mposes a tax (at the highest applicable gift or estate tax rates) on US residents and citizens receiving gifts and bequests from expatriates.
As provided for in the Heroes Earnings Assistance and Relief Tax Act of 2008, the regulations impose a gift and/or estate tax on gifts or bequests received from “covered expatriates” who relinquished US citizenship or ceased to be lawful permanent residents of the United States on or after June 17, 2008.
“Covered expatriate” is defined as an individual who expatriated on or after that date, and who, on the expatriation date, had an average annual net income tax liability greater than USD124,000 (indexed for inflation) for the previous five taxable years, had a net worth of at least USD2m (not indexed), or had failed to certify that he or she had complied with all US tax obligations for the five preceding taxable years.
The tax will be payable by US residents and citizens who receive gifts or bequests from such individuals, but is reduced by any estate or gift tax paid to a foreign jurisdiction. For the purposes of section 2801, domestic trusts and foreign trusts electing to be treated as domestic trusts are treated as US citizens.
In addition, section 2801 tax applies with regard to any property transferred to a US citizen or resident which qualifies as a gift or bequest, regardless of whether the property transferred was acquired by the donor or decedent covered expatriate before or after expatriation. Its value is its fair market value at the time the gift or bequest is received.
However, a gift or bequest to a covered expatriate’s US citizen spouse is excepted from the provisions of section 2801, if such a gift or bequest would, if given by a US citizen or resident, qualify for the US gift or estate tax marital deduction. Charitable donations that would qualify for the US gift or gift tax charitable deduction are also excepted.