Will Treasury Ever Finalize the 2801 Regulations? Meanwhile – U.S. beneficiaries are exposed to tax on “covered gifts” and “covered bequests.”
Treasury has not yet finalized the 2801 regulations. The tax that is imposed under Section 2801 was passed into law in 2008, yet the collection of the tax has been suspended until the regulations are finalized.
In May 2014, I submitted comments awaiting expected proposed regulations. Covered Gifts and Bequests: The Need for Guidance (5+ Years Out)
The proposed regulations were eventually published in September 2015 by Treasury; but still are not final. See, Guidance under Section 2801 Regarding the Imposition of Tax on Certain Gifts and Bequests from Covered Expatriates
See, a prior post from September 2015 – Finally – Proposed Regulations for “Covered Gifts” and “Covered Bequests” Issued by Treasury Last Week (Be Careful What You Ask For!)
In May 2016 the ABA, Real Property, Trust and Estate Law Committee issued – “Comments on Guidance under Section 2801”
I addressed the following issues in my comments:
First, the collection of the tax has been suspended until after guidance is issued along with IRS Form 708.
Second, this is the first U.S. federal tax of its kind as a true “inheritance” tax, in the case of bequests. It is also apparently the first tax of its kind on the recipient of gifts, which are otherwise exempt from income tax.
Third, the IRS has no way to help effectively track the tax, its application, collection and general enforcement.
Fourth, there is no basic guidance beyond the statute for “any United States citizen or resident” who receives such a gift or a bequest to make a host of decisions to properly determine or calculate the tax.
Fifth, presumably no “United States citizen or resident” has ever even paid such a tax, due to its suspension; although the law is now almost six years old.
Sixth, the statute imposes no time requirement for when the tax must be paid.
Seventh, since many of the assets likely to be gifted or bequeathed will be located outside the U.S. in different countries with different currencies and economic variables and legal systems compared to the U.S., there is a particular need to know the allowable methods of valuing the property gifted or bequeathed.
Eighth, Chapter 4 of Subtitle A, FATCA will bring greater awareness of U.S. tax law requirements for U.S. citizens and residents living outside the U.S., specifically including Section 2801.
Ninth and finally, there have been a record number of U.S. citizens who have renounced or relinquished their citizenship during the year 2013, which increases the number of affected taxpayers who might receive covered gifts or bequests.
Finally, there have been other thoughtful comments, including from ACTEC regarding the proposed 2801 proposed regulations – but still no final regulations and no statute of limitations periods running against the government to collect taxes which may be owing going back nearly 10 years!!