Expatriation: Succession Tax

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.”

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