be individuals
who lose U.S. citizenship, cease to be
taxed as lawful permanent residents of
the United States, or cease to be taxed
as residents of the United States. The
estimated total annual burden for all
respondents is 6,300 hours. The estimated annual burden per respondent
varies from 0.5 hour to 2.5 hours,
depending on individual circumstances,
with an estimated average of 31 minutes. The estimated number of responses
is 12,300. The estimated annual frequency of responses is annually or on
occasion.
Books or records relating to collections of information must be retained as
long as their contents may become material in the administration of any internal revenue law. Generally, tax returns
and tax return information are confidential, as required by section 6103 of the
Code.
Waiver of Certain Limitations on
Obtaining Automatic Consent To
Change an Accounting Period and
Elect To Be an S Corporation
Effective January 1, 1997
Notice 97–20
SUMMARY: The Internal Revenue Service waives certain limitations on a
corporation’s ability to automatically
change its annual accounting period in
order to elect to be an S corporation

52

under § 1362(a) of the Internal Revenue
Code effective for the taxable year beginning January 1, 1997.
BACKGROUND: Pursuant to § 1378,
an S corporation generally must have a
calendar year as its tax year. However, a
corporation may not automatically
change its annual accounting period to a
calendar year if it attempts to elect to be
an S corporation effective for the taxable year immediately following the
short period required to effect the
change. See § 1.442–1(c)(2)(v) of the
Income Tax Regulations; Rev. Proc. 92–
13, 1992–1 C.B. 665, section 4.01(5). In
addition, a corporation is precluded under § 1.442–1(c)(2)(i) from automatically changing its annual accounting
period if the corporation has changed it
within the last ten calendar years, and
under Rev. Proc. 92–13, section 4.01(2),
if the corporation has changed it within
the last six calendar years.
The Small Business Job Protection
Act of 1996 (SBJPA), Pub. L. No.
104–188, 110 Stat. 1755, significantly
amended Subchapter S of the Code,
expanding eligibility to elect to be an S
corporation. These amendments generally are effective for taxable years beginning after December 31, 1996, and
are intended to allow more corporations
to elect to be S corporations as of
January 1, 1997.
WAIVER OF LIMITATIONS: Consistent with this intent, the Service waives
the limitations of §§ 1.442–1(c)(2)(i)
and (c)(2)(v), and of sections 4.01(2)
and 4.01(5) of Rev. Proc. 92–13, on a
corporation’s ability to automatically
change its annual accounting period to a
calendar year effective for the short
period ending December 31, 1996, provided that the corporation:
(1) is otherwise eligible to change its
annual accounting period under either
§ 1.442–1(c) or Rev. Proc. 92–13;
(2) timely and otherwise validly
elects to be an S corporation effective
for the taxable year beginning on January 1, 1997; and
(3) follows the special filing procedures set forth below.
FILING PROCEDURES: A corporation
that relies upon this notice to change its
annual accounting period under either
§ 1.442–1(c) or Rev. Proc. 92–13 must:
(1) properly complete a Form 2553,
Election by a Small Business Corporation;