Under IRC Sec. 2501(a)(3)(B) gift tax exemptions are eliminated for U.S. citizens who lose their citizenship within 10 years of a gift of U.S. property if the loss of citizenship had as one of its principal purposes the avoidance of U.S. gift, estate or income taxes.
The following property is deemed located in the U.S. and subject to U.S. gift tax when transferred by gift by reason of the gift tax “repatriation” provision:
1. Shares of stock in a U.S. corporation;
2. Debt obligations of a U.S. person, including bank deposits;
3. Debt obligations of the U.S. government or a state or local government;
4. Intangible property of any type issued by or enforceable against a U.S. resident or corporation.
Accordingly, the usual gift tax exemption is denied for intangible property transferred by a non-resident alien and a U.S. gift tax is due on the donative transfer of U.S. situs intangibles by a U.S. tax expatriate individual, even when the physical transfer of a stock certificate or evidence of the debt obligation occurs by gift outside the U.S. (IRC Sec. 2511(b).
In contrast, the general rule for a non-resident alien is that they are subject to U.S. gift tax on the transfer of all property situated or deemed situated within the U.S. with the exception that intangible property is not deemed to be situated within the U.S. for gift tax purposes (IRC Sec. 2501(c)(2). Real property and tangible personal property that are physically located in the U.S. are deemed to be situated in the U.S. for gift tax purposes (Treas. Reg. Sec. 25211-3(b)(1).
Under U.S. Gift Tax Treaties, the term “citizen” includes a former citizen whose loss of citizenship had as one of its principal purposes the avoidance of tax (including for this purpose, income tax) but only for a period of 10 years following such loss.