TAM 7612220070A -- IRC Sec(s). 2208, 12/22/1976

Private Letter Rulings & Technical Advice Memoranda (1953 - Present)

 

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Technical Advice Memorandum 7612220070A, 12/22/1976, IRC Sec(s). 2208

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Reference(s): Code Sec. 2208;

 

Full Text:

 

Director

 

***

 

Taxpayer's Name: Estate of ***

 

Taxpayer's Address: ***

 

Taxpayer's Identification No.- ***

 

Date of Death: ***

 

Conference Held- ***

 

ISSUE

 

Was an individual who resided on the *** from *** until his death in *** and who became a naturalized citizen on *** , as the result of his marriage to a United States citizen, a citizen of the United States for purposes of the Estate Tax under section 2208 of the Internal Revenue Code of 1954?

 

FACTS

 

*** was born in *** in *** He married *** , a *** national, on *** at *** In *** he moved from the *** to ***

 

*** wife became a naturalized United States citizen in *** on *** Mr. *** became a naturalized citizen on *** on *** His right to citizenship was based upon section 319(a) of the Immigration and Naturalization Act of 1952, title 8 United States 1430(a), which provides for the naturalization of aliens married to United States citizens.

 

Dr. *** died *** He had maintained his residence on *** from *** until the time of his death.

 

THE UNITED STATES ESTATE TAX

 

Section 2001 of the Internal Revenue Code of 1954 imposes a tax on the transfer of a taxable estate as defined in section 2051, of every decedent who dies after August 16, 1954, and who was a citizen or resident of the United States at the time of death. Act of August 16, 1954, ch. 736, 68A Stat. 373. The Technical Amendments Act of 1958 added the following provision to the Code concerning the estates of citizens:

 

SEC. 102. APPLICATION OF ESTATE AND GIFT TAXES IN POSSESSIONS.

 

 

(a) Estate Tax.-Subchapter C of Chapter 11 (relating to miscellaneous estate tax provisions) is amended by adding at the end thereof the following new section:

 

 

SEC. 2208. CERTAIN RESIDENTS OF POSSESSIONS CONSIDERED CITIZENS OF THE UNITED STATES

 

ÒA decedent who was a citizen of the United States and a resident of a possession thereof at the time of his death shall for purposes of the tax imposed by this chapter, be considered a ÒcitizenÓ of the United States within the meaning of that term wherever used in this title unless he acquired his United States citizenship solely by reason of (1) his being a citizen of such possession of the United States, or (2) his birth or residence within such possession of the United States.Ó ***

 

Pub. L. 85-866, title I, sec 102(a) September 2, 1958, 72 Stat. 1674; sec 2208, Internal Revenue Code of 1954.

 

This provisions was not included in the original bill introduced in the House of Representatives or as reported by the Senate Finance Committee. 1 J. Mertens, The Law of Federal Gift and Estate Taxation 82, n. 67 (1959). It was introduced as an amendment on the floor of the Senate with the explanation it was recommended by the Treasury Department to close a ÒloopholeÓ with respect to inheritance taxes due in United States possessions. 104 Cong.Rec. 17105 (1958) (Remarks of Senator Williams). As justification, a memorandum from the Treasury Department was placed in the Congressional Record reading, in part, as follows:

 

*** In the Estate of Albert D. Smallwood, (11 T.C. 740 (1948)), the Tax Court held that the estate of a citizen of the United States who resided and acquired citizenship in Puerto Rico was not subject to tax as an estate of a citizen of the United States. This decision was followed by the Tax Court in the Estate of Arthur S. Fairchild (24 T.C. 408 (1955)), in which it was held that the estate of a citizen of the United States resident in the Virgin Islands was not subject to the estate tax. It has also been held in Estate of Rivera (19 T.C. 271, aff'd 214 F.2d 60 (2d Cir. 1954)), that the estate of a citizen of Puerto Rico who was not otherwise a citizen of the United States was not subject to estate tax under Section 2101 as a nonresident decedent not a citizen of the United States.

 

In general, the results reached in the foregoing decisions are based on the theory that the United States does not extend its Federal tax system to possessions unless Congress does so expressly. ***

 

In addition to expanding the scope of the estate and gift taxes to citizens of the United States resident in United States possessions, the bill would also make the estate and gift taxes applicable to citizens of possessions who are not otherwise citizens of the United States. ***

 

Section 1 of the bill amends subchapter C of chapter 11 of the Code by adding new section 2208 thereto. Section 2208 provides that the term ÒcitizenÓ of the United States wherever used in connection with the estate tax includes every decedent who was a United States citizen resident in a possession of the United States unless he acquired citizenship solely by reason of (1) his being a citizen of a possession of the United States, or (2) birth or residence within a possession of the United States. *** Thus, a person who became a United States citizen solely by reason of his being a citizen of Puerto Rico, or solely by reason of his birth or residence within the Virgin Islands, would fall within the classification of a Ònonresident not a citizen of the United StatesÓ *** . On the other hand, a United States citizen who moved from the United States to Puerto Rico or the Virgin Islands would never fall into the classification of a Ònonresident not a citizen of the United StatesÓ merely because of his subsequent residence in the Virgin Islands. Under the provision of  section 2001 of the Code, by reason of the addition of section 2208 to the Code, the estate of such latter individual would be taxed in the same manner in which it would have been taxed if he had never left the United States. 104 Cong.Rec. 17106.

 

The amendment originally suggested by the Treasury Department, and which was introduced contemporaneously with the above memorandum, provided not only for the taxation of citizens who moved from the United States to one of its possessions, but also for the taxation of the estates of citizens of the possessions as nonresidents not citizens of the United States. The latter provision, however, was objected to by members of the House and subsequently deleted by the conference committee. This action was explained in Conference Report No. 2632; 85th Cong., 2d Session (1958); 1958-3 C.B. 1188, 1228, as follows:

 

*** *** *** ***

 

Under the provisions of this amendment United States citizens who are residents of the possessions and who acquired their United States citizenship completely independently of their connections with the possessions will have their estates taxed in the same manner as estates of citizens of the United States are taxed. The estates of all other residents of the possessions, regardless of citizenship will be taxed in the same manner as the estates of residents not citizens. *** For example, a United States citizen who moves from the United States to one of the possessions will continue to be treated for estate and gift tax purposes in the same manner in which he would have been treated if he had remained in the United States. ***

 

The House recedes (from its objection) with a modification that these provisions shall apply only to residents of possessions who acquired their United States citizenship completely independently of their connections with the possessions. With respect to all other residents of possessions, regardless of citizenship, existing law will continue to be applicable. It is recognized that with respect to these other residents of possessions a problem may still remain. However, it was believed that additional time is required for study in this area. ***

 

Two years later, apparently acquiescing to the original recommendation of the Treasury Department, Congress enacted  section 2209 of the Code providing that a decedent who was a citizen of the United States and a resident of a possession shall be considered a Ònonresident not a citizen of the United StatesÓ for purposes of the estate tax if such decedent acquired United States citizenship Òsolely by reason of (1) his being a citizen of such possession of the United States, or (2) his birth or residence within such possession of the United States. Pub. L. 86-779, sec. 4(b)(1), September 14, 1960, 74 Stat. 999. Referring again to the Smallwood, Fairchild, and Rivera cases, supra, House Report No. 1131 explained the purpose of this legislation as follows:

 

*** *** *** ***

 

As a result of these decisions, Congress last year in the Technical Amendments Act of 1958 made the estate and gift taxes specifically applicable in the case of citizens of the United States who are residents of a possession but only if the citizen did not become a citizen of the United States solely by being a citizen of a possession or solely by reason of his birth within a possession of the United States or solely by reason of his residence within the possession. (Hereafter those who attained U.S. citizenship solely as a result of one of these factors will for convenience be referred to as being a citizen of a U.S. possession.) With respect to these citizens of the United States but whose citizenship was not derived from citizenship in a U.S. possession, the estate and gift tax provisions were made applicable in the same manner as is generally true in the case of citizens of the United States. ***

 

Your committee in this bill recommends that these citizens (whose citizenship was derived solely from citizenship, etc., in a possession) be subject to the estate and gift tax imposed by the United States, in general, to the same extent as in the case of nonresidents not citizens of the United States. ***

 

House Report No. 1131, 86th Cong., 2d Sess. (1959), 1960-2 C.B. 811, 815; see also Senate Report No. 1767, 86th Cong.2d Sess. (1960), 1960-2 C.B. 829, 833.

 

There have been no court decisions or revenue rulings interpreting either section 2208 or 2209 with respect to the issue presented by the instant case. One ruling has declined to literally apply a portion of section 2208 not relevant to the issue herein. Rev. Rul. 74-25, 1974-1 C.B. 284. The analysis of law in that ruling is inapposite to the present case.

 

UNITED STATES LAW OF NATURALIZATION

 

The requirements for the naturalization of aliens are set out in Subchapter III, Part II, of the Immigration and Naturalization Act, Title 8 United States Code, section 1401, et seq. Generally, an alien must understand the English language and possess a knowledge of the history and principles of the form of the United States government (8 U.S.C. 1423); he must have been lawfully admitted for permanent residence and have resided in the United States continuously for five years (six months in the state in which his petition for naturalization is filed), and he must be a person of good moral character (8 U.S.C. (1427(a)). Absence from the United States for a period in excess of one year (and in certain circumstances, only six months), during the period continuous residence is required, is considered to break the continuity of residence (8 U.S.C. 1427(b)).

 

Section 319(a) of the Immigration and Naturalization Act establishes special rules for naturalization of aliens married to United States citizens and provides as follows:

 

(a) Any person whose spouse is a citizen of the United States may be naturalized upon compliance with all the requirements of this subchapter except the provisions of paragraph (1) of section 1427(a) of this title (which imposes a five year residency requirement) if such person immediately preceding the date of filing his petition for naturalization has resided continuously, after being lawfully admitted for permanent residence, within the United States for at least three years, and during the three years immediately preceding the date of filing his petition has been living in marital union with the citizen spouse, who has been a United States citizen during all of such period, and has been physically present in the United States for periods totaling at least half of that time and has resided within the state in which he filed his petition for at least six months.

 

 

8 U.S.C. sec. 1430(a).

 

The term ÒUnited States,Ò as used in the above statute, refers to the continental United States, Alaska, Hawaii, *** 8 U.S.C. sec. 1101(38). The term ÒresidenceÓ means Òprincipal, actual dwelling place in fact, without regard to intent.Ó 8 U.S.C. sec. 1101(33).

 

We have been unable to find any court opinions or other sources in the body of immigration and naturalization law which would assist in the resolution of the estate tax question herein.

 

ANALYSIS

 

A general principle of statutory construction provides that where the language of a statute is susceptible of no more than one meaning the rules used to construe doubtful or ambiguous laws have no application. 3 A. Sutherland, Statutory Construction 48 (4th ed. 1974). The United States Supreme Court has stated that this principle should not, however, be blindly followed:

 

There is, of course, no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes. Often these words are sufficient in and of themselves to determine the purpose of the legislation. In such cases we have followed their plain meaning. When that meaning has led to absurd or futile results, however, this court has looked beyond the words to the purpose of the act. Frequently, however, even when the plain meaning did not produce absurd results but merely an unreasonable one Òplainly at variance with the policy of the legislation as a wholeÓ this court has followed that purpose, rather than the literal words. When aid to construction of the meaning of words, as used in the statute, is available, these certainly can be no Òrule of lawÓ which forbids its use, however clear the words may appear on Òsupperficial examinationÓ. U.S. v. American Trucking Assn's, 310 U.S. 534, 543-544; 60 S.Ct. 1059, 1063-1064 (1940) (Footnotes omitted).

 

Nonetheless, you cannot disregard the express requirements of a statute simply because it is believed they are Òunsuited to achieving the general purpose in a particular case.Ó Comm. Int. Rev. v. Gordon, 391 U.S. 83, 93;  88 S.Ct. 1517, 1923 (1968). The ÒplainerÓ the language of a statute, the more convincing contrary legislative history must be in order to ÒavoidÓ the application of the plain meaning of the words. U.S. v. United States Steel Comp., 482 F.2d 439, 444 (7th Cir. 1973). This principle in especially true when construing laws regarding tax exemptions. A taxpayer claiming exemption must show by clear and convincing evidence that the legislature intended to excuse all those in his circumstances from imposition of the particular tax. 3 A. Sutherland, Statutory Construction 63 (4th ed. 1974).

 

In this case the express language of section 2208 appears clear: The estate of a citizen of the United States who was a resident of a United States possession at the time of his death will be subject to the estate tax under section 2001 unless the decedent acquired his citizenship solely by reason of his residence in such possession. However, examination of this statute in conjunction with the immigation and naturalization law, as well as international law, casts some doubt on the propriety of applying the literal meaning thereof.

 

One question which may be raised is the meaning of the term ÒpossessionÓ. The Internal Revenue Code contains no definition. Under one view of international law, the term ÒpossessionÓ refers to the non-administered territories under United States sovereignty which have no indigenous populations and no established governments, e.g., *** On the other hand, *** the *** would be classified as unincorporated territories. Puerto Rico would be classified as commonwealth. 2. M. Whiteman, Digest of International Law 1321-1322 (1963). Although, for certain income tax purposes *** has been referred to as a ÒpossessionÓ and considered to have the same tax status as the Virgin Islands and Puerto Rico.  Rev. Rul. 1951-8-13571, 1951-1 C.B. 59; see also 1 J. Mertens, The Law of Rederal Gift and Estate Taxation 82-83, n. 68 (1959).

 

Examination of the legislative history of section 2208, supra, reveals that the term possession was not used in the international law sense. It is evident from both the Treasury memorandum and the Conference Report that the legislation was concerned with a citizen of one of the several states avoiding tax by moving to an area under United States control but outside the states. The term ÒpossessionÓ was used in a general sense to distinguish between the states and the various territories, possessions, etc., under United States dominion. This conclusion is supported by the grouping of the Commonwealth of Puerto Rico and the Virgin Islands together in the legislative history when, in fact, they have quite distinct differences in their status. For this reason, *** will be considered a possession for purposes of the Federal estate tax.

 

The second question is the interpretation of the phrase granting exemptions to individuals who acquired their citizenship ÒsolelyÓ by reason of residence within a possession of the United States. A strict reading of this language results in denial of the exemption to individuals who acquired United States citizenship as the result of any other factor, whether alone or in conjunction with residence in a possession.

 

If this narrow view of section 2208 were correct, naturalized citizens could never qualify for the exemption from the tax. Mere residence is never sufficient for naturalization. As pointed out previously above, an alien applying for citizenship must have also been lawfully admitted to the United States for permanent residence; he must understand the English language and have knowledge of American history, among other things.

 

The taxpayer's counsel has advocated a broader interpretation of section 2208 based upon the Conference Report. Comments by representatives from the House contained therein indicate that only residents who acquired their citizenship completely independently of their connections with a possession were to be subject to the estate tax imposed by section 2001. We do not believe this view is correct. The comments were not offered by proponents of the bill. They were only brief pationalization for the House's acquiescence to a portion of the original statute offered by the Treasury Department. In addition, such an explanation renders the word ÒsolelyÓ in the statute meaningless.

 

The memorandum placed in the Senate record when section 2208 was introduced, plus the subsequent history of section 2209 support a more restricted, although not necessarily literal, construction. A more reasonable interpretation of the law which recognizes the purpose, and all the language, of the statute is that the estate tax shall apply to a United States citizen who died in a possession unless his citizenship was acquired by reason of his residence in a possession, where residence was one of the requirements for naturalization, and not as the result of residence in any state.

 

Under this rule, if a decedent met the residency requirements for naturalization by having lived in a state and a possession, his estate would not be exempt from the tax imposed by section 2001. His estate would be exempt from the tax only if he met the residency requirement for citizenship solely by reason of his residence in a possession.

 

We believe this last approach to be the correct construction of section 2208. Examining the act, itself, and the legislative history, one cannot determine whether the authors and the proponents thereof seriously considered the law's effect on naturalized citizens. Under these circumstances, the last interpretation of the law would accomplish the aims of the statute and give full effect to the language it contains.

 

In this case, the decedent became a United States citizen in 1954 under section 319(a) of the Immigration and Naturalization Act of 1952. The law required him to meet all the general requirements for naturalization with but one exception. Instead of the requirement for five years residence in the United States, since he was married to a United States citizen, only three years were required. The marriage to a United States citizen, then, was not actually the basis for naturalization, per se.

 

The facts presented show the decedent met the residence requirements for citizenship solely by reason of his residence on *** a possession of the United States. Based upon the reasoning above, since the decedent died a resident of a possession, section 2208 exempts his estate from imposition of the estate tax under section 2001 as a citizen of the United States. Instead, his estate shall be subject to the estate tax under section 2107 as a nonresident not a citizen as required by section 2209 of the Code.

 

CONCLUSIONS

 

1. Based upon the facts presented, *** was not a citizen of the United States at the time of his death for purposes of the Estate Tax under section 2208 of the Internal Revenue Code of 1954.

 

2. The estate of *** shall be subject to the estate tax under section 2101 as an estate of a nonresident not a citizen as required by section 2209 of the Code.