SPECIAL RULES FOR GIFTS AND BEQUESTS FROM COVERED EXPATRIATES
The expatriation tax provisions under Internal Revenue Code (IRC) sections 877 and 877A apply to U.S. citizens who have renounced their citizenship and long-term residents (Green Card holders) who have ended their U.S. resident status for federal tax purposes.
If you expatriated on or after June 17, 2008, and both your average annual net income tax for the 5 years ending before the date of expatriation, as well as your net worth on the date of your expatriation exceed a certain amount, and you fail to certify that you have complied with all your U.S. federal tax obligations for the 5 years preceding the date of your expatriation, you are a ‘covered expatriate’.
Under IRS section 877A, covered expatriates are taxed on their property as if their property had been sold for fair market value on the day before the date of expatriation. In addition, special estate and gift tax rules apply to gifts and bequests received from a covered expatriate by a U.S. citizen or resident.
GIFT OR BEQUEST FROM A COVERED EXPATRIATE
U.S. citizens and residents who receive a gift or bequest from a covered expatriate may be subject to estate or gift tax and may be required to file an estate or gift tax return even if no U.S. tax is due. If there is any U.S. tax due, the U.S. citizen or resident is liable for the tax. The amount due is reduced by the amount of any gift or estate tax paid to a foreign country with respect to the gift or bequest received from the covered expatriate. For more information, click here.
U.S. citizens and residents who receive gifts or bequests from a covered expatriate are required to file IRS Form 708 ‘U.S. Return of Gifts and Bequests from Covered Expatriates’. The most common situation requiring this form to be filed is when an expatriated U.S. citizen makes a gift to his U.S. citizen spouse, child, or U.S. family member.
Please contact us if you’re concerned you may be a covered expatriate or if you have any questions about receiving a gift or bequest from a covered expatriate.