IRC Section 2801
IRC Section 2801 imposes a succession tax (at the highest applicable gift or estate tax rates), on the receipt by a U.S. person (i.e., citizen, resident alien) of a “covered gift” (i.e., a gift from a “covered expatriate”, IRC Section 877A).
The succession tax applies to gifts from individuals who expatriate on or after 6/17/08. The tax is assessed on the gift recipient. The tax is reduced by any foreign gift or estate tax paid.
The succession tax does not apply to:
1) Annual Exclusion Gifts ($13,000 per year, per donee, IRC Section 2503(b),
2) Gifts entitled to a charitable deduction,
3) Gifts entitled to a marital deduction, i.e., gifts to a U.S. citizen spouse;
4) Gifts to an alien spouse ($13,000 annual gifts, under IRC Section 2503(b), $139,000 per year alien spouse gifts (IRC Section 2523(i),
5) Gifts to a Qualified Domestic Trust that qualify for the marital deduction (IRC Section 2056(d), 2056 (A),
6) A taxable gift shown on a timely filed gift tax return,
7) Property included in the estate of a covered expatriate that is shown on a timely filed estate tax return.
Special rules apply for covered gifts made to trusts:
1) If made to a domestic trust, the succession tax is assessed on and paid by the trust;
2) If made to a foreign trust, the tax will apply to the receipt by a U.S. person of a distribution (whether income or capital), attributable to a transfer from a covered expatriate).
The IRS is developing new Form 708 (re: IRC Section 2801) “U.S. Return of Tax for Gifts and Bequests received from Expatriates.”