# Section 2801: Gifts and Bequests from Covered Expatriates

> Who pays the section 2801 tax: a U.S. recipient determined by domicile, 40% above the annual exclusion, TD 10027 effective January 14, 2025, Form 708 for 2025 due June 15, 2027, the section 2801 ratio and the electing foreign trust.

Author: Ksenia Voronova — Lawyer, Family Office (https://wiki.private.law/en/authors/voronova)
Last modified: 2026-09-09T00:00:00.000Z
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Cite as: Section 2801: Gifts and Bequests from Covered Expatriates. wiki.private.law. https://wiki.private.law/en/us-section-2801-covered-expatriate-gifts. Version fc78bc02a20b4f439665e1d1f3dca7958e29a47313fedcfbce4f9a079a6629ca.
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## Концепция

Chapter 15 of the Code does one job: it keeps within the U.S. transfer tax base the property a person accumulated while American, after that person has stopped being American. The mechanism is unusual for the U.S. system — the liability is moved from the transferor to the recipient. A covered expatriate who has relinquished citizenship or long-term residence pays no gift or estate tax. The American who receives from that person pays instead.

Three consequences follow for the recipient. The rate is the highest rate in the section 2001(c) table in effect on the date of receipt, today 40%, applied from the first dollar above the annual exclusion with no graduation. Neither the unified credit nor the basic exclusion amount operates in chapter 15: the only relief is the section 2503(b) annual exclusion, $19,000 for calendar years 2025 and 2026. And establishing whether the donor was a covered expatriate is the recipient's own job — [Treas. Reg. § 28.2801-7(a)](https://www.federalregister.gov/documents/2025/01/14/2025-00284/guidance-under-section-2801-regarding-the-imposition-of-tax-on-certain-gifts-and-bequests-from) assigns that work to the taxpayer in terms.

The section has been law since 2008, but until January 2025 it had neither regulations nor a due date. It now has both, and the first return is filed in 2027.

## Who pays

The class of taxpayers is drawn from chapters 11 and 12 — that is, through domicile rather than the substantial presence test. The Form 708 instructions state the divergence outright: for section 2801 purposes the term "resident" follows the gift and estate tax definition based on domicile, "unlike its definition for income tax purposes", so the same person can be a U.S. resident for section 2801 and a nonresident for income tax. Status is tested at the moment of receipt.

Alongside individuals, the regulations name a domestic trust and an electing foreign trust — a foreign trust that has elected to be treated as domestic solely for section 2801 purposes. Treas. Reg. § 28.2801-1(a) gives them a shared shorthand: throughout part 28, references to U.S. citizens include both. A non-electing foreign trust is not a taxpayer; what happens instead is set out below.

## What falls within the tax

A covered gift or covered bequest is property acquired directly or indirectly from a person who was a covered expatriate at the time of the transfer, or by reason of that person's death. The situs of the property is irrelevant, as is whether the expatriate acquired it before or after expatriation.

One detail is easy to miss: the definition of a gift is taken from chapter 12, but the section 2501(a)(2) exception is switched off. A nonresident non-citizen who gives intangible property is outside the ordinary gift tax — that relief does not carry into section 2801. A securities portfolio given by a former American now living in Cyprus enters the base in full.

Indirect acquisition is drawn broadly. Treas. Reg. § 28.2801-2(i) covers property acquired through a corporation or other entity to the extent of the recipient's ownership interest; payments made in satisfaction of the recipient's debt, whoever the payee; property acquired on the exercise, release or lapse of a power of appointment granted by the covered expatriate to a non-covered expatriate; and, as a catch-all, property acquired "through or from any person not subject to the section 2801 tax that is, in substance, a covered gift or covered bequest from a covered expatriate".

Six categories are carved out. Property reported as a taxable gift on the expatriate's own timely filed Form 709 or 709-NA, and property includible in the expatriate's gross estate and reported on a timely filed Form 706, 706-NA or 706-QDT. Transfers to charity and to a spouse, to the extent a deduction under section 2055, 2056, 2522 or 2523 would have been allowed had the transferor been a U.S. citizen; QTIP and QDOT treatment requires a valid election. Property already subjected to section 2801 tax as a covered gift counts as a covered bequest later only to the extent of the excess. And property passing under the expatriate's own qualified disclaimer under section 2518(b).

The first carve-out contains a trap. The regulations state that a gift within the section 2503(b) annual exclusion is not a taxable gift and is therefore not excluded from section 2801, even where the expatriate listed it on Form 709. Only property actually reported as taxable is relieved.

## Computation

The tax is computed annually and in the aggregate. All covered gifts and bequests of the year are added at fair market value on their dates of receipt, the section 2801(c) amount is subtracted, and the balance is multiplied by 40%. The result is reduced by foreign gift or estate tax paid on the same property (section 2801(d)). If the year's aggregate does not exceed the annual exclusion, no Form 708 is filed at all — with two exceptions noted below.

The foreign tax reduction is documented rather than merely computed. Form 708 must carry a copy of the foreign gift or estate tax return and a copy of the receipt or cancelled check, plus an attachment showing the amount and date of each payment for each covered gift and bequest, a description and value of the property taxed, and whether any refund is expected. Interest and penalties on the foreign tax do not count.

### Date of receipt

Value and filing deadline both run from it, and the rules diverge from intuition. For a gift the date is the chapter 12 date determined as if the transferor had been a U.S. citizen: for stock, either delivery of a properly endorsed certificate or transfer on the books of the corporation, depending on the route taken. For a bequest the date is the date of distribution from the estate or the decedent's revocable trust; death itself remains the date only for property passing by operation of law, by beneficiary designation or by contract. Where an asset is subject to another person's claim of right in a bona fide dispute, the date of receipt is the date the claim is extinguished.

A future interest in property not held in trust runs on its own rule. The date of receipt is the earlier of the date the recipient may transfer the interest and the later of vesting and extinguishment of the last intervening interest. The recipient may instead elect to treat the date of receipt as the date of the donor's transfer of that future interest, or as the date of the covered expatriate's death, by making the election on Form 708 for the relevant year.

One rule deserves attention in planning. The recipient's basis is determined under section 1015 for a gift and section 1014 for a bequest, but Treas. Reg. § 28.2801-6(a) switches off the section 1015(d) adjustment: the section 2801 tax paid does not increase basis. Forty percent leaves for the Treasury without leaving a trace in the asset's cost.

## Three dates that get confused

| Date | What it fixes | Source |
| --- | --- | --- |
| June 17, 2008 | Substantive reach: chapter 15 applies to covered gifts and bequests received on or after that date from transferors whose expatriation date is on or after that date | P.L. 110-245, § 301(g)(2) |
| January 1, 2025 | Applicability of the definitional and computational rules: §§ 28.2801-1 through 28.2801-6 and § 28.6071-1 apply to receipts on or after that date | TD 10027, applicability date of each section |
| January 14, 2025 | Publication and effective date of the final regulations; the procedural rules — recipient responsibility, records, returns, penalties — apply on and after this date; Announcement 2009-57 becomes obsolete | 90 FR 3376 |
| June 15, 2027 | Due date of the first annual return — Form 708 for the 2025 calendar year | § 28.6071-1(a)(1); Instructions for Form 708 (12/2025) |

The deadline follows from the general rule: the fifteenth day of the eighteenth calendar month following the close of the year of receipt. Form 7004 filed by that date gives an automatic six-month extension of time to file; it does not extend the time to pay.

The 2008–2024 stretch remains unresolved, and the point is worth stating precisely. Announcement 2009-57, issued in July 2009, said that Form 708 would be created and that "the due date for reporting, and for paying any tax imposed on, the receipt of such gifts or bequests has not yet been determined", with the date to come in the future guidance. The guidance arrived sixteen years later and, by the applicability dates of its own sections, governs receipts on or after January 1, 2025; TD 10027 sets no due date for earlier receipts. Announcement 2009-57 itself became obsolete on January 14, 2025. The statutory liability for 2008–2024 has not gone anywhere — the published rules contain no machinery for discharging it. How the IRS will close that gap does not appear in anything published.

None of which makes the pre-2025 period irrelevant. Contributions made to a foreign trust on or after June 17, 2008 enter the section 2801 ratio and are taxed through it on distributions made in 2025 and later; where the trust elects domestic treatment, they are paid for in the entry charge.

> ⚠️ Form 708 does not displace Form 3520. Treas. Reg. § 28.2801-6(c)(3) states that filing Form 706, 706-NA, 706-QDT, 708, 709 or 709-NA does not relieve the recipient of section 6677(a) penalties for failure to comply with section 6048(c), or section 6039F(c) penalties for failure to comply with section 6039F(a). A gift from a foreign person and a distribution from a foreign trust are reported on Parts IV and III of Form 3520 whether or not the chapter 15 tax has been paid. The mechanics of those forms are in [Foreign trusts and Form 3520](https://wiki.private.law/en/us-foreign-trusts-form-3520).

## The non-electing foreign trust

A non-electing foreign trust pays no section 2801 tax. The liability shifts to the U.S. recipient of each distribution, to the extent the distribution is attributable to covered gifts and bequests received by the trust.

That extent is measured proportionally, without tracing particular assets. The section 2801 ratio is the covered portion of the trust over its total value; the covered portion includes the ratable share of income and appreciation accrued since the date of contribution. The ratio is redetermined after each contribution and applied to each distribution as it stood immediately before that distribution. The trust itself gets no annual exclusion: section 2801(c) is available only to the recipient completing a Form 708.

The concept of a distribution here is wider than usual. Treas. Reg. § 28.2801-5(b) reaches any direct, indirect or constructive transfer, including a transfer for less than full and adequate consideration; the exercise, release or lapse of any power of appointment, general or not; the domestication of the trust itself; and any sale, encumbering, monetization or other disposition by the recipient of the recipient's own interest in the trust. Loans and uncompensated use of trust property enter through a different door: the regulation states that section 643(i) does not apply for this purpose, and such a loan or use counts where it would be a gift for chapter 12 purposes. Whether anyone is treated as owner under the grantor trust rules is irrelevant, as is whether the recipient is named as a beneficiary.

The portion of the tax borne on income comes back as a deduction. Where a distribution from a foreign trust is included in the recipient's gross income, section 2801(e)(4)(B)(ii) allows a section 164 deduction for the section 2801 tax attributable to that portion.

### The price of electing domestic treatment

A foreign trust may elect to be an electing foreign trust — treated as domestic solely for section 2801 purposes. The trust then becomes the taxpayer, its section 2801 ratio drops to zero, and U.S. distributees stop paying on subsequent distributions. The election is made on a timely filed Form 708 and is effective from January 1 of the year for which that return is filed. Validity requires all of the following:

1. Making the election, paying the tax, and attaching a computation showing how the trustee calculated both the section 2801 ratio and the tax.
2. Designating and authorizing a U.S. agent on Form 2848, thereby agreeing to give the agent all information needed to answer a request or summons; the agent serves the trust for purposes of sections 7602 through 7604.
3. Agreeing to file Form 708 for every future covered gift and bequest made to the trust.
4. Identifying the amount and year of all prior distributions attributable to covered gifts and bequests, with the name, address and taxpayer identification number of each U.S. recipient.
5. Providing a copy of the governing instrument and naming each permissible distributee, with address and taxpayer identification number.
6. Affirming under penalties of perjury that each permissible distributee was notified of the election.
The class of permissible distributees is wider than the class of current beneficiaries: it takes in every U.S. citizen or resident who currently may or must receive distributions, who may withdraw income or principal during that year or a future year — whether the right arises or lapses on a future event — and everyone who would fall into either of those two categories on an immediate termination of the trust or of any such person's interest.

The entry charge is the decisive cost. The trust pays tax on all covered gifts and bequests received in the election year and, on top of that, on the portion attributable to prior years: the fair market value of the trust on December 31 of the preceding year multiplied by the section 2801 ratio on that date. Where the trustee lacks sufficient books and records, the trustee must assume that the whole corpus and undistributed income are attributable to covered gifts and bequests; the assumption is rebutted by information sufficient to persuade the IRS otherwise.

The election continues of its own force until it terminates, and it terminates in three ways: failure to timely file Form 708 or timely pay the tax; failure to enter into a closing agreement and pay the additional tax after the IRS recalculates what was reported; or affirmative revocation. In each case the termination is retroactive to the first day of the relevant calendar year. The liability returns to the distributees at that moment, and the trustee should notify each of them promptly. The election does not reach back: a distribution made in a year before the election year remains taxable to the recipient at the ratio then in place.

### The migrated foreign trust

A non-electing foreign trust that has previously received covered gifts or bequests and later becomes a domestic trust under section 7701(a)(30)(E) files Form 708 for the year of migration and computes the tax as if it were making the election: on everything received in the year of migration plus the portion of trust value at the preceding December 31. Distributions to U.S. citizens or residents made in the migration year but before the trust became domestic are not subject to section 2801.

The deadline here is different and shorter: the fifteenth day of the sixth month of the following year. A trust that became domestic in 2025 reported by June 15, 2026 — a year ahead of the first ordinary Form 708. The same six-month deadline applies to a foreign trust electing for a year in which it received no covered gifts or bequests.

## Interaction with other regimes

The link with the exit tax runs one way. Mark-to-market under section 877A settles the expatriate's account with U.S. income tax; it does not settle the transfer tail. That liability sits with the recipient, and the limitations period on assessment begins to run only when Form 708 is filed — until then it does not run at all. The thresholds that put a person into the covered expatriate class, and pre-departure planning, are covered in [US Expatriation and Exit Tax](https://wiki.private.law/en/us-expatriation-exit-tax).

Foreign trust reporting runs in parallel and is not absorbed. The wider picture of trust taxation is in [Trust Taxation](https://wiki.private.law/en/trust-taxation); the procedure for Forms 3520 and 3520-A is in [Foreign trusts and Form 3520](https://wiki.private.law/en/us-foreign-trusts-form-3520).

QSBS produces a striking asymmetry. Section 1202(h)(1)–(2) preserves qualification on a transfer by gift or at death: the transferee is treated as having acquired the stock "in the same manner as the transferor" and tacks the transferor's holding period. Qualified small business stock received from a covered expatriate therefore remains QSBS, and the section 1202 exclusion is available on a later sale. At the same time the recipient pays 40% on fair market value at the date of receipt, basis stays carried over under section 1015, and the section 1015(d) adjustment is switched off. The income tax relief survives intact, the transfer tax is taken in full, and neither offsets the other. The conditions of the exclusion itself are in [QSBS § 1202](https://wiki.private.law/en/qsbs-section-1202).

Estate and gift tax treaties do not settle the question. In the preamble to TD 10027 Treasury declined to give a general rule: neither the text of section 2801 nor its legislative history shows Congressional intent as to the effect of existing treaties, so the effect of a particular treaty is evaluated case by case, and an unresolved issue may be elevated under the competent authority procedures.

## Presumptions

The contested position here is the recipient's own assertion that a transfer is not a covered gift. The regulations test that assertion through a rebuttable presumption and through a trade: disclosure of the donor's data in exchange for the chance to rebut it.

The mechanism runs as follows. Under section 6103 the IRS may, on the recipient's request, disclose return or return information of the donor or decedent expatriate so that the recipient can determine the transferor's status and the character of the transfer. For a living donor, disclosure requires the donor's own authorization — and Treas. Reg. § 28.2801-7(b)(2) supplies a rebuttable presumption: unless the donor authorizes disclosure, the donor is presumed to be a covered expatriate and the gift a covered gift. Information obtained from the IRS may not be relied on where the recipient knows or has reason to know it is incorrect or incomplete.

| Reads against the recipient's position | Supports good faith |
| --- | --- |
| A living expatriate donor withholds authorization to disclose — an express statutory presumption of a covered gift | Authorization obtained and the IRS response attached to the return; on refusal, documented correspondence with the donor and the donor's advisers |
| Property arrived through an individual, company or entity outside the section 2801 perimeter while amounting in substance to a transfer from the expatriate | An economic history of the asset showing that funds at the intermediate step originated independently |
| Receipts split across years and across relatives so that each amount fits within the annual exclusion | Timing explained by the transferor's own circumstances rather than by the exclusion calendar |
| A transfer routed through a non-electing foreign trust whose trustee has no books and records for the relevant years | A reconstructed contribution history, with dates and amounts, allowing the section 2801 ratio to be computed on the ordinary rules |
| The gift appears on the expatriate's Form 709 but not as a taxable gift, and the carve-out is claimed on that basis | A timely filed Form 709 or 706 of the expatriate on which the property is reported as taxable |
| Silence: no Form 708 filed, so the limitations period has not begun | A protective Form 708 under § 28.6011-1(b) with the affidavit |

An empty cell in the file costs more than a contested one. A trustee's lack of books and records does not suspend the question — it resolves it against the taxpayer: § 28.2801-5(c)(3) requires the recipient to proceed on the assumption that the entire distribution is attributable to covered gifts and bequests, rebuttable only to the extent the ratio can be substantiated. The final regulations softened the proposed version exactly far enough that one unproven contribution does not turn the whole trust into covered portion: for contributions the recipient can document, the recipient may show that they are not covered gifts.

The defensive move is written into the rules. A recipient who reasonably concludes that a transfer is outside section 2801 files a protective Form 708 — with all the information the form ordinarily requires, an affidavit signed under penalties of perjury setting out the basis for that conclusion and the efforts made to obtain other relevant information, a copy of any information received from the IRS, and a copy of Part III or Part IV of Form 3520. That return starts the limitations period on assessment.

## Risks

> ⚠️ Three mistakes recur. The first is treating absence of U.S. income tax residence as absence from the regime: the class of taxpayers is built on domicile, and a person living outside the United States for years with a U.S. domicile remains inside it. The second is treating a receipt from a foreign trust as a neutral event: a loan, use of a trust-owned apartment, the release of a power of appointment and the sale of one's own interest in the trust all constitute a distribution under § 28.2801-5(b), and a trustee's missing records produce a ratio of one. The third is delaying verification of the donor's status while the donor is alive: only the donor can authorize disclosure, and the donor's death removes the only route to rebutting the presumption in § 28.2801-7(b)(2). Section 6651 for failure to file and pay and section 6662 for valuation understatement operate on top of the tax.

> 🍓 **In short.** Section 2801 moves the transfer tax onto the recipient: a U.S. citizen or resident, a domestic trust or an electing foreign trust pays 40% on the calendar year's covered gifts and bequests above $19,000 (2025 and 2026), reduced by foreign gift and estate tax and with no basis increase for the tax paid. TD 10027 was published and took effect on January 14, 2025; the definitional rules apply to receipts on or after January 1, 2025; the statute's substantive reach runs back to June 17, 2008; and the first Form 708, for calendar year 2025, is due June 15, 2027. A non-electing foreign trust pays nothing and passes the tax to U.S. distributees through the section 2801 ratio; electing domestic treatment costs the first year's tax plus the portion attributable to all prior years, a U.S. agent, the governing instrument, a named list of permissible distributees, and it collapses on a single missed deadline. The recipient verifies the donor's status, and a living donor's silence is read against the recipient. Request the disclosure authorization while the donor is alive; file Form 3520 independently; file a protective Form 708 where doubt is reasonable.

## Q/A

### I have lived in Europe for twenty years and file no U.S. returns. Does this reach me?

Possibly. Liability under section 2801 is determined on gift and estate tax principles, that is through domicile rather than the substantial presence test. U.S. citizenship alone places you in the class wherever you live; for non-citizens the question turns on U.S. domicile at the moment of receipt. The Form 708 instructions warn separately that a person can be a resident for section 2801 and a nonresident for income tax at the same time.

### My father gave up his passport in 2015 and gave me money in 2019. What now?

On the statute the 2019 receipt is within scope — chapter 15 applies to property received on or after June 17, 2008 from transferors who expatriated on or after the same date. The practical side is harder: Announcement 2009-57 recorded in 2009 that the due date for reporting and payment "has not yet been determined", and the 2025 regulations, by their own applicability dates, govern receipts on or after January 1, 2025 and set no date for earlier ones. Announcement 2009-57 itself became obsolete on January 14, 2025. A position for such a year needs an individual decision and probably a protective Form 708; waiting for separate IRS guidance is reasonable, but there is no basis for treating the liability as extinguished.

### The gift was within the annual exclusion. Do I file anything?

If the aggregate of all covered gifts and bequests for the calendar year did not exceed the section 2801(c) amount ($19,000 for 2025 and 2026), no Form 708 is filed for that year. Everything is aggregated, including the covered portion of distributions from foreign trusts. The filing exception does not apply to a trust that migrated into the United States that year, or to a foreign trust making the election.

### The donor reported the gift on his Form 709. Is that enough to remove the tax?

Only if the property was reported as a taxable gift under section 2503(a). The regulations state expressly that a gift within the section 2503(b) annual exclusion is not a taxable gift and is not excluded from section 2801, even where it appears on Form 709. The mirror rule applies to bequests: relief runs to property includible in the gross estate and reported on a timely filed Form 706, 706-NA or 706-QDT; where the estate was too small to require a Form 706-NA and none was filed, the carve-out does not operate.

### Our family trust in Jersey received money from our grandfather after he renounced. Should it elect domestic treatment?

The election removes the tax from U.S. beneficiaries for the future, but it is paid for at once: tax on everything received in the election year plus tax on the portion attributable to everything received before — the trust's value at the preceding December 31 multiplied by the section 2801 ratio. Beyond money it costs transparency: a U.S. agent on Form 2848 with authority under sections 7602 through 7604, the governing instrument filed with the IRS, a named list of permissible distributees with their taxpayer identification numbers, and notice to each of them. One missed filing or payment collapses the election retroactively to January 1 of that year and returns the liability to the distributees. The arithmetic favours the election where the covered portion is high and distributions are regular.

### What if the trustee cannot show where the assets came from?

Assume the worst and work on the provable part. Where books and records are insufficient, § 28.2801-5(c)(3) requires the recipient to treat the entire distribution as attributable to covered gifts and bequests. The final regulations clarified that the assumption operates only to the extent the ratio cannot be substantiated: for contributions whose origin can be documented, the recipient may show that they are not covered gifts. Reconstructing the contribution history with dates and amounts is the only work that reduces the tax here.

### I inherited QSBS from a covered expatriate. Does the section 1202 exclusion survive?

Yes. On a transfer by gift or at death, section 1202(h)(1)–(2) treats the transferee as having acquired the stock in the same manner as the transferor and tacks the holding period, so qualification and access to the exclusion survive. That does not affect the chapter 15 tax: 40% is taken on fair market value at the date of receipt, basis is determined under section 1015 or 1014, and the regulations switch off the section 1015(d) increase for the tax paid. The conditions of the exclusion are in [QSBS § 1202](https://wiki.private.law/en/qsbs-section-1202).

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## Factual claims

- Chapter 15 of the Code does one job: it keeps within the U.S. transfer tax base the property a person accumulated while American, after that person has stopped being American.
- The section has been law since 2008, but until January 2025 it had neither regulations nor a due date.
- The class of taxpayers is drawn from chapters 11 and 12 — that is, through domicile rather than the substantial presence test.
- Alongside individuals, the regulations name a domestic trust and an electing foreign trust — a foreign trust that has elected to be treated as domestic solely for section 2801 purposes.
- One detail is easy to miss: the definition of a gift is taken from chapter 12, but the section 2501(a)(2) exception is switched off.
- The 2008–2024 stretch remains unresolved, and the point is worth stating precisely.
- None of which makes the pre-2025 period irrelevant.
- A non-electing foreign trust pays no section 2801 tax.

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