Effective tax planning for international families often requires tracking changes in both U.S. and foreign tax rules. A significant development now demands attention from taxpayers who receive gifts, inheritances, or trust distributions from former U.S. citizens or long-term residents who have expatriated.
Following the issuance of final regulations under Internal Revenue Code Section 2801, the IRS released Form 708, United States Return of Tax for Gifts and Bequests Received From Covered Expatriates. The new filing requirement brings long-standing but largely dormant rules into practical focus and may impose a substantial tax obligation on certain U.S. recipients beginning with transfers received in 2025.
What Is Form 708?
Form 708 is used to report and pay tax on certain gifts and bequests received from “covered expatriates.” The form was issued following final Section 2801 regulations that became effective January 14, 2025.
The rules apply to covered gifts and bequests received on or after Jan. 1, 2025. Depending on the circumstances, U.S. citizens, U.S. residents, domestic trusts, and certain foreign trusts may have a filing obligation.
For calendar-year 2025 transfers, the first Form 708 filing is generally due June 15, 2027. Taxpayers may request a six-month filing extension, although the extension does not extend the deadline to pay any tax due.
Who Is a Covered Expatriate?
Generally, a covered expatriate is an individual who:
- Renounced U.S. citizenship or terminated long-term lawful permanent resident (green card) status; and
- Met certain net worth, tax liability, or tax compliance certification tests at the time of expatriation.
The determination of covered expatriate status can be complex, making documentation and due diligence particularly important when receiving transfers from former U.S. citizens or long-term residents.
Why These Rules Matter Now
Section 2801 has existed in the Internal Revenue Code for years, but compliance was difficult to administer without final regulations and an associated filing mechanism. The release of the final regulations and Form 708 significantly changes that landscape.
As a result, taxpayers and advisors should expect increased focus on identifying covered gifts and bequests, evaluating filing obligations, and ensuring appropriate tax reporting.
The 40% Tax Falls on the Recipient
One of the most notable aspects of Section 2801 is who bears the tax burden.
A 40% transfer tax may apply to certain gifts and inheritances received by U.S. persons from covered expatriates. Unlike traditional gift and estate tax regimes, where the donor or decedent’s estate is generally responsible for the tax, Section 2801 places the liability on the recipient.
This means a U.S. taxpayer receiving a gift or inheritance from a covered expatriate could face a significant tax obligation even when the transfer originated outside the United States.
Form 708 and Form 3520: Separate Reporting Requirements
Taxpayers should not assume that filing one international reporting form satisfies all obligations.
The Form 708 requirement is separate from Form 3520 and other international information reporting requirements. Depending on the facts, a taxpayer may need to file both Form 708 and Form 3520.
Because the forms serve different purposes and carry separate compliance requirements, taxpayers should carefully review all international reporting obligations associated with a transfer.
Cross-Border Estate Planning Considerations
Form 708 should now be part of the analysis whenever a U.S. beneficiary receives:
- A gift from a former U.S. citizen or long-term green card holder who expatriated;
- A bequest from such an individual; or
- Certain foreign trust distributions attributable to property transferred by a covered expatriate.
Families with international wealth structures, multinational succession plans, or foreign trusts should evaluate whether these rules could apply to current or future transfers.
Next Steps
With proper planning and funding of a pre-expatriation trust prior to leaving the U.S., a U.S. expatriate can alleviate these burdens and allow the pre-expatriation trust, which itself did not expatriate, to make gifts to US beneficiaries without the implications of these rules or the new form 708.
Key Takeaway
The release of Form 708 marks a new chapter in the enforcement of Section 2801. For taxpayers with international family wealth structures, expatriated family members, foreign heirs, or foreign trust arrangements, gifts and inheritances received beginning in 2025 may create additional reporting obligations and potential tax exposure.
Early identification of covered expatriate issues can help avoid surprises, ensure timely filings, and support more effective cross-border estate and gift tax planning. Finally, with proper planning some of the tax burdens associated with gifts from expatriates may be avoided through pre-expatriation trust planning.
Work With Your Tax Professionals
If you or your family have international assets, foreign trust interests, or connections to former U.S. citizens or long-term residents who have expatriated or are considering expatriating, now is the time to review your potential reporting obligations. CBIZ tax professionals can help evaluate whether Form 708, Form 3520, or other international tax filings may apply and assist with planning strategies designed to address new compliance requirements. Contact us to learn more.
Frequently Asked Questions
Form 708, United States Return of Tax for Gifts and Bequests Received From Covered Expatriates, is used to report and pay tax on certain gifts and bequests received from covered expatriates. The filing requirement applies to covered gifts and bequests received on or after January 1, 2025.
Depending on the circumstances, U.S. citizens, U.S. residents, domestic trusts, and certain foreign trusts may have a Form 708 filing obligation when receiving a covered gift, bequest, or qualifying trust distribution from a covered expatriate.
A 40% transfer tax may apply to certain gifts and inheritances received by U.S. persons from covered expatriates. Unlike traditional gift and estate taxes, Section 2801 generally places the tax liability on the recipient.
Potentially. Form 708 and Form 3520 have separate reporting requirements. Depending on the circumstances surrounding a transfer, a taxpayer may need to file both forms.
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