James F. McDonough
Of Counsel
732-568-8360 jmcdonough@sh-law.comFirm Insights
IRS Proposes Rules to Tax Gifts from Expatriates
Author: James F. McDonough
Date: October 21, 2015
Key Contacts
Back
The IRS recently issued a new set of proposed rules on taxes for high-net-worth individuals in the U.S., including citizens and residents, who receive gifts from expatriates. According to the National Law Review, the tax is significant because it is designed to disincentivize U.S. citizens from expatriating individually.
The new rules
The proposed tax, which is part of the Heroes Earnings Assistance and Relief Tax Act of 2008, provides a final answer on whether or not a distribution from expatriates would be considered a gift. These gifts from expatriates are subject to the proposed tax retroactive to June 17, 2008.
The way the new tax works is that the amount of the tax for a gift from an expatriate is determined by subtracting the total amount of covered gifts received during the calendar year by the amount of the expatriate’s gift. The total amount of gifts that are exempt from taxes is $14,000, so this number is subtracted from the amount of gifts from an expatriate. Then this net amount is multiplied by the highest estate or gift tax rate in effect during the year the gift was received.
Less obvious things to look out for
One of the new stipulations of the proposed rule is that there is a pro-rate regulation that subjects foreign trusts to taxes when they includes donations from expatriates that fall under this rule. What this means is that if an expatriate provides half the funds for a foreign trust for his or her family, half of that trust is subject to the tax – even if those include shares in a family business, for example. However, another factor to keep in mind is that taxpayers entitled to income tax deductions from foreign trust distributions need to be aware that the deductions are only applicable in the year the tax is paid. This is important because the deduction does not apply to when the distribution is made.
The expatriate is not subject to the tax, but the property included in their gross estate that is transferred to recipients is subject to tax. Further, if the expatriate’s gifts are deemed charitable donations, then the gifts are exempt from the tax. A final exemption applies to marital status, which states that if expatriates send gifts to spouses that are U.S. citizens or residents, these gifts are tax exempt.
A definitive distinction of the proposed rules is that if a U.S. citizen or resident receives a taxable gift from an electing domestic or foreign trust, the receiver is subject to the tax. However, if the gift is distributed through a non-electing foreign trust, that trust is not liable for the tax, but the recipient is subject to the tax.
- Practices: Tax, Trusts & Estates
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Related Posts
See all
Does Your Homeowners Insurance Provide Adequate Coverage?
Your home is likely your greatest asset, which is why it is so important to adequately protect it. Homeowners insurance protects you from the financial costs of unforeseen losses, such as theft, fire, and natural disasters, by helping you rebuild and replace possessions that were lost While the definition of “adequate” coverage depends upon a […]
Author: Jesse M. Dimitro
Understanding the Importance of a Non-Contingent Offer
Making a non-contingent offer can dramatically increase your chances of securing a real estate transaction, particularly in competitive markets like New York City. However, buyers should understand that waiving contingencies, including those related to financing, or appraisals, also comes with significant risks. Determining your best strategy requires careful analysis of the property, the market, and […]
Author: Jesse M. Dimitro
Fred D. Zemel Appointed Chair of Strategic Planning at Scarinci & Hollenbeck, LLC
Business Transactional Attorney Zemel to Spearhead Strategic Initiatives for Continued Growth and Innovation Little Falls, NJ – February 21, 2025 – Scarinci & Hollenbeck, LLC is pleased to announce that Partner Fred D. Zemel has been named Chair of the firm’s Strategic Planning Committee. In this role, Mr. Zemel will lead the committee in identifying, […]
Author: Scarinci Hollenbeck, LLC
Novation Agreement Process: Step-by-Step Guide for Businesses
Big changes sometimes occur during the life cycle of a contract. Cancelling a contract outright can be bad for your reputation and your bottom line. Businesses need to know how to best address a change in circumstances, while also protecting their legal rights. One option is to transfer the “benefits and the burdens” of a […]
Author: Dan Brecher
What Is a Trade Secret? Key Elements and Legal Protections Explained
What is a trade secret and why you you protect them? Technology has made trade secret theft even easier and more prevalent. In fact, businesses lose billions of dollars every year due to trade secret theft committed by employees, competitors, and even foreign governments. But what is a trade secret? And how do you protect […]
Author: Ronald S. Bienstock
What Is Title Insurance? Safeguarding Against Title Defects
If you are considering the purchase of a property, you may wonder — what is title insurance, do I need it, and why do I need it? Even seasoned property owners may question if the added expense and extra paperwork is really necessary, especially considering that people and entities insured by title insurance make fewer […]
Author: Patrick T. Conlon
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Sign up to get the latest from our attorneys!
Explore What Matters Most to You.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
IRS Proposes Rules to Tax Gifts from Expatriates
Author: James F. McDonough
The IRS recently issued a new set of proposed rules on taxes for high-net-worth individuals in the U.S., including citizens and residents, who receive gifts from expatriates. According to the National Law Review, the tax is significant because it is designed to disincentivize U.S. citizens from expatriating individually.
The new rules
The proposed tax, which is part of the Heroes Earnings Assistance and Relief Tax Act of 2008, provides a final answer on whether or not a distribution from expatriates would be considered a gift. These gifts from expatriates are subject to the proposed tax retroactive to June 17, 2008.
The way the new tax works is that the amount of the tax for a gift from an expatriate is determined by subtracting the total amount of covered gifts received during the calendar year by the amount of the expatriate’s gift. The total amount of gifts that are exempt from taxes is $14,000, so this number is subtracted from the amount of gifts from an expatriate. Then this net amount is multiplied by the highest estate or gift tax rate in effect during the year the gift was received.
Less obvious things to look out for
One of the new stipulations of the proposed rule is that there is a pro-rate regulation that subjects foreign trusts to taxes when they includes donations from expatriates that fall under this rule. What this means is that if an expatriate provides half the funds for a foreign trust for his or her family, half of that trust is subject to the tax – even if those include shares in a family business, for example. However, another factor to keep in mind is that taxpayers entitled to income tax deductions from foreign trust distributions need to be aware that the deductions are only applicable in the year the tax is paid. This is important because the deduction does not apply to when the distribution is made.
The expatriate is not subject to the tax, but the property included in their gross estate that is transferred to recipients is subject to tax. Further, if the expatriate’s gifts are deemed charitable donations, then the gifts are exempt from the tax. A final exemption applies to marital status, which states that if expatriates send gifts to spouses that are U.S. citizens or residents, these gifts are tax exempt.
A definitive distinction of the proposed rules is that if a U.S. citizen or resident receives a taxable gift from an electing domestic or foreign trust, the receiver is subject to the tax. However, if the gift is distributed through a non-electing foreign trust, that trust is not liable for the tax, but the recipient is subject to the tax.