Revenue Ruling 75-357, Citizenship lost under Expatriation Act of 1907

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Internal Revenue Service
Revenue Ruling

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Rev. Rul. 75-357

1975-2 C.B. 5

Sec. 1
Sec. 871
Sec. 877
Sec. 7805

IRS Headnote

Citizenship lost under Expatriation Act of 1907. A native born U.S.
citizen who as a result of her marriage to a British subject lost her
citizenship under section 3 of the Expatriation Act of 1907, which
under current law would be declared unconstitutional, is and always
has been a U.S. citizen taxable on income from sources both within and
without the U.S. and subject to the gift tax and estate tax provisions
of the Code. This ruling is not applicable for taxable years beginning
prior to January 1, 1976, or to estates of decedents dying before that
date, except where such individuals exercised a specific right of
citizenship.

Full Text

Rev. Rul. 75-357

Advice has been requested whether for Federal income, estate and gift
tax purposes an individual, or a decedent at date of death, is a
citizen of the United States under the circumstances described below
and taxable under section 1 or section 1201(b) of the Internal Revenue
Code of 1954 on income from sources both within and without the United
States; liable for the gift tax on any transfer of property by gift
wherever situated; and at death, liable for the estate tax on the
transfer of the taxable estate as provided in section 2051.

A was a native born American citizen who married a subject of the
United Kingdom on November 15, 1910. Under the applicable statutory
law of the United Kingdom, A became a British subject by reason of the
marriage. The applicable statutory law of the United States, section 3
of the Expatriation Act of 1907, ch. 2534, 34 Stat. 1228, provided
that upon her marriage to a British subject, A lost her United States
citizenship. A died November 1, 1974.

Section 1 of the Code imposes an income tax on the taxable income of
every individual, except that in the case of a nonresident alien
individual the tax imposed by section 1 of the Code shall apply only
as provided by section 871 or section 877 of the Code.

Sections 1.1-1(b) and 1.871-1 of the Income Tax Regulations provide
that all citizens of the United States, wherever resident, and all
resident alien individuals are liable to the income taxes imposed by
the Internal Revenue Code whether the income is received from sources
within or without the United States. See, however, section 911 of the
Code. Section 1.1-1(c) of the regulations provides, in part, that
every person born or naturalized in the United States and subject to
its jurisdiction is a citizen. For rules governing the loss of
citizenship, the regulations refer to sections 349 and 357, inclusive,
of the Immigration and Nationality Act of 1952 (8 U.S.C. 1481-1489
(1970)).

Section 871 of the Code imposes a tax on certain income received from
sources within and without the United States by a nonresident alien,
but the types of income subject to tax and the rates of tax differ
depending on whether the amount so received is or is not effectively
connected with the conduct of a trade or business within the United
States, as defined by section 864(b) and (c) of the Code and the
regulations thereunder.

Section 877 of the Code, effective for taxable years beginning after
December 31, 1966, provides, with certain exceptions not material
here, that a nonresident alien individual who after March 8, 1965, and
within the 10 year period immediately preceding the close of the
taxable year lost United States citizenship, unless such loss did not
have for one of its principal purposes the avoidance of Federal
income, estate or gift taxes, shall be taxable on all his United
States source income as provided in section 1 or section 1201(b) if
the tax imposed pursuant to these sections exceeds the tax which,
without regard to section 877 is imposed pursuant to section 871.

Section 2001 of the Code imposes a tax on the transfer of the taxable
estate, determined as provided in section 2051, of every decedent,
citizen or resident of the United States. In the case of a decedent
nonresident not a citizen of the United States, section 2101 imposes a
tax on the transfer of the taxable estate, determined as provided in
section 2106.

Section 2107 of the Code, effective with respect to estates of
decedents dying after November 13, 1966, provides, with certain
exceptions not material here, that a tax computed in accordance with
the table contained in section 2001 is imposed on the transfer of the
taxable estate, determined as provided in section 2106, of every
decedent nonresident not a citizen of the United States dying after
November 13, 1966, if after March 8, 1965, and within the 10-year
period ending with the date of death such decedent lost United States
citizenship, unless such loss did not have for one of its principal
purposes the avoidance of taxes under this subtitle or subtitle A.

Section 2501 of the Code and section 25.2501-1(a)(1) of the Gift Tax
Regulations imposes a tax on the transfer of property wherever
situated by gift by any individual who is a citizen or resident of the
United States. Section 2511 provides that in the case of a nonresident
not a citizen of the United States the gift tax imposed shall apply to
a transfer only if the property is situated within the United States.

Sections 2501(a)(2) and 2501(a)(3) of the Code and section 25.2501-1(a)
(3)(i) of the regulations provide, with certain exceptions not
material here, that no gift tax is imposed on any transfer by gift of
intangible property on or after January 1, 1967, by a nonresident
alien (whether or not he was engaged in business in the United
States), unless the donor is an expatriate who lost his U.S.
citizenship after March 8, 1965, and within the 10-year period ending
with the date of transfer, and the loss of citizenship had for one of
its principal purposes (but not necessarily its only principal
purpose) the avoidance of Federal income, estate, or gift tax.

Section 3 of the Expatriation Act of 1907 provides that an American
woman who marries a foreigner shall take the nationality of her
husband. The constitutionality of this Act was upheld by the Supreme
Court of the United States in Mackenzie v. Hare, 239 U.S. 299 (1915).
This Act was repealed by Act of September 22, 1922, ch. 411, section
7, 42 Stat. 1022, but not retroactively.

In Afroyim v. Rusk, 387 U.S. 253 (1967), the petitioner, a foreign
national, became a naturalized American citizen in 1926 under the
immigration and nationality laws of the United States. He went to
Israel in 1950, and in 1951 he voluntarily voted in an election for
the legislative body of Israel. The Department of State refused to
renew his United States passport by reason of section 401(e) of the
Nationality Act of 1940, ch. 876, 54 Stat. 1137, which provides that
an American citizen shall lose his citizenship if he votes in a
political election in a foreign state. In holding the statute
unconstitutional, the Supreme Court stated that citizenship is a
vested right protected by the Fourteenth Amendment of the Constitution
and a citizen cannot be divested of his citizenship without his
voluntary relinquishment thereof.

In Rocha v. Immigration and Naturalization Service, 450 F. 2d 946 (1st
Cir. 1971), the Court of Appeals for the First Circuit withdrew its
former opinion in 351 F. 2d 523 (1st Cir. 1965) (decided prior to
Afroyim), upholding the constitutionality of the 1907 Act. The court
in its most recent decision held that the Afroyim case refutes the
rationale of Mackenzie and concluded that the Supreme Court would now
hold the statute unconstitutional.

The Supreme Court's decision in Afroyim has the legal effect of
voiding section 401(e) of the 1940 Act (and its successor, section
349(a)(5) of the 1952 Act, 8 U.S.C. section 1481(a)(5)(1970)) and the
Rocha decision has the same effect with respect to section 3 of the
1907 Act. Since the decisions operate both retroactively and
prospectively, individuals affected thereby are and have been United
States citizens since birth or naturalization in the absence of facts
establishing that such individuals are not United States citizens by
virtue of other provisions of law.

Thus, for Federal income tax purposes such individuals are taxable
under section 1 or section 1201(b) of the Code on income received from
sources within and without the United States. For Federal gift tax
purposes, a gift tax will be imposed on the transfer of property
wherever situated by such individuals. For Federal estate tax purposes
the taxable estate of such individuals shall be determined as provided
in section 2051.

Accordingly, A is, and always has been since birth, a citizen of the
United States and is taxable under section 1 or section 1201(b) of the
Code on income from sources both within and without the United States.
A is liable for the gift tax imposed on any transfer of property by
gift wherever situated, and A's taxable estate is determined as
provided in section 2051. The tax thereon shall be computed in
accordance with the table contained in section 2001.

Pursuant to the authority granted by section 7805(b) of the Code, this
Revenue Ruling shall not be applicable for taxable years or quarters
beginning prior to January 1, 1976, or to estates of decedents dying
prior to January 1, 1976. Therefore, individuals who lost their
citizenship by operation of section 401(e) of the 1940 Act (and its
successor, section 349(a)(5) of the 1952 Act) and section 3 of the
1907 Act are not liable for Federal income and gift taxes as citizens
of the United States for taxable years or quarters beginning prior to
January 1, 1976, and for Federal estate tax purposes, any such
individual whose date of death occurs prior to January 1, 1976, is not
a United States citizen at date of death.

This exception, however, shall not apply to an individual who, prior
to January 1, 1976, but after the time of specific conduct which was
mistakenly deemed to have resulted in loss of citizenship,
affirmatively exercised a specific right of citizenship. Such
individual is liable for Federal income and gift tax as a United
States citizen beginning with the taxable year or quarter in which
such specific right of citizenship was exercised or in the case of
such individual who dies subsequent to such conduct, for Federal
estate tax purposes, the decedent is a United States citizen at his
date of death.

Income from sources within the United States of a person who is
considered a nonresident not a citizen pursuant to the nonretroactive
application of this Revenue Ruling will be subject to tax under
section 871(a) of the Code if it is not effectively connected with the
conduct of a trade or business within the United States, and certain
income from sources within and without the United States will be
subject to tax under section 871(b) if it is effectively connected
with the conduct of a trade or business within the United States.

The gift tax will not apply to the transfer by gift of intangible
personal property (whether or not situated in the United States) by a
nonresident not a citizen of the United States pursuant to the
nonretroactive application of this Revenue Ruling. However, the
Federal gift tax will apply to a transfer by gift of real property and
tangible personal property situated in the United States at the time
of the transfer by such individual.

The taxable estate of an individual, who at the date of his death was
a nonresident not a citizen of the United States pursuant to the
nonretroactive application of this Revenue Ruling, will be determined
as provided in section 2106 of the Code, and the tax thereon shall be
computed in accordance with the table contained in section 2101.

Furthermore, the mere fact that an individual affected by the Afroyim
and Rocha decisions and this Revenue Ruling takes affirmative steps
before January 1, 1976, to establish noncitizen status, shall not be
considered evidence of a tax avoidance motive for purposes of sections
877, 2107 and 2501(a)(3) of the Code.