Rev. Rul. 74-25

1974-1 C.B. 284

IRS Headnote

Decedent born in Puerto Rico and resident of Virgin Islands at death. A decedent who acquired his U.S. citizenship solely by virtue of his birth in Puerto Rico and was a resident of the Virgin Islands at his death is considered a nonresident not a citizen for Federal estate tax purposes under section 2209 of the Code.

Full Text

Rev. Rul. 74-25

Advice has been requested whether a decedent who was a resident of a United States possession at his death shall be deemed a nonresident not a citizen of the United States, for Federal estate tax purposes, under the circumstances described below.

The decedent was a United States citizen solely by reason of his birth in Puerto Rico. He died in 1970, a resident of the Virgin Islands.

Section 2208 of the Internal Revenue Code of 1954 provides that a decedent shall be considered a "citizen" of the United States for Federal estate tax purposes if he was a United States citizen and a resident at his death of a United States possession, unless he acquired his United States citizenship solely by reason of (1) his being a citizen of such possession or (2) his birth or residence within such possession. Section 2209 of the Code provides that a deceased United States citizen shall be considered a "nonresident not a citizen of the United States" for Federal estate tax purposes if at his death he was a resident of a United States possession but he had acquired his United States citizenship solely by virtue of (1) his being a citizen of such possession or (2) his birth or residence within such possession.

Since the decedent at his death was a resident of the Virgin Islands, a United States possession other than the one through which he acquired United States citizenship, the issue is whether he must have acquired his United States citizenship solely through his connection with the Virgin Islands, his residence, in order to be considered a nonresident not a citizen of the United States under sections 2208 and 2209 of the Code.

Prior to the addition to the Code of section 2208 in 1958 and of section 2209 in 1960, United States citizens who were also citizens and residents of United States possessions were held as a matter of statutory interpretation to be completely exempt from the Federal estate tax. Albert D. Smallwood, 11 T.C. 740 (1948), acq., 1949-1 C.B. 3; Clotilde Santiago Rivera, 19 T.C. 271 (1953), acq., 1958-2 C.B. 7, aff'd. 214 F. 2d 60 (2d Cir. 1954); Arthur S. Fairchild, 24 T.C. 408 (1955), acq., 1956-2 C.B. 5. The courts found no clear expression of congressional intent to tax estates of citizens of United States possessions, whether or not they otherwise were United States citizens. As a result of these decisions, Congress amended the Code to cover these persons.

First, section 2208 of the Code made subject to the estate tax, in the same manner as is generally true with respect to resident citizens of the United States, the estates of those residents of the possessions who acquired their United States citizenship completely independently of their connection with the possessions. Then, with the addition of section 2209, Congress dealt with the problem of those residents of a possession whose United States citizenship was derived from the possession, subjecting these persons to the estate tax, in general, to the same extent as in the case of nonresidents not citizens of the United States.

A literal interpretation of the language in the statute would limit extension of "nonresident alien" status to those residents of United States possessions who acquired United States citizenship by virtue of their connections with the same possession as that in which they resided at death. This construction of the statute, however, is not consistent with the purpose of Congress in enacting sections 2208 and 2209 of the Code, as indicated by their legislative histories. Senate Report No. 1767, 86th Cong., 2d Sess. (1960), 1960-2 C.B. 829, 832, indicates that Congress, by enacting sections 2208 and 2209, intended to close the loophole that enabled United States citizens to move from the United States and establish citizenship in United States possessions and thereby remove their estates from the application of the estate tax. There is no indication of a Congressional intent to distinguish between possession citizens who were residents of the same possession at the time of their death as that through which they acquired citizenship, and those who were not.

Accordingly, the decedent, who was a resident of the Virgin Islands at his death and who was a United States citizen by reason of his birth in Puerto Rico, is thereby considered a nonresident not a citizen for Federal estate tax purposes under section 2209 of the Code.