One of the greatest traps for the unwary is how Section 877(a)(2)(C) can cause even the most economically modest person to become a “covered expatriate” with the adverse tax and reporting requirements that follow.
All individuals should have a clear understanding about how this specific code section can affect their personal taxes and the future taxes of any future gifts or bequests/inheritances to U.S. beneficiaries. All U.S. citizen or U.S. resident children, grandchildren and friends and family of the “expatriate” who fall into this “Section 877(a)(2)(C) trap” will likely be subject to the 40% tax on “covered gifts” or “covered bequests.” This can come as a real surprise years after the “renouncing” citizenship or “abandoning” lawful permanent residence status.
