March 30, 2016
New Proposed Rules
New regulations have been proposed regarding tax on gifts and bequests from certain expatriates.
Who may be affected?
Anyone who stands to receive a gift or bequest from a “covered expatriate”. A broad definition of this term is provided under Section 877A of the Internal Revenue Code, but important to understand is the narrower than normal meaning of the word “expatriate” in the context of that law:
(A) any United States citizen who relinquishes his citizenship, and
(B) any long-term resident of the United States who ceases to be a lawful permanent resident of the United States (within the meaning of section 7701(b)(6)).
What is covered?
Any property acquired by gift directly or indirectly (e.g. via a trust) from an individual who is a “covered expatriate” at the time the property is received by a U.S. citizen or resident, regardless of the location of the property and of whether such property was acquired by the donor before or after expatriation from the U.S.
(2) Any bequest of any property acquired directly or indirectly because of the death of a “covered expatriate,” which generally correspond to that property that would have been includible in the decedent’s gross estate had he or she been a U.S. citizen or resident at death.
Who pays the tax and how is the tax liability calculated?
There will be no Section 2801 tax liability if the donor reports taxable gifts in a timely filed gift tax return and/or the bequeathed property is included in the “covered expatriate's” gross estate and reported on the expatriate's timely filed estate tax return. Otherwise the beneficiary of the gift or the bequest, i.e. a U.S. taxpayer, is liable for the tax, which, after taking into a consideration a $14,000 annual exclusion, is calculated at the highest applicable gift or estate tax rate.
The covered period will extend retroactively to all “covered” gifts and bequests received on or after June 17, 2008. The “covered” gifts and bequests will be reported on a new IRS Form 708. Note that as of the date of this alert, these proposed regulations have not been finalized.
The presented here information is not intended to be “written advice concerning one or more Federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.
The information contained herein is of a general nature and based on authorities that are subject to change. Moreover, the information is presented here for educational purposes and is not specific to any individual’s personal circumstances. As such, this information should not be used for the purpose of avoiding penalties that may be imposed by law. A determination as to how your specific circumstances may relate to the presented material should be made by means of a consultation with your tax adviser.
Cezary Tchorznicki, CPA LLC does not provide legal or investment advice.