U.S. taxpayers who directly or indirectly receive certain gifts or bequests from former U.S. citizens or long-term U.S. residents classified as “covered expatriates” may have new U.S. federal tax and return filing obligations.
The IRS on January 20 published Form 708, United States Return of Tax for Gifts and Bequests Received from Covered Expatriates, which U.S. citizens and residents must use to report and pay the tax under Section 2801 on gifts or bequests from covered expatriates (“covered gifts or bequests”) received during a calendar year.
For calendar year 2025, recipients of covered gifts, bequests, or certain trust distributions generally must file Form 708 and pay any tax due by June 15, 2027. This due date reflects an 18-month filing period following the end of the year in which the transfer is received. A six-month due date extension is available for filing Form 708, but the extension does not apply to the payment of tax.
While Section 2801 was enacted in 2008, the IRS postponed enforcement of the tax until final regulations and an applicable form were issued. The final regulations issued on January 14, 2025, provide detailed operational guidance applicable to transfers received on or after January 1, 2025, and make compliance more practical and enforcement more likely. Form 708 and a final version of the instructions for filing the form were issued in January 2026.
The final Section 2801 regulations establish:
- Who must file Form 708
- Which transfers must be reported
- How the tax is calculated and paid
This filing obligation is separate from other international information reporting requirements (such as Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts), which may still apply depending on the circumstances.
Section 2801 imposes a special U.S. transfer tax on gifts or bequests received by U.S. citizens and residents from covered expatriates. For this purpose, a U.S. resident is an individual domiciled in the U.S. — present with the intent to remain indefinitely (regardless of immigration status) — as defined under the U.S. federal gift and estate tax rules.
A covered expatriate is someone who:
- Relinquished U.S. citizenship or
- Terminated long-term U.S. lawful permanent resident status (generally, after holding a green card in at least 8 of the 15 years ending on the date residency is treated as terminated); and
- Satisfies at least one statutory test at the time of expatriation — based on net worth, average annual U.S. income tax liability, or failure to certify U.S. federal tax compliance.
For more on covered expatriate status and related tax consequences, see Thinking of Leaving the U.S.? Beware of Taxes!.
Under the traditional U.S. federal gift and estate tax system, any transfer tax is generally paid by the donor or the decedent’s estate. Section 2801 works differently. Under these rules, the U.S. recipient of the gift or inheritance is responsible for paying the tax. The Section 2801 tax may be imposed at the highest U.S. federal estate tax rate, currently 40%. As a result, gifts or inheritances that may appear tax-free can create unexpected U.S. tax exposure.
You may be impacted if:
- You are a U.S. citizen or U.S. resident for U.S. federal gift and estate tax purposes; and
- You receive a gift, inheritance, or trust distribution from a covered expatriate.
The analysis focuses on the transferor’s status at the time of expatriation, not when the transfer occurs.
The tax may apply to:
- Lifetime gifts, including cash, securities, real estate, and business interests
- Inheritances received at death, whether received outright or through an estate
- Certain trust distributions, particularly from foreign trusts when the distribution is attributable to gifts or bequests made by a covered expatriate
The value of the transfer is generally measured at its fair market value on the date the property is received.
- The tax is imposed using the highest U.S. federal estate tax rate in effect at the time of receipt (currently 40%).
- Transfers up to the annual gift tax exclusion amount ($19,000 for 2026, unchanged from 2025) are exempt from the Section 2801 tax.
- A credit may be available if foreign gift or estate tax was paid on the same transfer.
- Payment of this tax does not increase the recipient’s income tax basis in the property received.
Recipients may owe transfer tax now and income tax later when they sell the property.
Special Considerations for Trusts
Trusts are specifically addressed in the regulations:
- U.S. domestic trusts that receive covered gifts or bequests are generally responsible for paying the tax.
- Foreign trusts may be able to elect to be treated like domestic trusts for these purposes.
- If no election is made, U.S. beneficiaries may be taxed when they receive distributions attributable to covered gifts or bequests.
Determining how trust distributions are sourced and taxed often requires a detailed review of trust records and historical transactions.
Common Situations That Deserve Attention
Individuals should consider consulting a tax advisor if:
- A parent or family member living abroad previously gave up U.S. citizenship or a green card
- The individual expects to receive an inheritance from a former U.S. citizen or long-term resident
- The individual receives distributions from a foreign trust
- The individual receives substantial gifts from non-U.S. family members and are uncertain about their prior U.S. tax status
Identifying a covered expatriate often requires careful review of documents such as historical tax filings, net worth information, and immigration records.
What Should Persons Possibly Affected by the New Tax Do Now?
- Identify potential exposure early, especially for anticipated inheritances
- Coordinate cross-border estate and gift planning
- Maintain documentation regarding a donor’s or decedent’s expatriation status
- Seek advice before accepting large gifts or trust distributions
Advance planning can help manage tax exposure, avoid penalties, and support proper reporting.
How BDO Can Help
BDO advises individuals, families, and trustees on cross‑border gifts, inheritances, and international trust matters. If these rules may apply — or you’re unsure — BDO’s Private Client Services team can help you navigate the related U.S. tax requirements through a coordinated global approach. Please visit BDO’s Private Client Service page for more information on how BDO can help.