Expatriation from the United States: The Inheritance Tax Under I.R.C. §2801

The Heart Act added a new tax called the Inheritance Tax, which applies to gifts or inheritances received from someone who has given up their U.S. citizenship. This tax is paid by the person who receives the gift or inheritance, not the person who gave it up. The tax rate is 40% of the value of the gift or inheritance. The U.S. Treasury has issued proposed regulations for this tax, which provide insight into how it will be applied.
Under §2801, a “citizen or resident of the United States” is someone who is a U.S. citizen or a resident as defined in the Estate Tax and Gift Tax code. A “covered gift or bequest” is a gift or inheritance received from a “covered expatriate” by a U.S. citizen or resident. This applies regardless of where the gift or inheritance is located. Gifts or inheritances given to a charity or a covered expatriate’s spouse may not be taxed under this law. If you were born in the US or have lived here for a long time and then give up your citizenship or green card, you might have to pay an exit tax. This is called being a “covered expatriate.” If you receive a big gift or inheritance from a covered expatriate, you might have to pay a tax on it. However, there are some exceptions to this tax. If a U.S. citizen or resident gives a large gift or bequest to someone in the U.S. and then gives up their citizenship, the person receiving the gift or bequest may have to pay a tax on it. This tax is calculated based on the value of the gift or bequest and the highest tax rates for estate and gift taxes. The person receiving the gift or bequest is responsible for paying this tax, and it can add up to a lot of money. If someone in the US gets a gift or inheritance from a foreign person, they may have to pay a tax on it. If the foreign person has a trust, the US person who gets money from the trust may also have to pay this tax. The amount of tax they have to pay depends on how much of the gift or inheritance is considered taxable. If the foreign trust decides to be treated like a US trust for tax purposes, it has to pay tax on any gifts or inheritances it received in the past. The tax paid doesn’t change the value of the property for tax purposes. The §2801 Tax Regime imposes a tax on property transferred by people who give up their U.S. citizenship. This is to prevent them from avoiding taxes by transferring assets to U.S. citizens. The tax is not very lenient, especially for assets acquired after giving up citizenship. So, if you receive a gift from someone who gave up their U.S. citizenship, be prepared for a significant tax bill. There are some strategies to avoid paying the “inheritance tax” under section 2801. These include giving away assets to bring your net worth below $2 million, transferring assets before officially giving up your green card, and giving to non-U.S. recipients or making charitable donations. These strategies can help reduce the tax you or your heirs may have to pay when you leave the U.S. and give away your assets. Expatriation from the United States can result in an exit tax, which is a tax you have to pay when you leave the country. The tax is based on whether you are considered a “resident” of the U.S. and applies to certain transfers of property. If you are considered a U.S. resident, there are rules about how your property will be taxed when you leave. When it comes to property not located in the U.S., there are different rules for how the tax is calculated. Overall, the rules can be complex and it’s important to understand them if you are considering leaving the country. The text discusses tax regulations and laws, and is written by lawyers from a law firm. They explain the rules and regulations surrounding taxes and estate planning.

Source: https://www.floridabar.org/the-florida-bar-journal/expatriation-from-the-united-states-the-inheritance-tax-under-i-r-c-%c2%a72801/