Tax Notes: Gifts from Covered Expatriates

Solomon Blum Heymann tax partner Robert Ladislaw’s article entitled “Proposed Regulations on Gifts and Bequests from Covered Expatriates” was published in the December 7, 2015 issue of the well-known American tax periodical, Tax Notes.

Ladislaw’s article explains in detail the Proposed Regulations published recently by the Internal Revenue Service to implement a new tax enacted in 2008 on the recipients of gifts from “covered expatriates.”  Although the tax has been on the books for over seven years, it does not become payable until after the regulations are finalized, which will not occur until 2016 or later.

As Ladislaw explains, notwithstanding Congressional statements to the contrary, the new tax is designed to discourage expatriation for tax purposes of American citizens (as well as certain departing “Green Card” holders), a practice that has become more and more popular in recent years.  American tax expatriates are already subject to an “exit tax” which applies to income and certain appreciated assets that the expatriate owns on the date of expatriation.  The new tax on gifts and bequests adds to the tax burden of such individuals or, more specifically, their families, as it is designed to substitute for the gift or estate tax that a U.S. citizen would normally be liable for upon making a gift.  Instead the tax applies to the recipient of the gift or bequest if that person is a U.S. taxpayer – a unique arrangement, as historically the United States’ transfer taxes have always applied to donors and not donees.

Ladislaw’s article delves into the intricacies of the new tax and regulations, including the definitions of “covered expatriates” and “U.S. recipients”, as well as the provisions detailing the types of gifts and bequests that are covered.  He also discusses the rules that are applicable when foreign trusts are used as the vehicle through which gifts are made, as well as the tax computation rules.

Solomon Blum Heymann LLP conducts a sophisticated international and domestic tax and estate planning practice designed to advise U.S. citizens, foreign persons, and business entities on tax issues including those relating to income taxes, estate and gift taxes, territorial tax exemptions and offshore tax structures, FATCA, and many other related subjects.   Solomon Blum Heymann attorneys involved in this practice in addition to Ladislaw, include partners William L. Blum and Andrew Heymann, as well as counsel Luca Cantelli.

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