U.S. citizens or long term residents who are covered expatriates who gift property during their lifetime or have bequeathed property upon their death, to a U.S. citizen or U.S. resident will cause the recipient of the gift to pay gift tax to the extent that the taxable gift exceeds the annual exemption. For 2015, the annual exemption is $14K. For this purpose, resident is one who is domiciled in the United States.
There are also similar rules or application where the recipient is a U.S. trust. Recipients of a “covered gift” or of a “covered bequest” who are charities are exempt from paying the gift tax.
Therefore any U.S. citizen or long-term resident who has expatriated under S877 of the IRS Code AND who is classified as a “covered expatriate” under S877A of the IRS Code will cause the recipient to pay this tax. The tax legislation applies whether or not the assets gifted or bequeathed were acquired before or after the expatriation event.
Reference may be made to IRS Form 8854 with regards to expatriation by a U.S. citizen or long-term resident who may be a “covered expatriate”. Note that a long-term resident will include a green card holder who expatriated (gave up the card and have an I-407) or have made a Treaty declaration on their U.S. tax return filing (per IRS Form 8833) that they are resident of another country for taxation purposes after possessing the green card for at least 8 out of the last 15 years. A “covered expatriate” will be one whose net worth at the time of expatriation is at least $2M, or, whose average annual U.S. tax liability is $160K (2015), or, who is not able to certify under penalties of perjury, that they have been tax compliant for each of preceding 5 years. Tax compliant would also include filing all of the required international foreign reporting forms.
New IRS Form 708 is filed for recipients of a covered gift or bequest to report the transaction and pay the tax.
Tax planning is necessary for those who are considering expatriating and desire to gift or bequest assets to a U.S. citizen or resident and especially for the many green card holders residing in Canada who may become long-term U.S. residents and possibly covered expatriates.
Original Post By: Larry Stolberg