3376 Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Rules and Regulations 

DEPARTMENT OF THE TREASURY 

Internal Revenue Service 

26 CFR Part 28 

[TD 10027] 

RIN 1545–BJ43 

Guidance Under Section 2801 

Regarding the Imposition of Tax on 

Certain Gifts and Bequests From 

Covered Expatriates 

AGENCY: Internal Revenue Service (IRS), 

Treasury. 

ACTION: Final regulations. 

SUMMARY: This document contains final 

regulations that provide guidance on the 

application of a tax on United States 

citizens and residents, as well as certain 

trusts, that receive, directly or 

indirectly, gifts or bequests from certain 

individuals who relinquished United 

States citizenship or ceased to be lawful 

permanent residents of the United 

States. The final regulations also 

provide guidance on the method of 

reporting and paying this tax. The final 

regulations primarily affect United 

States citizens and residents, as well as 

certain trusts, that receive one or more 

such gifts or bequests. 

DATES: 

Effective Date: These regulations are 

effective January 14, 2025. 

Applicability Dates: For dates of 

applicability, see §§ 28.2801–1(b), 

28.2801–2(n), 28.2801–3(g), 28.2801– 

4(g), 28.2801–5(f), 28.2801–6(e), 

28.2801–7(d), 28.6001–1(c), 28.6011– 

1(c), 28.6060–1(b), 28.6071–1(d), 

28.6081–1(e), 28.6091–1(b), 28.6107– 

1(b), 28.6109–1(b), 28.6151–1(b), 

28.6694–1(b), 28.6694–2(b), 28.6694– 

3(b), 28.6694–4(b), 28.6695–1(b), 

28.6696–1(b), and 28.7701–1(b). 

FOR FURTHER INFORMATION CONTACT: 

Mayer R. Samuels, Daniel J. Gespass, or 

Karlene M. Lesho at (202) 317–6859 (not 

a toll-free number). 

SUPPLEMENTARY INFORMATION: 

Authority 

This document contains additions 

and amendments to 26 CFR part 28 

(Imposition of Tax on Gifts and 

Bequests from Covered Expatriates) 

addressing the application of section 

2801 of the Internal Revenue Code 

(Code) and related provisions (the ‘‘final 

regulations’’). The additions and 

amendments are issued under sections 

2801, 6001, 6011, 6060, 6071, 6081, 

6091, 6101, 6107, and 6109 pursuant to 

the express delegations of authority 

provided under those sections. The 

express delegations relied upon are 

referenced in the Background section of 

this preamble and in the Summary of 

Comments and Explanation of Revisions 

describing the individual sections of the 

final regulations. The final regulations 

are also issued under the express 

delegation of authority under section 

7805 of the Code. 

Background 

This document amends subchapter B 

of 26 CFR chapter 1 (Estate and Gift 

Taxes) by adding part 28 under section 

2801 and by expanding several existing 

regulations to also apply to the filing 

and furnishing of returns and payment 

of the tax imposed by section 2801 

(section 2801 tax). Section 301 of the 

Heroes Earnings Assistance and Relief 

Tax Act of 2008 (HEART Act), Public 

Law 110–245, 122 Stat. 1624 (2008), 

added chapter 15 (Gifts and Bequests 

from Expatriates) to subtitle B of the 

Code (subtitle B), effective June 17, 

2008. Before the addition of chapter 15, 

subtitle B contained chapters 11 through 

14 relating to the estate tax, the gift tax, 

and the generation-skipping transfer 

(GST) tax, as well as special valuation 

rules applicable for purposes of subtitle 

B. Chapter 15 consists solely of section 

2801 and imposes the section 2801 tax 

on certain transfers of property by gift 

(covered gifts) and on certain transfers 

of property by bequest (covered 

bequests) from certain individuals who 

expatriate on or after June 17, 2008 

(covered expatriates). 

The section 2801 tax is imposed on 

each United States (U.S.) citizen or 

resident receiving a covered gift or 

covered bequest (U.S. recipient). For 

this purpose, domestic trusts and 

foreign trusts that elect to be treated as 

domestic trusts solely for purposes of 

section 2801 (electing foreign trusts) are 

included in the definition of a U.S. 

citizen. Foreign trusts that do not elect 

to be treated as domestic trusts for 

purposes of section 2801 (non-electing 

foreign trusts) are not U.S. citizens or 

residents and, therefore, do not become 

subject to the section 2801 tax upon 

receipt of covered gifts and covered 

bequests. Instead, the beneficiaries of 

non-electing foreign trusts who are U.S. 

citizens or residents (U.S. citizen or 

resident beneficiaries) become subject to 

the section 2801 tax upon their receipt 

of a distribution from a non-electing 

foreign trust that is attributable to 

covered gifts and covered bequests 

made to that non-electing foreign trust. 

The section 2801 tax will be 

computed on Form 708, United States 

Return of Tax for Gifts and Bequests 

Received from Covered Expatriates, on 

which a U.S. recipient will report 

covered gifts and covered bequests 

received during the calendar year. If the 

aggregate value of the covered gifts and 

covered bequests received by the U.S. 

recipient during the calendar year 

exceeds the amount of the inflationadjusted annual exclusion under section 

2503(b) of the Code ($18,000 for 2024), 

the section 2801 tax is computed by 

multiplying the excess by the highest 

estate tax rate specified in section 

2001(c) of the Code in effect on the date 

of receipt, and then reducing the 

product by any gift or estate taxes paid 

to a foreign country with respect to the 

covered gifts and covered bequests. The 

value of each covered gift and covered 

bequest is its fair market value as of the 

date of its receipt. 

On September 10, 2015, a notice of 

proposed rulemaking and a notice of 

public hearing (REG–112997–10) were 

published in the Federal Register (80 

FR 54447) proposing rules related to the 

section 2801 tax (proposed regulations). 

A total of sixteen comments on the 

proposed regulations were received and 

are available at https://

www.regulations.gov or upon request. A 

public hearing on the proposed 

regulations was held on January 6, 2016. 

After consideration of all the comments, 

this Treasury decision adopts the 

proposed regulations, with revisions, as 

final regulations. The revisions are 

discussed in the following Summary of 

Comments and Explanation of Revisions 

section. Unless otherwise indicated in 

the Summary of Comments and 

Explanation of Revisions, provisions of 

the proposed regulations for which no 

comments were received are adopted 

without substantive change. The final 

regulations include non-substantive 

modifications, including modifications 

that promote consistency across 

definitions, rules, and examples and 

improve the overall clarity of the 

guidance. Such modifications are not 

addressed in the Summary of Comments 

and Explanation of Revisions. 

Summary of Comments and 

Explanation of Revisions 

1. General Comments on Section 2801 

and the Tax-Neutral Objective 

The Department of the Treasury 

(Treasury Department) and the IRS 

received several general comments on 

section 2801. One comment objects to 

the enactment of section 2801, opining 

that the section 2801 tax is unnecessary, 

infringes on privacy rights, and unfairly 

applies to former long-term permanent 

residents. Other comments object by 

pointing out several ways in which the 

statutory provisions of section 2801 are 

not tax neutral, treat expatriates more 

harshly than if they had remained 


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subject to U.S. gift and estate taxes, and 

thus violate what the commenters 

described as the intent of Congress in 

enacting section 2801 to make 

expatriation a tax-neutral event with 

regard to U.S. transfer taxes. Some 

comments request changes and 

additions to the proposed regulations to 

create a more tax-neutral outcome than 

under the statute. 

The Background section of the 

preamble of the proposed regulations 

describes the history of the addition of 

chapter 15 and section 2801 to the Code 

and references the idea, as explained in 

a report of the House Ways and Means 

Committee regarding an earlier, preHEART Act, bill to enact chapter 15 and 

section 2801, that the decision to 

relinquish citizenship ought to be ‘‘tax 

neutral.’’ See H.R. Rep. No. 110–431, at 

113 (2007). More specifically, the report 

states that an individual’s decision to 

relinquish citizenship or terminate longterm residency should not affect the 

total amount of taxes imposed; that is, 

the decision should be ‘‘tax neutral.’’ 

The report further states that, if U.S. 

estate or gift taxes are avoided with 

respect to a transfer of property to a U.S. 

person by reason of the expatriation of 

the donor, it is appropriate for the 

recipient to be subject to a tax similar 

to the transfer tax that the donor or 

donor’s estate would have been subject 

to, had the donor not expatriated. Id. at 

114. 

Despite the language in the report, 

section 2801 imposes a tax on the 

receipt by a U.S. citizen or resident of 

certain gifts or bequests which does not 

equal, and in some cases is not similar 

to, the tax that would have been 

imposed on the transfer of such gifts or 

bequests by a U.S. transferor (that is, 

one who had not expatriated), as 

illustrated by a comparison of the 

relevant statutory provisions of chapter 

11 (estate tax), chapter 12 (gift tax), and 

chapter 13 (GST tax), with chapter 15 

(section 2801 tax). Obvious 

dissimilarities between section 2801 

and the provisions of chapters 11 

through 13 include the absence in 

chapter 15 of an applicable credit 

amount that can be applied to offset or 

reduce the estate or gift tax liability (see 

sections 2010 and 2505 of the Code, for 

which transfers of up to $13.99 million 

(the 2025 inflation-adjusted amount) 

over a lifetime may be offset for 

purposes of gift and estate taxes) and the 

absence of a GST tax for covered gifts 

and covered bequests to a U.S. recipient 

who is a skip person (see section 2601 

of the Code, imposing an additional 

transfer tax on GSTs). There are many 

other dissimilarities between section 

2801 and the other transfer tax 

provisions. 

The role of the Treasury Department 

and the IRS is to implement section 

2801, as enacted by the HEART Act. 

Thus, to the extent the comments 

suggest changes to the statutory text of 

chapter 15 and section 2801, the 

Treasury Department and the IRS do not 

further address those comments in this 

preamble. To the extent the comments 

suggest changes or additions to the 

proposed regulations to create a more 

tax-neutral outcome, the Treasury 

Department and the IRS have responded 

to specific comments as the relevant 

issues are discussed in this preamble, 

and in doing so considered both the 

statutory language of section 2801 and 

the scope of regulatory authority granted 

by Congress. 

2. Definitions 

A. Expatriate and Covered Expatriate 

Section 2801(f) and proposed 

§ 28.2801–2(h) define the term covered 

expatriate by reference to section 

877A(g)(1) of the Code. Proposed 

§ 28.2801–2(h) defines the term 

expatriate by reference to section 

877A(g)(2). Proposed § 28.2801–2(h) 

further provides that, if an expatriate 

meets the definition of a covered 

expatriate, the expatriate is considered a 

covered expatriate for purposes of 

section 2801 at all times after the 

expatriation date, except during any 

period beginning after the expatriation 

date during which such individual is 

subject to United States estate or gift tax 

(estate or gift tax) as a U.S. citizen or 

resident. For this exception, the 

proposed regulations cite to section 

877A(g)(1)(C) of the Code, which 

indicates that an individual will not be 

treated as a covered expatriate for 

certain purposes during the time that 

they are subject to tax as a U.S. citizen 

or resident. 

Section 877A relies on the income tax 

definition of the term resident as 

described in section 7701(b)(1)(A). 

Section 28.2801–2(b) of the proposed 

regulations, however, applies the estate 

and gift tax rules under chapters 11 and 

12 of subtitle B to define U.S. resident 

for purposes of section 2801, which also 

is in subtitle B, thereby providing 

consistency across the provisions. 

One comment suggests that the 

exception in proposed § 28.2801–2(h), 

which excludes an expatriate from being 

treated as a covered expatriate during 

any period in which the expatriate is 

subject to estate or gift tax, creates a 

coherent structure for purposes of 

section 2801, but leaves open the 

possibility that an individual could be 

a covered expatriate for purposes of 

section 877A but not for purposes of 

section 2801 and vice versa. The 

comment states that this result seems to 

conflict with sections 2801(f) and 

877A(g)(1)(C) and suggests that the final 

regulations provide that an expatriate 

who is deemed to be an income tax 

resident of the U.S. will be deemed not 

to be a covered expatriate. Another 

comment expresses support for the rule 

in proposed § 28.2801–2(h) as arguably 

necessary because applying sections 

2801(f) and 877A(g)(1)(C) using the 

income tax definition of U.S. resident 

would create a convenient and simple 

way to avoid imposition of the section 

2801 tax. For instance, a covered 

expatriate could become an income tax 

resident in one year during which such 

person does not also satisfy the transfer 

tax definition of resident. During that 

year, the covered expatriate could make 

gifts that would not be subject to gift 

tax. The following year, the covered 

expatriate could terminate the covered 

expatriate’s income tax residency, 

thereby allowing the gifts to completely 

escape transfer taxation. The Treasury 

Department and the IRS agree with the 

latter comment that using the transfer 

tax definition of resident for the 

exception in proposed § 28.2801–2(h) 

avoids creating an opportunity to 

circumvent the section 2801 tax. 

Further, section 2801 is a transfer tax 

and is part of subtitle B; section 7701(b) 

of the Code specifically provides that 

the definitions in section 7701(b)(1) do 

not apply for purposes of subtitle B. 

Accordingly, applying the definition of 

resident under subtitle B for purposes of 

this transfer tax under section 2801 and 

the corresponding regulations is 

consistent with the purpose of the 

statute. Moreover, as one comment 

acknowledges, the use of the transfer tax 

definition is consistent with the concept 

of neutrality because it eliminates the 

avoidance of estate and gift tax that 

otherwise would result from 

expatriation. For these reasons, the final 

regulations adopt the transfer tax 

definition of U.S. resident without 

change. 

One comment points out that the date 

on which a person loses U.S. citizenship 

was changed by the HEART Act. The 

comment explains that this change 

could create ambiguity as to the exact 

date of a taxpayer’s expatriation under 

certain circumstances. The comment 

requests clarification of how that date is 

determined for persons who had 

determined that they had expatriated 

before the effective date of the HEART 

Act, and for those with dual citizenship 

under section 7701(a)(50)(B). The 


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Treasury Department and the IRS agree 

that such clarification would be both 

appropriate and helpful. Such 

clarification, however, would impact 

significantly more issues than those 

related to the section 2801 tax, and 

would be better addressed in guidance 

under sections 877A and 7701, rather 

than in regulations under section 2801. 

This issue is, therefore, beyond the 

scope of these final regulations. 

Accordingly, the final regulations adopt 

the language in proposed § 28.2801–2(h) 

without change. 

B. Foreign Trust and Domestic Trust 

Section 2801(a) provides that the 

section 2801 tax is imposed on a 

covered gift or covered bequest received 

by a U.S. citizen or resident. Section 

2801(e)(4)(A) and (B)(iii) explains that a 

domestic trust or an electing foreign 

trust that receives a covered gift or 

covered bequest is treated as a U.S. 

citizen for the purposes of section 2801. 

If a covered gift or covered bequest is 

received by a non-electing foreign trust, 

however, section 2801(e)(4)(B)(i) 

provides that the section 2801 tax is 

imposed on any distribution attributable 

to the covered gift or covered bequest 

from the trust to a U.S. citizen or 

resident. Therefore, it is important to 

properly classify a trust receiving a 

covered gift or covered bequest as either 

a domestic or foreign trust in order to 

determine the identity of the U.S. 

citizen or resident liable for, and the 

timing of, payment of the section 2801 

tax. Section 28.2801–2(c) and (d)(1) of 

the proposed regulations defines the 

terms domestic trust and foreign trust by 

reference to section 7701(a)(30)(E) and 

(31)(B), respectively. No comments were 

received regarding the definitions of 

domestic trust or foreign trust. These 

final regulations maintain the same 

definitions as in the proposed 

regulations. 

C. Covered Bequest 

Section 2801(e)(1)(B) defines a 

covered bequest as any property 

acquired directly or indirectly by reason 

of the death of an individual who, 

immediately before such death, was a 

covered expatriate. The proposed 

regulations define covered bequest in 

section 28.2801–2(f) and confirm that 

this definition includes any property 

acquired directly or indirectly by reason 

of the death of a covered expatriate, 

regardless of the situs of such property 

and whether such property was 

acquired by the covered expatriate 

before or after the covered expatriate’s 

expatriation from the United States. 

Proposed § 28.2801–3(b), which 

contains additional rules and exceptions 

applicable to covered bequests, provides 

that property acquired by reason of the 

death of a covered expatriate for 

purposes of the definition of covered 

bequest in § 28.2801–2(f) includes any 

property that would have been 

includible in the gross estate of the 

covered expatriate under chapter 11 of 

subtitle B had the covered expatriate 

been a U.S. citizen at the time of death. 

One comment acknowledges that 

including property that would have 

been includible in the gross estate of the 

covered expatriate had the covered 

expatriate been a U.S. citizen at the time 

of death appears to be consistent with 

legislative intent. However, the 

comment expresses concern that the 

definition of covered bequest in 

§ 28.2801–2(f), which includes all 

property passing by reason of the 

decedent’s death, was too broad. The 

comment points out that not all 

property passing by reason of a 

decedent’s death would be includible in 

the decedent’s gross estate. The 

comment provides, as an example, 

property passing to a child from a trust 

created by a grandparent after a term 

measured by a now deceased parent’s 

life. The comment suggests revising the 

definition of covered bequest in 

§ 28.2801–2(f) to include property 

acquired by reason of the death of a 

covered expatriate, but only to the 

extent the property would have been 

included in the gross estate of the 

covered expatriate had the covered 

expatriate been a United States citizen 

immediately before death. 

The comment correctly observes that 

including any property acquired 

directly or indirectly by reason of the 

death of a covered expatriate may 

inappropriately subject property to 

section 2801 tax, such as in the example 

provided by the comment (assuming the 

facts do not support an indirect gift). 

However, the suggestion to limit the 

definition of covered bequest to 

property acquired by reason of the death 

of a covered expatriate that would have 

been included in the gross estate of the 

covered expatriate is too narrow. Such 

a definition, for example, would 

wrongly exclude property that would 

otherwise be included in the gross estate 

of a covered expatriate even though the 

property was not acquired on the death 

of the covered expatriate (for example, 

under section 2035, which increases the 

gross estate by the value of certain 

property transferred within the 3-year 

period ending on the date of the covered 

expatriate’s death). The comment’s 

suggested definition also would exclude 

all distributions made by reason of the 

death of a covered expatriate from nonelecting foreign trusts to the extent the 

distributions are attributable to covered 

gifts and covered bequests made to the 

foreign trust on or after June 17, 2008. 

Under section 2801(e)(4)(B)(i), a 

distribution from a non-electing foreign 

trust that is attributable to a covered gift 

or covered bequest made to the trust is 

subject to section 2801 tax in the same 

manner as if the distribution were a 

covered gift or covered bequest. When 

such a distribution is made by reason of 

a death of a covered expatriate, the 

distribution is more similar to a covered 

bequest described in section 

2801(e)(1)(B) than a covered gift 

described in section 2801(e)(1)(A) and, 

therefore, is appropriately classified as a 

covered bequest. 

To address the concern expressed in 

the comment as to property that would 

not have been included in the gross 

estate of the decedent, the definition of 

covered bequest in the final regulations 

instead describes three categories of 

property that are included in the 

definition of covered bequest. The first 

category includes in the definition of 

covered bequest property acquired by a 

recipient on or after June 17, 2008, 

directly or indirectly by reason of the 

death of a covered expatriate but only to 

the extent the property would have been 

included in the covered expatriate’s 

gross estate if the covered expatriate had 

been a U.S. citizen immediately before 

death. The second category includes in 

the definition property received from a 

covered expatriate that would have been 

included in the covered expatriate’s 

estate, even if not acquired directly or 

indirectly by reason of the death of a 

covered expatriate, for example property 

includible under section 2035. The third 

category includes in the definition 

distributions made by reason of the 

death of a covered expatriate from a 

non-electing foreign trust to the extent 

the distributions are attributable to 

covered gifts and covered bequests 

made to the foreign trust on or after June 

17, 2008. 

D. Indirect Acquisition of Property 

A covered gift or covered bequest is 

defined in section 2801(e) as any 

property acquired directly or indirectly 

by gift from or by reason of the death of 

a covered expatriate. Using transfer tax 

principles, § 28.2801–2(i) of the 

proposed regulations identifies the 

transfers that constitute indirect 

acquisitions of property, to include 

property (1) acquired through 

ownership of an interest in a 

corporation or other entity, (2) acquired 

through one or more foreign trusts, 

entities, or persons not subject to the 

section 2801 tax, (3) paid in satisfaction 

of a debt or liability, (4) acquired 


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through a power of appointment over 

property not in trust granted by a 

covered expatriate to a non-covered 

expatriate, and (5) acquired as a result 

of any other indirect transfer by a 

covered expatriate. Comments were 

received with respect to each example. 

One comment states that the examples 

of an indirect acquisition of property in 

§ 28.2801–2(i)(2) and (3) of the proposed 

regulations go too far in that they are not 

limited by the extent to which the 

interest indirectly received is 

attributable to a covered gift or covered 

bequest. Although these examples 

illustrate the definition of ‘‘indirect 

acquisition of property’’ for purposes of 

the 2801 tax, this definition is relevant 

only to the extent that the indirect 

acquisition is of an interest in a covered 

gift or covered bequest. When the 

definition of indirect acquisition is 

applied in relation to a covered gift or 

covered bequest, the appropriate 

limitation is applied. As a result, no 

change is needed in the final regulations 

to achieve the limitation sought by the 

commenter. 

Several comments observe that the 

rule in § 28.2801–2(i)(1) of the proposed 

regulations is consistent with the rule in 

§ 25.2511–1(h)(1) of the Gift Tax 

Regulations, which describes the gift tax 

consequences of a transfer made to a 

corporation. One comment requests that 

proposed § 28.2801–2(i)(1) be revised to 

clarify the metrics used for determining 

a U.S. citizen or resident owner’s share 

of a covered gift or covered bequest 

made to the entity. For instance, the 

commenter noted that an owner of an 

interest in an entity could have a mix of 

interests and/or rights in capital, profits, 

voting, distribution, liquidation, etc., 

and suggested that the final regulations 

permit taxpayers to use any reasonable 

method to account for these interests 

and rights. The Treasury Department 

and the IRS note that this issue is not 

unique to section 2801; the same issue 

arises in the gift tax context under 

chapter 12. See, e.g., § 25.2511–1(h)(1) 

(extent of a shareholder’s interest 

relevant to determine the gift tax 

consequences of a transfer made by a 

corporation to another shareholder). 

Given the broader, more factual nature 

of determining the extent of an owner’s 

interest and rights in an entity, this 

issue is better addressed under the Gift 

Tax Regulations, and therefore is 

beyond the scope of these final 

regulations. As a result, this suggestion 

is not adopted. 

Several comments state that the 

illustrations in proposed § 28.2801– 

2(i)(2), (3), and (5) are overbroad. In 

particular, the comments state that the 

illustrations in § 28.2801–2(i)(2) 

(regarding property acquired through 

one or more persons not subject to the 

section 2801 tax) and (3) (regarding 

property paid in satisfaction of a debt or 

liability) are not tethered to any 

consideration of timing or gratuitous 

intent. One comment observes that the 

proposed definition would require a 

recipient to trace a potentially long 

chain of title to determine whether the 

property received would be a covered 

gift or covered bequest to that recipient. 

Another comment states that a noncovered expatriate family member of the 

covered expatriate and the U.S. 

recipient should not be considered an 

intermediary of the covered expatriate if 

that family member had dominion and 

control over the property and acted 

independently of the covered expatriate. 

Two comments suggest replacing 

§ 28.2801–2(i)(2) and (5) of the proposed 

regulations with a rule that would 

include, as an indirect acquisition, only 

property acquired pursuant to a plan, 

one of the principal purposes of which 

is the avoidance of transfer tax, similar 

to the rules in §§ 1.643(h)–1 and 1.679– 

3(c) of the Income Tax Regulations. The 

rules in §§ 1.643(h)–1 and 1.679–3(c) 

employ a substance over form approach 

with respect to certain transfers made 

through an intermediary. 

These final regulations modify, in 

part, the definition of indirect 

acquisition of property to address some 

of the concerns regarding proposed 

§ 28.2801–2(i)(2), (3), and (5) as 

expressed in the comments. The 

Treasury Department and the IRS agree 

that the illustrations in § 28.2801–2(i)(2) 

and (5) of the proposed regulations may 

capture transfers that, in some cases, are 

not truly indirect transfers and should 

not be subject to tax under section 2801. 

Thus, the final regulations replace the 

rules in proposed § 28.2801–2(i)(2) and 

(5) with a single illustration that refers 

to an acquisition that is, in substance, a 

covered gift or covered bequest from a 

covered expatriate. In addition, the final 

regulations add a more general 

description of property that is 

gratuitously passed from or conferred by 

the covered expatriate through another 

person or entity, and the rules in 

proposed § 28.2801–2(i)(1) through (5) 

are converted in the final regulations to 

a nonexclusive list of illustrations 

describing the application of the 

definition for purposes of section 2801. 

The suggestion is not adopted to replace 

the rule in proposed § 28.2801–2(i)(2) 

and (5), applicable to acquisitions of 

property, with a rule that would add a 

principal purpose of tax avoidance test 

applicable to distributions from and to 

foreign trusts, similar to the rules in 

§§ 1.643(h)–1 and 1.679–3(c). As with 

other interpretations of terms in section 

2801 (for example, U.S. resident), 

applying transfer tax principles to 

section 2801 is the better interpretation 

of the statute both because section 2801 

is a transfer tax, and the intent of the 

transferor generally is irrelevant for 

transfer tax purposes. 

Finally, comments recommend 

narrowing the scope of proposed 

§ 28.2801–2(i)(4) to include only 

property acquired pursuant to a noncovered expatriate’s non-general power 

of appointment (as opposed to all types 

of powers of appointment) granted by a 

covered expatriate over property not in 

trust. Such a change would ensure that 

the exercise, release, or lapse of a noncovered expatriate’s general power of 

appointment over property not in trust 

would not be a covered gift or covered 

bequest, which the commenters contend 

is consistent with the general gift tax 

treatment of the holder of a general 

power of appointment as the owner of 

the property subject to the power. If the 

commenters’ recommendation were 

adopted, it would allow a covered 

expatriate to avoid the section 2801 tax 

by granting a general power of 

appointment over non-trust property to 

a person who is neither a covered 

expatriate nor a U.S. citizen or resident, 

but who will exercise or release the 

power or allow it to lapse in favor of a 

U.S. citizen or resident. Thus, the final 

regulations continue to describe the 

acquisition of property pursuant to a 

non-covered expatriate’s power of 

appointment (whether general or nongeneral) granted by a covered expatriate 

over property not in trust as an example 

of an indirect acquisition of property for 

purposes of section 2801. The final 

regulations clarify, however, that 

acquiring property pursuant to a power 

of appointment means as the result of an 

exercise, release, or lapse of that power, 

without regard to the de minimis 

exceptions in section 2041(b)(2) or 

2514(e). This latter clarification is 

necessary because section 2801(c) 

provides the only de minimis exception 

to the imposition of section 2801 tax. 

E. Other Definitions 

Several comments suggest other 

revisions to § 28.2801–2 of the proposed 

regulations to make the regulations 

more user friendly, including using 

consistent terminology. Those 

suggestions include the replacement of 

citizen or resident of the United States 

with the term used in the statute, U.S. 

citizen or resident, the addition of a 

definition of the term non-electing 

foreign trust, and the correction of the 

reference in the definition of the term 


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1For a discussion of the ‘‘tax neutral’’ objective 

stated in H.R. Rep. No. 110–431 with regard to an 

earlier, pre-HEART Act, bill, see part 1 of the 

Summary of Comments and Explanation of 

Revisions section of this preamble. 

general power of appointment to section 

2041(b)(1) (rather than section 2041(b)) 

to clarify that the exclusions for lapses 

and certain pre-1943 powers under 

section 2041(b)(2) and (3), respectively, 

do not apply for purposes of section 

2801. These suggestions have been 

adopted and the appropriate changes are 

reflected in the final regulations. The 

suggestion that other terms (such as gift 

and charitable remainder trust) used 

throughout the proposed regulations, as 

well as other terms unique to section 

2801 that are defined elsewhere in the 

proposed regulations (in the particular 

section where each is relevant), either 

be defined in § 28.2801–2 or referred to 

by cross-references, has not been 

adopted. Several such terms are defined 

elsewhere in the Code or in the 

corresponding regulations, and those 

that are specific to a particular issue 

under section 2801 are defined and 

applied in the discussion of that 

particular issue in the relevant section 

of the regulations in an effort to make 

the regulations more readily 

understood. 

3. Exceptions to Definitions of Covered 

Gift and Covered Bequest 

A. Transfers Otherwise Subject to Gift or 

Estate Tax 

Section 2801(e)(2)(A) and (B) excepts 

from the definitions of covered gift and 

covered bequest, respectively, any 

taxable gift by a covered expatriate and 

any property included in the gross 

estate of a covered expatriate, if such 

property is reported on a timely filed 

gift or estate tax return (timely filed 

requirement). 

One comment suggests that a covered 

expatriate be allowed to treat transferred 

property as a transfer of a U.S. situs 

asset, report the transfer on a timely 

filed gift or estate tax return, and 

thereby avoid the transfer being a 

covered gift or covered bequest. By 

reducing the effective tax rate on the 

transfer, the comment states that this 

approach would be consistent with the 

tax neutrality intended at enactment of 

section 2801.1 These final regulations 

do not adopt the commenter’s 

suggestion, because it is inconsistent 

with section 2801. Additionally, if 

adopted, such a filing in effect would 

override the provisions of sections 

2511(a) (applying the gift tax only to 

transfers by nonresident, noncitizens of 

property situated within the United 

States) and 2103 (including in the gross 

estate of nonresident, noncitizens only 

that part of property that is situated 

within the United States at the time of 

death) for certain transfers by covered 

expatriates, a result not contemplated by 

the statutory language of section 2801. 

While section 2801 allows a foreign 

trust to elect to be treated as a domestic 

trust, there is no indication that 

Congress intended to allow other 

elections that would operate in the way 

suggested by this commenter. 

i. Timely Paid Requirement 

For property reported on the covered 

expatriate’s gift or estate tax return to be 

excluded from the definition of a 

covered gift or covered bequest, 

§ 28.2801–3(c)(1) and (2) of the 

proposed regulations requires not only 

the timely filing of that return, but also 

the timely payment of the tax shown on 

that return (timely paid requirement). 

Comments state that the timely paid 

requirement should be eliminated 

because there is no statutory basis for 

imposing that requirement. Comments 

also note that the timely paid 

requirement would cause a double tax 

to be imposed on a single transfer if the 

gift or estate tax is not timely paid: gift 

or estate tax due from the covered 

expatriate or covered expatriate’s estate, 

as well as section 2801 tax due from the 

U.S. recipient of that property. As to the 

latter comment, the Treasury 

Department and the IRS note that the 

potential for imposing tax on both the 

covered expatriate or the covered 

expatriate’s estate and the U.S. citizen 

or resident receiving the covered gift or 

covered bequest is already created by 

the timely filed requirement under 

section 2801(e)(2)(A) and (B), which 

would deny the exception if the gift or 

estate tax return is filed late. Like the 

timely filed requirement, the timely 

paid requirement limits the potential for 

tax avoidance by ensuring that an 

excepted transfer is timely reported and 

that the tax on such excepted transfer is 

timely paid by the covered expatriate, 

over whom it may be difficult for the 

IRS to assert jurisdiction to enforce that 

tax liability. 

Providing a timely paid requirement 

is not beyond the Treasury Department 

and IRS’s general regulatory authority to 

implement the Congressional mandate 

of section 2801, including addressing 

compliance concerns. However, the 

Treasury Department and the IRS have 

considered other existing gift and estate 

tax enforcement mechanisms which also 

could address compliance concerns, 

such as under subtitle F of the Code and 

the ability of the IRS to collect the tax 

liability of the covered expatriate or 

covered expatriate’s estate from any 

transferee of the property. See section 

6324 of the Code (establishing special 

estate and gift tax liens that are separate 

and distinct from the general tax lien) 

and section 6901 of the Code (providing 

transferee gift tax or estate tax liability 

is to be assessed, paid, and collected in 

the same manner and subject to the 

same provisions and limitations as the 

tax imposed on the decedent or donor). 

Further, a timely paid requirement 

could present administrability and 

finality challenges—for example, when 

the amount paid with the return differs 

from the amount that is ultimately owed 

due to a valuation change or other 

adjustment after examination. In view of 

the above, the final regulations adopt 

the commenters’ suggestion to eliminate 

the timely paid requirement as it relates 

to this exception from the definitions of 

covered gift and covered bequest. 

ii. Both Section 2801 Tax and Gift or 

Estate Tax on Same Transfer 

As discussed in part 3.A.i. of the 

Summary of Comments and 

Explanation of Revisions section of this 

preamble, a late filing of a gift or estate 

tax return by a covered expatriate or 

covered expatriate’s estate prevents the 

transferred property from being 

excluded from the definition of a 

covered gift or covered bequest and may 

lead to the imposition of gift or estate 

tax as well as the imposition of the 

section 2801 tax on the same transfer of 

that property. Further, both the gift or 

estate tax and the section 2801 tax 

ultimately may be payable by the U.S. 

citizen or resident if transferee liability 

is imposed if the covered expatriate or 

covered expatriate’s estate fails to pay 

the gift or estate tax due. See sections 

6324(a)(2) and (b) and 6901. 

Comments suggest that the final 

regulations provide a remedy to avoid 

the payment, on the same transfer, of 

both gift or estate tax by the covered 

expatriate or covered expatriate’s estate 

and the section 2801 tax by the U.S. 

citizen or resident receiving the covered 

gift or covered bequest. The comments 

suggest alternative proposals to be 

added to the final regulations, including 

(a) providing for a refund to a U.S. 

citizen or resident who paid the section 

2801 tax when gift or estate tax has been 

paid by a covered expatriate or covered 

expatriate’s estate; (b) providing a credit 

or refund to the U.S. citizen or resident, 

or the covered expatriate or covered 

expatriate’s estate, of whichever of those 

taxes is paid last; and (c) eliminating the 

timely filed requirement if the gift or 

estate tax is paid by the covered 

expatriate or the covered expatriate’s 

estate prior to the due date of Form 708. 


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2Section 1446(d) provides a credit under section 

33 of the Code for a foreign partner’s share of the 

withholding tax paid by the partnership under 

section 1446. 

Section 2801(e)(2)(A) and (B) excepts 

from the definitions of covered gift and 

covered bequest, and thus from liability 

for the section 2801 tax, property 

reported on a timely filed gift or estate 

tax return. These sections explicitly 

provide an exception only for property 

shown on a timely filed return, and any 

exception from tax for covered gifts or 

covered bequests not reported on a 

timely return would ignore and give no 

meaning to the timely filed language in 

section 2801. Accordingly, eliminating 

liability for the section 2801 tax when 

the transfer of such property is not 

timely reported by a covered expatriate 

or covered expatriate’s estate on a gift or 

estate tax return is contrary to the 

statute. Thus, despite the potential for 

the imposition of either estate or gift tax 

on the transfer of such property as well 

as the imposition of the section 2801 tax 

on the recipient’s acquisition of such 

property, these final regulations do not 

adopt the suggestions of the comments. 

Similarly, one comment suggests that 

a recipient who paid the U.S. gift or 

estate tax liability of the donor or 

decedent due to transferee liability 

should have a credit for those taxes 

against the recipient’s section 2801 tax 

liability. These final regulations do not 

adopt this comment for the following 

reasons. First, a credit given to the 

recipient for gift or estate tax paid 

pursuant to transferee liability could 

incentivize the transferor subject to gift 

or estate tax to resist payment and force 

collection from the recipient. Second, 

section 2801 (unlike section 1446(d) of 

the Code,2 for example) does not 

provide for such a credit. 

Finally, in response to a comment, 

Example 2 in proposed § 28.2801–3(f) is 

updated in the final regulations to 

clarify that, under the facts of the 

example, the covered expatriate’s estate 

must file an estate tax return (Form 706– 

NA, United States Estate (and 

Generation-Skipping Transfer) Tax 

Return, Estate of nonresident not a 

citizen of the United States), and pay 

the estate tax with respect to certain 

property, despite the requirement that 

the son of the covered expatriate in that 

example file Form 708 and pay the 

section 2801 tax with respect to the 

same property. 

B. Property Subject to Section 2801 Tax 

Both as Covered Gift and as Covered 

Bequest 

Noting that a U.S. citizen or resident 

may receive property that constitutes a 

covered gift and, subsequently, a 

covered bequest, a comment suggests 

that the definition of covered bequest 

should exclude any property treated as 

acquired by reason of the death of a 

covered expatriate if the property 

previously was subject to the section 

2801 tax as a covered gift from the same 

covered expatriate. For instance, when a 

covered expatriate transfers a remainder 

interest in real property to a U.S. 

recipient and retains a life estate, the 

value of the remainder interest is a 

covered gift, and the value of the entire 

real property is a covered bequest at the 

covered expatriate’s death. See section 

2036(a)(1). 

The Treasury Department and the IRS 

are sympathetic to the commenter’s 

concern that the same property could be 

subject to section 2801 tax first as a 

covered gift and subsequently as a 

covered bequest acquired from the same 

covered expatriate, and agree there 

should be no such duplication of the 

liability under section 2801. However, 

rather than excluding from the 

definition of covered bequest any 

property previously subject to the 

section 2801 tax as a covered gift, it is 

appropriate and more in line with the 

structure of the transfer tax system to 

exclude instead the value of the covered 

gift that was previously subject to 

section 2801 tax from the value of the 

covered bequest of that same property. 

In this way, similar to the way that 

section 2001(b) does not subject to 

estate tax the value of a gift that was 

previously subject to gift tax, the value 

already subjected to section 2801 would 

not be retaxed and the computation of 

the section 2801 tax would be able to 

properly take into account the post-gift 

appreciation in the value of the 

transferred property through the U.S. 

persons’ receipt of the covered bequest. 

Accordingly, § 28.2801–3(c)(3) of the 

final regulations includes a rule that 

limits the value of a covered bequest to 

the amount that exceeds the value of the 

covered gift to which the section 2801 

tax previously applied. 

C. Transfers to Spouse 

Section 2801(e)(3) excepts from the 

definitions of covered gift and covered 

bequest a gift or bequest that would 

qualify for a marital deduction under 

section 2056 or 2523 if the donor or 

decedent were a U.S. person. 

i. QDOT and QTIP Elections for NonU.S. Situs Property 

Under proposed § 28.2801–3(c)(4), the 

exception to the definitions of covered 

gift and covered bequest for transfers to 

a spouse that are dependent upon the 

making of a qualified terminable interest 

(QTIP) or qualified domestic trust 

(QDOT) election only applies if a valid 

QTIP or QDOT election in fact is made. 

Because these are elective choices with 

different tax consequences, the desire to 

make the election cannot be presumed 

in all cases. 

Many of the comments received on 

the proposed rule requiring the making 

of a valid QTIP or QDOT election 

concern non-U.S. situs property. The 

comments received generally fall into 

two categories: those comments that 

conclude that a covered expatriate or a 

covered expatriate’s executor may make 

a valid QTIP or QDOT election with 

respect to only U.S. situs property; and 

those comments that conclude that a 

QTIP or QDOT election also may be 

made with respect to non-U.S. situs 

property and request guidance on how 

such an election might be made with 

respect to non-U.S. situs property. With 

respect to the former, the comments 

state that a covered expatriate or a 

covered expatriate’s estate is limited to 

making a QTIP or QDOT election with 

respect to U.S. situs property because 

only the transfer of U.S. situs property 

by a covered expatriate is subject to U.S. 

gift and estate taxation under sections 

2511(a) and 2103. With respect to the 

latter, different comments suggest 

various methods of allowing a QTIP or 

QDOT election to be made with respect 

to non-U.S. situs property, including on 

a Form 706–NA filed by a trust, on a 

Form 708 filed by a U.S. recipient, and 

by a trust that is a U.S. recipient of a 

foreign non-electing trust. 

The Treasury Department and the IRS 

agree with the comments in the first 

category that, for the exception to the 

definitions of covered gift and covered 

bequest to apply under section 

2801(e)(3), a covered expatriate or a 

covered expatriate’s estate is limited to 

making a QTIP or QDOT election with 

respect to only U.S. situs property. 

Section 2801(e)(3) provides no basis for 

allowing a QTIP or QDOT election to be 

made for property that is not subject to 

U.S. gift or estate tax, and, furthermore, 

it provides no mechanism for making 

the election and no indication that the 

IRS should create such a mechanism 

through regulations. In addition, 

adopting the position of the latter 

comments and providing a method to 

make a QTIP or QDOT election for nonU.S. situs property (in addition to U.S. 

situs property) would be inconsistent 

with the QTIP and QDOT statutory 

provisions that defer, but do not 

eliminate, transfer tax on property 

qualifying for the marital deduction. If 

such a rule were adopted so that such 

property would not be subject to section 

2801 tax upon the initial gift or bequest 


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3382 Federal Register / Vol. 90, No. 8 / Tuesday, January 14, 2025 / Rules and Regulations 

by the covered expatriate, such property 

also would not be subject to gift or 

estate tax under section 2519, 2044, or 

2056A(b) upon any disposition or 

distribution or on the death of the 

covered expatriate’s spouse. 

Consequently, covered expatriates and 

the estates of covered expatriates would 

be afforded more favorable transfer tax 

treatment than that available to U.S. 

citizens. The Treasury Department and 

the IRS also note that a covered 

expatriate may obtain the benefits of the 

exception in section 2801(e)(3) with 

respect to non-U.S. situs property by 

making an outright gift or bequest of 

that property to a U.S. citizen spouse, or 

a bequest to a trust described in section 

2056(b)(5) that provides the surviving 

spouse with both a life estate and a 

general power of appointment. For these 

reasons, the final regulations retain the 

proposed rule that requires a valid QTIP 

and/or QDOT election in order for 

property to qualify for this exception to 

the definitions of covered gift and 

covered bequest, and the regulations 

further clarify that such an election can 

be made only with respect to property 

subject to gift or estate tax, that is, only 

with respect to U.S. situs property. 

ii. Distributions From Non-Electing 

Foreign Trusts 

Transfers from a covered expatriate to 

a non-electing foreign trust are covered 

gifts or covered bequests, but are not 

subject to the tax under section 2801 

until a distribution is made from that 

trust. Specifically, section 2801 imposes 

the tax on distributions from that trust 

to a U.S. recipient to the extent those 

distributions are attributable to the 

covered gifts or covered bequests 

contributed to the trust. 

A few comments suggest that, for 

transfers to a non-electing foreign trust, 

section 2801(e)(4)(B)(i) supports 

applying the marital exception at the 

time of the distribution from the nonelecting foreign trust to the U.S. spouse, 

because that is when tax under section 

2801 tax is imposed. Recognizing that 

the marital deduction is applied at the 

time of the transfer giving rise to gift or 

estate tax, these comments contend that 

this approach would be consistent with 

transfer tax principles. These comments 

also state that this approach would be 

consistent with the goal of tax neutrality 

as applied to surviving spouses, in that 

the imposition of the section 2801 tax 

should not depend upon whether a nonelecting foreign trust (that would qualify 

for the marital deduction) is interposed 

between the donor or decedent and the 

receipt by the surviving spouse. See part 

1 of the Summary of Comments and 

Explanation of Revisions section of this 

preamble for a discussion of the ‘‘tax 

neutral’’ objective stated in H.R. Rep. 

No. 110–431 with regard to an earlier, 

pre-HEART Act, bill. The comments 

acknowledge that, under their 

interpretation, a transfer of property to 

a non-electing foreign trust would be 

treated differently than a transfer of 

property to a domestic trust or an 

electing foreign trust; however, they 

posited that the difference is justified by 

the timing of the transfer taxable under 

section 2801. Specifically, the 

comments point out that by its express 

terms, the statute treats a non-electing 

trust differently with regard to the 

timing of the imposition of the tax and 

the payee of that tax. 

The Treasury Department and the IRS 

have carefully considered the merits 

and implications of the suggestion to 

apply the marital exception at the time 

of the distribution from the non-electing 

foreign trust. The proper interpretation 

of section 2801(e)(3) and (4)(B)(i), 

however, does not permit the creation of 

a special rule for non-electing foreign 

trusts that would provide an 

opportunity for a marital exception at 

the time of a distribution from the trust. 

Unlike the marital deduction for estate 

and gift taxes, the exception for marital 

transfers under section 2801 is an 

exception to the definitions of covered 

gift and covered bequest. Those 

definitions apply to determine whether 

a contribution to a non-electing foreign 

trust is a covered gift or covered 

bequest, and thus the availability of that 

exception is determined as of the time 

of the covered expatriate’s funding of 

the non-electing foreign trust. For this 

reason, even though the U.S. spouse’s 

receipt of property attributable to the 

covered gift or covered bequest occurs 

and becomes taxable under section 2801 

only upon its distribution out of the 

trust, the availability of the marital 

exception cannot be applied instead at 

the time of the distribution from that 

trust. 

Two other comments suggest that a 

distribution from a non-electing foreign 

trust to a U.S. citizen or resident spouse 

should be treated as an indirect gift or 

bequest to which the exception could be 

applied. However, to do so would imply 

that all trust distributions are indirect 

transfers, which would go too far. In 

addition, if such an indirect transfer 

would have qualified for the transfer tax 

marital deduction at all, it effectively 

would override section 2801(e)(4), 

would confer a tax advantage on a 

covered expatriate that is unavailable to 

a U.S. person, and would be (as one 

comment concludes) overly generous. 

For example, a transfer of non-U.S. situs 

property by a covered expatriate at 

death outright to the covered 

expatriate’s U.S. citizen spouse is not a 

covered bequest, because such transfer 

would have qualified for the estate tax 

marital deduction if the covered 

expatriate were a U.S. person. Similarly, 

a transfer of non-U.S. situs property by 

a covered expatriate at death to a nonelecting foreign trust that qualifies for 

the estate tax marital deduction under 

section 2056(b)(5) is not a covered 

bequest because such transfer would 

have qualified for the estate tax marital 

deduction if the covered expatriate were 

a U.S. person. In these situations, 

because the contributions to the trust 

are not covered bequests, not only are 

distributions from the non-electing 

foreign trust to the covered expatriate’s 

U.S. citizen spouse not subject to the 

section 2801 tax pursuant to the 

exception in section 2801(e)(3), but 

distributions to the remainder 

beneficiary upon such spouse’s death 

also are not subject to the section 2801 

tax. By contrast, a transfer of non-U.S. 

situs property from a covered expatriate 

at death to a trust for the benefit of the 

covered expatriate’s U.S. citizen spouse 

and U.S. citizen children is a covered 

bequest because such transfer would not 

have qualified for the estate tax marital 

deduction if the covered expatriate were 

a U.S. person. If such trust is a nonelecting foreign trust, the section 2801 

tax is not payable until there is a 

distribution to a U.S. citizen or resident. 

When the trust makes a distribution to 

the covered expatriate’s U.S. citizen 

spouse, that spouse is liable for the 

section 2801 tax because the 

distribution is attributable to a covered 

bequest and is taxed ‘‘in the same 

manner as if such distribution were a 

covered gift or covered bequest.’’ 

Section 2801(e)(4)(B)(i). 

These final regulations explicitly 

address the application of the section 

2801(e)(3) exception to the definition of 

covered gift or covered bequest in 

§ 28.2801–3(c)(5) and in Example 2 to 

§ 28.2801–5(e). 

D. Transfers to Charity 

To the extent a gift or bequest would 

qualify for a charitable deduction under 

section 2055 or 2522 if the donor or 

decedent were a U.S. citizen or resident, 

such gift or bequest is excepted under 

section 2801(e)(3) and § 28.2801–3(c)(3) 

of the proposed regulations from the 

definitions of covered gift and covered 

bequest. Regarding distributions to 

qualifying charitable organizations from 

a non-electing foreign trust, a few 

comments assert that section 

2801(e)(4)(B)(i) supports applying the 

exception at the time of distribution and 

explain that this would avoid imposing 


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the section 2801 tax on a U.S. charity. 

The comments explain that their 

analysis regarding the marital exception, 

which is set forth in part 3.C.ii. of the 

Summary of Comments and 

Explanation of Revisions section of this 

preamble, applies equally to the 

charitable exception. Because this 

exception depends upon the 

contribution to the trust being eligible 

for a transfer tax charitable deduction, 

and for the reasons described in part 

3.C.ii. of the Summary of Comments 

and Explanation of Revisions section of 

this preamble, these final regulations 

have not adopted the interpretation 

advanced by the comments. 

Section 28.2801–4(a)(2)(iii) of the 

proposed regulations provides that a 

domestic trust qualifying as a charitable 

remainder trust (as that term is defined 

in § 1.664–1(a)(1)(iii)(a)) is subject to 

section 2801 when it receives a covered 

gift or covered bequest, and that the 

charitable remainderman’s share of each 

transfer to the charitable remainder trust 

is not a covered gift or covered bequest. 

The proposed regulations further 

provide that, to compute the amount of 

covered gifts and covered bequests 

taxable to the charitable remainder trust 

for a calendar year, the charitable 

remainder trust will (A) calculate, in 

accordance with the regulations under 

section 664 and as of the date of the 

trust’s receipt of the contribution, the 

value of the remainder interest in each 

contribution received in such calendar 

year that would have been a covered gift 

or covered bequest without regard to 

section 2801(e)(3), (B) subtract the 

remainder interest in each such 

contribution from the amount of that 

contribution to compute the annuity or 

unitrust (income) interest in that 

contribution, and (C) add the total of 

such income interests, each of which is 

the portion of the contribution that 

constitutes a covered gift or covered 

bequest to the trust. 

One comment notes that the proposed 

regulations do not indicate whether the 

payment of section 2801 tax by a 

charitable remainder trust is disregarded 

in computing the amount of annuity or 

unitrust distributions and in 

determining whether the 10 percent 

minimum remainder requirement in 

section 664(d)(1)(D) and (2)(D) and the 

probability of exhaustion test described 

in Rev. Rul. 70–452, 1970–2 C.B. 199, 

are satisfied. The comment observes 

that, if the tax imposed by section 2801 

were considered in determining 

whether the 10 percent minimum 

remainder requirement and probability 

of exhaustion tests are satisfied, then 

most trusts that owe tax under section 

2801 are likely to be disqualified as a 

charitable remainder trust. The 

comment also observes, however, that, if 

the tax is not considered in determining 

the annuity amount, then the charitable 

remainder will be overvalued. 

One comment points out that the 

proposed regulations do not provide 

guidance on whether a charitable 

remainder trust’s payment of section 

2801 tax should be allocated to income 

or principal for the purpose of 

determining the character of 

distributions under section 664(b) and 

§ 1.664–1(d)(2). 

The proposed regulations also do not 

contain any guidance on how a 

domestic trust or electing foreign trust 

that qualifies as a charitable lead trust 

under section 2055(e)(2)(B) or 

2522(c)(2)(B) is to compute the 2801 tax. 

Several comments suggest that the final 

regulations provide that a charitable 

lead trust should compute the section 

2801 tax in a similar manner to a 

charitable remainder trust, such that the 

charitable lead interest could be 

subtracted from the total value of the 

covered gift or bequest to determine the 

amount that is subject to the section 

2801 tax. 

As the comments note, the proposed 

regulations do not provide any rules on 

the effect of a charitable remainder 

trust’s tax payment on the trust’s 

qualification under section 664. This is 

a complex and foundational issue, such 

that final rules regarding charitable 

remainder trusts should not be 

promulgated without further 

consideration and an opportunity for 

notice and comment. Additionally, as 

the comments point out, the proposed 

regulations do not provide any rules on 

charitable lead trusts, and, therefore, 

final rules regarding charitable lead 

trusts should not be promulgated 

without further consideration and an 

opportunity for notice and comment. 

Accordingly, § 28.2801–4(a)(2)(iii) of the 

final regulations is reserved for these 

purposes. 

4. Computation of Section 2801 Tax 

Under section 2801(a) and (c), the 

section 2801 tax is determined by 

reducing the total value of covered gifts 

and covered bequests received by a U.S. 

recipient during the calendar year by 

the dollar amount of the per-donee 

exclusion in effect under section 

2503(b) for that calendar year ($18,000 

in 2024) (section 2801(c) amount), and 

then multiplying the net amount by the 

highest estate or gift tax rate in effect 

during that calendar year (40 percent in 

2024). The reference in section 2801(c) 

to section 2503(b) has the sole purpose 

of defining the amount by which to 

reduce the aggregate value of covered 

gifts and covered bequests received by 

a U.S. citizen or resident during the 

calendar year, as acknowledged in the 

comments. Under section 2801(d), the 

resulting tax then is reduced by any 

estate or gift tax paid to a foreign 

country with regard to such covered 

gifts and covered bequests. Section 

28.2801–4(b) (on the computation of the 

section 2801 tax) and 28.2801–4(e) (on 

the reduction of the section 2801 tax for 

foreign gift or estate tax paid) of the 

proposed regulations are consistent with 

these statutory rules. 

A. Effective Tax Rate 

Several comments note that the 

effective tax rate of the section 2801 tax 

on a covered gift is much higher than 

the effective tax rate for a gift subject to 

gift tax because the base on which the 

section 2801 tax is imposed includes the 

amount of the section 2801 tax payable 

by the U.S. recipient (making it ‘‘tax 

inclusive’’) while the base on which the 

gift tax is imposed does not include the 

amount of the gift tax payable by the 

donor (making it ‘‘tax exclusive’’). These 

comments contend that this result is a 

deviation from Congress’ stated goal of 

tax neutrality, and one comment 

suggests that the final regulations allow 

a covered expatriate instead to elect to 

treat a gift as a transfer of U.S. situs 

property, to reduce the effective section 

2801 tax rate on the covered gift. 

As discussed in part 1 of the 

Summary of Comments and 

Explanation of Revisions section of this 

preamble, section 2801 imposes a tax 

that does not equal, and in some cases 

is not similar to, the tax that would have 

been imposed on the same transfer by a 

U.S. transferor. The effective tax rate on 

covered gifts under section 2801 as 

compared to the effective tax rate on 

taxable gifts under chapter 12 is another 

example of this. While Congress could 

have allowed a covered expatriate to 

elect to treat a covered gift of non-U.S. 

situs property as a transfer of U.S. situs 

property, it did not do so. (But see 

section 2801(e)(4)(B)(iii) allowing 

foreign trusts to elect to be treated as a 

domestic trust for purposes of section 

2801). The statute does not provide any 

reasonable regulatory interpretation that 

the section 2801 tax on covered gifts 

should be levied on less than the entire 

amount of the covered gift, and the 

statute does not contemplate a 

regulatory rule allowing for a deduction 

or exclusion to estimate a tax exclusive 

section 2801 tax rate. Accordingly, these 

final regulations do not adopt the 

commenters’ suggestion as it would be 

contrary to the statute. 


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B. Section 2801(c) Amount 

Section 28.2801–3(d) of the proposed 

regulations provides that the recipient 

of a covered gift or covered bequest 

made to a trust is the trust and not any 

individual who holds a general power of 

appointment or power of withdrawal 

over trust property. Several comments 

recommend that the final regulations 

treat a transfer to a trust as a transfer to 

an individual to the extent of the 

individual’s general power or 

withdrawal right. The comments 

acknowledge that this would increase 

the section 2801(c) amount available to 

shield a covered gift or covered bequest 

from the section 2801 tax when multiple 

individuals have withdrawal rights, but 

state this treatment is consistent with 

the treatment of withdrawal rights 

under gift tax principles and thus 

furthers the statutory goal of tax 

neutrality. See part 1 of the Summary of 

Comments and Explanation of Revisions 

section of this preamble for a discussion 

of the ‘‘tax neutral’’ objective stated in 

H.R. Rep. No. 110–431 with regard to an 

earlier, pre-HEART Act, bill. One 

comment suggests that there is no 

authority to deny the status of recipient 

to the holder of a withdrawal right. For 

the reasons stated below, these final 

regulations do not adopt the 

commenters’ recommendation. 

The holder of a withdrawal right over 

trust property is the holder of a general 

power of appointment. For gift tax 

purposes, neither the grant nor the 

receipt of a general power of 

appointment is treated as a taxable gift; 

rather, it is the possession of such a 

power at death, or the exercise or 

release of such a power that is a taxable 

event for gift and estate tax purposes. 

Thus, the proposed treatment of a 

general power of appointment—that is, 

not as the receipt of a covered gift or 

bequest—is consistent with transfer tax 

principles. In addition, while section 

2801 is silent on the treatment of 

general powers of appointment, section 

2801(e)(4) provides specific rules 

applicable to a covered gift or covered 

bequest made to a domestic or electing 

foreign trust: specifically, the section 

2801 tax is imposed on the recipient 

trust. Implementing the 

recommendation proposed by the 

commenters would violate the 

provisions of section 2801(e)(4)(A)(ii) 

requiring that the tax imposed on a 

covered gift or covered bequest made to 

a domestic trust be paid by that trust. 

By, in effect, defining the donee 

domestic trust as the recipient of the 

covered gift or covered bequest, the 

statute imposes the filing and tax 

payment obligations on the domestic 

trust, regardless of the identity and 

rights of the trust beneficiaries. As a 

result, the receipt of property by the 

domestic trust does not have to be 

reported by and taxed to both the trust 

and each holder of a general power of 

appointment or withdrawal right over 

trust property. Treating each such 

power holder as an additional recipient 

at the time of the trust contribution 

would add administrative complexity 

and burden both to taxpayers and the 

IRS. 

Similarly, under section 2801(e)(4)(B), 

it is the recipient of a distribution from 

a non-electing foreign trust who is 

treated as the recipient of the covered 

gift or covered bequest to the trust. No 

section 2801 tax is imposed on covered 

gifts or covered bequests to a nonelecting foreign trust until a trust 

distribution is made to a U.S. recipient. 

It is the property distribution pursuant 

to the exercise, release, or lapse of a 

general power of appointment over such 

a trust, rather than the grant of such a 

power, that is a distribution triggering 

the imposition of the section 2801 tax. 

As a result, in the case of a transfer 

to a trust, a domestic trust is the 

recipient who is entitled to reduce the 

value of a covered gift or covered 

bequest received during the calendar 

year by the section 2801(c) amount. 

These rules also apply to an electing 

foreign trust. 

Finally, comments request guidance 

for trusts in the potential situation 

where a domestic trust or an electing 

foreign trust may be unable to pay the 

section 2801 tax upon the exercise of an 

individual withdrawal right. Such a 

situation, where the trustee is faced 

with balancing the obligation to satisfy 

tax obligations with the duty to make 

distributions as directed by the trust 

instrument, is not unique to the section 

2801 tax (for example, an obligation to 

satisfy an estate tax obligation may 

conflict with a specific bequest, or an 

obligation to satisfy a GST tax obligation 

may conflict with a distribution 

provision to a trust beneficiary). Given 

the broader issues concerning a trustee’s 

duty to administer a trust, such issues 

are better addressed in more 

comprehensive regulations and are 

therefore beyond the scope of these final 

regulations. 

C. Foreign Gift or Estate Tax 

Consistent with section 2801(d), 

§ 28.2801–4(e) of the proposed 

regulations provides that the section 

2801 tax is reduced by the amount of 

any gift or estate tax paid to a foreign 

country with respect to a covered gift or 

covered bequest. Pointing to section 

2014(a), which allows a credit against 

estate tax for any estate, inheritance, 

legacy, or succession taxes paid to any 

foreign country, two comments suggest 

that, in the interest of tax neutrality, 

these final regulations also allow a 

reduction for any foreign tax imposed 

on a covered gift or covered bequest that 

is similar to, but imposed in lieu of, a 

gift or estate tax, such as an inheritance 

tax or a deemed capital gains tax. See 

part 1 of the Summary of Comments and 

Explanation of Revisions section of this 

preamble for a discussion of the ‘‘tax 

neutral’’ objective stated in H.R. Rep. 

No. 110–431 with regard to an earlier, 

pre-HEART Act, bill. These final 

regulations do not adopt the 

commenters’ suggestion, because the 

plain language of section 2801(d) 

unambiguously limits the reduction to 

the amount of gift or estate tax paid to 

a foreign country with respect to a 

covered gift or covered bequest and does 

not contain the kind of statutory 

language that appears in section 2014. 

A comment also suggests that these 

final regulations allow a refund of the 

section 2801 tax if foreign gift or estate 

tax is paid after payment of the section 

2801 tax. In such a scenario, a refund is 

available under section 6511 if the U.S. 

recipient files a claim for refund or a 

protective claim for refund on or before 

the expiration of the applicable period 

of limitations. To confirm the U.S. 

recipient’s ability to file a protective 

claim for refund, paragraph (e)(2) is 

added to § 28.2801–4 of the final 

regulations. 

5. Value of a Covered Gift or Covered 

Bequest 

Section 28.2801–4(c) of the proposed 

regulations defines value using transfer 

tax principles, including the special 

valuation rules of chapter 14 (sections 

2701 through 2704). Several comments 

recommend that the final regulations be 

amended to disregard chapter 14. 

Alternatively, the comments suggest 

that the value of a covered gift should 

be determined by subtracting from the 

value of the covered gift the total value 

of any interest retained by a covered 

expatriate donor, without regard to 

section 2701 or 2702. The comments 

posit that, because the section 2801 tax 

is payable by the recipient, unlike the 

gift and estate taxes that are payable by 

the donor or decedent’s estate, the 

requested deviation from the usual gift 

tax valuation rules is necessary. 

However, like the gift and estate taxes, 

the section 2801 tax is a transfer tax. 

The transfer tax valuation rules, 

therefore, including the special 

valuation rules of chapter 14, apply to 

value the property subject to section 

2801. The section 2801 tax is imposed 


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on transfers that otherwise would have 

escaped gift or estate taxation as a 

consequence of the donor’s or 

decedent’s expatriation. Revising the 

section 2801 regulations in the 

suggested manner would decrease the 

value of a covered gift to which sections 

2701 and 2702 apply below what 

otherwise would have been its gift tax 

value had the covered expatriate been a 

U.S. citizen. This result is inconsistent 

with the intended purpose of section 

2801, and Congress did not provide an 

exception for the special valuation 

rules. Thus, the requested revisions are 

not adopted. 

One comment suggests that sections 

2701 and 2702 should not apply in 

determining the tax liability of a 

covered bequest, because those sections 

have no applicability to the estate tax. 

While the Treasury Department and the 

IRS acknowledge that sections 2701 and 

2702 generally apply only to inter vivos 

transfers, section 2701(d) provides in 

certain circumstances for a potential 

increase in the taxable estate of a 

transferor. Accordingly, the final 

regulations provide that the special 

valuation rules under chapter 14 apply 

only to the extent those rules are 

applicable to the specific transfer. 

6. Date of Receipt of a Covered Gift or 

a Covered Bequest 

Under § 28.2801–4(d)(2) of the 

proposed regulations, the date of receipt 

of a covered gift, which is the date the 

section 2801 tax is imposed, generally is 

determined by reference to the date of 

the gift under chapter 12 principles, as 

if the covered expatriate had been a U.S. 

citizen at the time of the transfer. In the 

event of a transfer of assets by a covered 

expatriate to a domestic revocable trust, 

proposed § 28.2801–4(d)(2) provides 

that the date of receipt of the transfer is 

the date the covered expatriate 

relinquishes the right to revoke the 

trust. Proposed § 28.2801–4(d)(3) 

provides that the date of receipt of a 

covered bequest generally is the date the 

property is distributed from the covered 

expatriate’s estate or revocable trust, 

unless the interest passes by operation 

of law or beneficiary designation, in 

which case the date of receipt is the date 

of the decedent’s death. Comments 

recommend changing the rules 

regarding the date of receipt for both 

covered gifts and covered bequests. 

With respect to the date of receipt of 

a covered gift, comments point out that 

the date on which a covered expatriate 

makes a gift often is not the same date 

on which the property is received by the 

U.S. citizen or resident donee. A 

discrepancy between those dates can 

impact a recipient’s ability to pay the 

section 2801 tax liability because the 

recipient may not yet have received the 

economic benefit of the gifted property. 

Comments suggest different methods of 

determining the date of receipt: (1) the 

date of ‘‘actual’’ receipt; (2) the date an 

interest in property becomes possessory; 

or (3) the date of distribution to the U.S. 

citizen or resident. The third method is 

intended to be comparable to the 

proposed rule for the date of receipt of 

a covered bequest. A few comments also 

suggest that the rule determining the 

date of receipt for purposes of the 

section 2801 tax should distinguish 

between receipt of a present interest in 

property and receipt of a future interest 

in property. Finally, a comment requests 

that the final regulations further 

elaborate on the date of receipt when a 

transfer of assets to a domestic revocable 

trust is an incomplete gift, pointing out 

that relinquishment of the right to 

revoke the trust may not be the trigger 

that completes the gift. 

With respect to the date of receipt of 

a covered bequest, some comments 

object to treating interests passing by 

operation of law or beneficiary 

designation as received on the date of 

death, rather than on the date property 

is distributed to the recipient. 

Comments note that a decedent’s 

property devolves to heirs at death by 

operation of law in civil law 

jurisdictions, even though significant 

time may elapse before the heirs’ 

interests become possessory. Again, this 

delay could impact a recipient’s ability 

to pay the section 2801 tax. To address 

these concerns, a few comments suggest 

defining the date of receipt of a covered 

bequest as the date of actual receipt by 

the recipient, whether a distribution 

from a decedent’s estate or revocable 

trust or the transfer of property by 

operation of law, beneficiary 

designation, or other contractual 

arrangement. Another comment suggests 

that, if the date of receipt of a covered 

bequest is not changed from that 

identified in the proposed regulations, 

the final regulations should include an 

election to defer payment of the section 

2801 tax and interest until the 

recipient’s interest becomes possessory. 

Still another comment suggests that, 

because a date of death valuation is 

likely to be performed on inherited 

assets for non-section 2801 purposes, 

recipients should be able to elect to treat 

a covered bequest as received as of the 

date of death rather than the date of 

actual distribution to avoid the need for 

additional appraisals. 

Defining the date of receipt of both a 

covered gift and a covered bequest as 

the date on which the recipient obtains 

actual receipt or a possessory interest in 

the transferred property would 

eliminate the concern regarding the 

recipient’s ability to pay the section 

2801 tax, particularly in civil law 

jurisdictions where property passes by 

operation of law to heirs at death but 

distribution is delayed for a period 

during administration of the decedent’s 

estate. However, such a definition 

outside of the context of a distribution 

from a decedent’s estate or revocable 

trust would raise other issues and 

administrability concerns. For instance, 

in some cases it may be difficult to 

determine the date of actual receipt of 

a covered gift or covered bequest, such 

as the receipt of a remainder interest in 

property or, in the case of a delay in 

distribution of property after title has 

vested in a civil law jurisdiction during 

the period of administration. In cases 

where property is distributed or an 

interest becomes possessory long after 

the transfer by the covered expatriate, it 

may be difficult for the recipient to 

obtain the information needed to 

determine whether the transfer is 

subject to the section 2801 tax and 

otherwise comply with reporting and 

paying the section 2801 tax. Further, 

such a definition could open the door to 

possible manipulation of the date of 

receipt and potential abuse, such as 

planning designed to ensure a covered 

gift or covered bequest is considered 

non-possessory for an extended period 

to delay and possibly defeat any section 

2801 tax liability. 

In most instances, the lengthy amount 

of time between the date of receipt and 

the due date of the return and payment 

of the section 2801 tax, which generally 

is 17.5 months after the close of the year 

in which the covered gift or covered 

bequest is received, should be sufficient 

to allow a U.S. recipient to make 

necessary arrangements to timely report 

and pay any section 2801 tax liability. 

See § 28.6071–1(a). Moreover, the rules 

for transfers in trust satisfactorily 

resolve the potential problems for many 

situations of deferred possession. 

However, for future interests in 

property that are not held in a trust (for 

example, a remainder interest in real 

property), the Treasury Department and 

the IRS appreciate the administrative 

and valuation concerns with the 

proposed definitions of the date of 

receipt. In view of these concerns, 

§ 28.2801–4(d)(8)(i) of the final 

regulations includes a special rule 

providing that the date of receipt of a 

covered gift or covered bequest of a 

future interest in property that is not 

held in trust is the earlier of (1) the date 

the future interest is disposed of by the 

U.S. recipient or (2) the date that is the 

later of the date that the interest vests 


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in the U.S. recipient or the date that the 

last term interest in the property held by 

an intervening recipient terminates. 

Further, to assist recipients both in 

achieving finality regarding the section 

2801 tax liability and in avoiding the 

potential for administrative hurdles 

caused by a long delay in receipt, 

§ 28.2801–4(d)(8)(ii) of the final 

regulations provides that the U.S. 

recipient of a covered gift or covered 

bequest of a future interest in property 

not held in trust may elect to treat the 

covered gift or covered bequest as 

having been received on the date of 

receipt of the gift or on the covered 

expatriate’s date of death, respectively. 

To the extent a domestic or electing 

foreign trust receives or may eventually 

receive a covered gift or covered bequest 

that is a future interest in property that 

is not in trust, such domestic or electing 

foreign trust may take advantage of this 

election. 

Finally, to provide further 

clarification on the date of receipt of a 

transfer to a domestic trust or an 

electing foreign trust that is an 

incomplete gift, a new paragraph is 

added in § 28.2801–4(d)(4) of the final 

regulations. In the event of a transfer by 

a covered expatriate to a revocable 

domestic trust or electing foreign trust, 

the date of receipt by the trust is the 

later of (1) the date the right to revoke 

the trust is relinquished or extinguished 

and (2) the date of extinguishment of all 

powers over or interests in the trust that 

would prevent the transfer from being a 

competed transfer for gift tax purposes. 

In the event of a transfer by a covered 

expatriate to an irrevocable domestic 

trust or electing foreign trust over or in 

which the covered expatriate retains 

powers or interests that prevents the 

transfer from being complete, the trust 

receives the transfer on the date all of 

such powers or interests are 

extinguished. 

7. Non-Electing Foreign Trusts 

The section 2801 tax applies to a 

distribution attributable to a covered gift 

or covered bequest to a U.S. citizen or 

resident from a non-electing foreign 

trust. See section 2801(e)(4)(B)(i). 

A. Distributions 

Section 28.2801–5(b) of the proposed 

regulations defines the term distribution 

broadly to include any direct, indirect, 

or constructive transfer from a nonelecting foreign trust, including each 

disbursement from such non-electing 

foreign trust pursuant to the exercise, 

release, or lapse of a power of 

appointment. In response to some 

comments, the final regulations clarify 

that a distribution includes a transfer to 

the extent made for less than full and 

adequate consideration in money or 

money’s worth. 

Several comments request 

clarification as to whether the 

uncompensated use of trust property by, 

or a loan from a non-electing foreign 

trust to, a U.S. citizen or resident would 

constitute a distribution for section 2801 

tax purposes and point out that these 

are treated as distributions for income 

tax purposes under section 643(i). The 

comments recommend that neither one 

be treated as a distribution for purposes 

of section 2801 and request that the 

final regulations explicitly state that the 

deemed distribution rules of section 

643(i) do not apply for purposes of 

section 2801. The comments suggest 

that, because there is no specific 

statutory direction to vary from the 

ordinary definition of distribution, the 

deemed distribution rules of section 

643(i) should not be used to interpret 

the term as used in section 2801. The 

Treasury Department and the IRS agree 

with the latter recommendation to 

clarify that the deemed distribution 

rules of section 643(i) are not adopted 

as part of the definition of a distribution 

for purposes of section 2801(e)(4)(B)(i). 

However, that does not mean that a loan 

or use of property cannot be a 

distribution and thus a covered gift. To 

the extent that a loan from, or the use 

of property of, a non-electing foreign 

trust constitutes a gift under chapter 12 

of the Code, then the portion of that 

loan or use received by a U.S. recipient 

constitutes a distribution and thus a 

covered gift to the extent of the trust’s 

section 2801 ratio. The final regulations 

include this clarification. 

One comment recommends that the 

final regulations provide that a loan 

from a foreign trust which is a qualified 

obligation under section 643(i) and 

Notice 97–34, 1997–1 C.B. 422, should 

not be treated as a distribution for 

section 2801 tax purposes (even if it 

otherwise would be treated as a 

distribution using gift tax principles). 

The final regulations provide, as other 

comments suggest, that distribution 

should not be interpreted using 

principles from section 643(i), because 

Congress did not indicate that such 

standards should be used. Consistent 

with this approach of not using section 

643(i) principles, the suggestion to 

exclude from the definition of a covered 

gift or bequest this particular category of 

loans described in section 643(i) is not 

adopted. Comments also recommend 

that the final regulations clarify that the 

uncompensated use of trust property 

that is de minimis, whether determined 

by duration or value, does not constitute 

a distribution, noting that it is costly, 

impractical, and time-consuming to 

value the use of property. Because 

foreign trusts with U.S. beneficiaries 

already must determine these values for 

income tax purposes (given that there is 

no de minimis exception under section 

643(i)), taxpayers are not subject to any 

additional administrative burden. 

Accordingly, this recommendation has 

not been adopted. 

B. Section 2801 Ratio 

Section 28.2801–5(c) of the proposed 

regulations provides that the amount of 

the distribution attributable to a covered 

gift or covered bequest is determined by 

multiplying the distribution by a ratio 

(section 2801 ratio) that is redetermined 

after each contribution to the nonelecting foreign trust. The proposed 

regulations explain how to compute the 

section 2801 ratio and provide that each 

distribution from the non-electing 

foreign trust is considered to be made 

proportionally, without any tracing to 

particular property. 

i. Calculating the Section 2801 Ratio 

While acknowledging that the 

proposed method for determining the 

section 2801 ratio is based on the 

existing method for determining the 

inclusion ratio of a trust for GST tax 

purposes, several comments nonetheless 

object to this methodology, saying that 

its complexity, particularly the 

requirement to revalue trust property at 

each contribution, would discourage 

compliance. Comments offer multiple 

suggestions to avoid the complications 

of a section 2801 ratio of more than zero 

but less than one. Some suggestions 

involve recognizing separate accounting 

or separate shares within, or the 

severance of, a single trust so that 

separate section 2801 ratios could apply 

to the separate shares. For instance, 

such an approach could allow a nonelecting foreign trust to utilize separate 

accounting for the portion of the trust 

that consists of only covered gifts and 

covered bequests (similar to separate 

accounting in the GST context under 

section 2654(b) and § 26.2654–1(a)(2) of 

the Generation-Skipping Transfer Tax 

Regulations for portions of a trust 

attributable to transfers from different 

transferors). Another approach could 

allow a non-electing foreign trust to 

treat a covered gift or covered bequest 

earmarked for a particular beneficiary as 

a separate share with a distinct section 

2801 ratio (similar to separate share 

rules utilized for other tax purposes 

such as § 26.2654–1(a)(1) and 

§§ 1.672(f)–3(b)(3) and (d) and 1.663(c)– 

3 of the Income Tax Regulations). 

Another approach could allow the 

trustee to sever a trust with a mixed 


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section 2801 ratio into two separate 

trusts, each with a section 2801 ratio of 

either zero or one, using the same 

method provided for qualified 

severances in section 2642(a)(3) and 

§ 26.2642–6. 

The Treasury Department and the IRS 

recognize that, in the absence of an 

election by the foreign trust to be treated 

as an electing foreign trust, computing 

and re-computing the section 2801 ratio 

in the event of additional contributions 

may pose challenges to U.S. distributees 

unless the non-electing foreign trust has 

a section 2801 ratio of either one or 

zero. Nevertheless, a rule recognizing 

separate section 2801 ratios in the event 

of separate accounting, separate shares, 

or a severance of a single non-electing 

foreign trust presents administrability 

and enforcement concerns. For instance, 

because of the lack of jurisdiction over 

a foreign trust, it will be difficult to 

verify whether a single trust consists of 

substantially separate and independent 

shares with no commingling of trust 

assets and whether a qualified severance 

was done in a manner that complies 

with rules similar to § 26.2642–6. 

Although certain reporting and other 

administrative requirements are 

imposed in order for separate 

accounting, separate shares, and 

qualified severances to be recognized, 

no similar reporting or other 

administrative requirements could be 

enforced against the trustee of a nonelecting foreign trust. Furthermore, the 

proposal to allow for separate accounts 

that are not actually separated into 

different shares or trusts similar to 

section 2654(b) would not eliminate the 

need for revaluation at each 

contribution, because revaluation would 

be necessary after each contribution in 

order to determine the portion of the 

trust allocable to each account. See 

§ 26.2654–1(a)(2)(ii) (requiring the 

computation of a fraction that utilizes 

fair market valuations of the trust as 

well as of the portions treated as 

separate trusts). Accordingly, the final 

regulations do not adopt the 

commenters’ suggestions related to 

separate accountings similar to that 

provided in section 2654(b) and 

§ 26.2654–1(a)(2), separate shares 

similar in concept to those recognized 

in § 26.2654–1(a)(1) and §§ 1.672(f)– 

3(b)(3) and (d) and 1.663(c)–3, or 

severance of a single trust similar to 

qualified severances described in 

section 2642(a)(3) and § 26.2642–6. 

Another comment suggests allowing a 

non-electing foreign trust to treat as a 

separate share gifts and bequests 

received prior to the effective date of 

section 2801. As is explained in part 

7.B.ii. of the Summary of Comments 

and Explanation of Revisions section of 

the preamble, such receipts are not 

included in the definition of a covered 

gift or covered bequest. Because the 

final regulations provide that such 

receipts are merely another example of 

noncovered receipts, this suggestion is 

not adopted for the same 

administrability concerns identified in 

the prior paragraph. See § 28.2801–2(f) 

and –2(g) and Example 3 of § 28.2801– 

5(e) of these final regulations. 

One comment suggests that separate 

accounting for the purpose of 

recognizing separate section 2801 ratios 

be permitted in the event a covered 

expatriate’s contributions to a nonelecting foreign trust can be traced to 

specific assets. Another comment 

recommends that the final regulations 

adopt a rule that would treat a 

distribution from a non-electing foreign 

trust as made either first or last from a 

covered gift or covered bequest, similar 

to the income tax treatment of certain 

inventory under sections 471 and 472, 

or in a manner analogous to the tiers 

applicable to distributions from a 

charitable remainder trust. Requiring 

the tracing or tracking of specific trust 

assets has the potential to be more 

onerous to administer than the section 

2801 ratio, especially as trust property 

produces income, is reinvested, or 

otherwise changes form over time, and 

to the extent it is commingled or 

reinvested with other assets. 

Additionally, because the IRS has no 

jurisdiction over the foreign trustee, it 

would be difficult to verify that the 

assets were being traced or tracked 

properly. Given these administrability 

concerns, these suggestions are not 

adopted. 

One comment suggests that the final 

regulations permit a non-electing 

foreign trust to use the value of each 

contribution to the trust as of the date 

of its contribution to compute the 

section 2801 ratio, thus eliminating the 

need for revaluations at the time of each 

subsequent contribution. However, as 

the comment acknowledges, computing 

the section 2801 ratio using contributed 

values is a less desirable alternative 

because, although simpler to administer, 

it would be far from accurate, so this 

suggestion has not been adopted. 

The Treasury Department and the IRS 

recognize that calculation of a foreign 

trust’s section 2801 ratio may be 

complicated when a single trust receives 

contributions attributable to both 

covered gifts or covered bequests and 

non-covered gifts or non-covered 

bequests at different points in time. In 

some circumstances, the complexity can 

be eliminated by establishing separate 

trusts and making covered gifts or 

covered bequests to one trust and noncovered gifts and non-covered bequests 

to the other trust. The Treasury 

Department and the IRS recognize that 

this might not always be possible or 

practical, particularly in the event of 

one or more transfers to a non-electing 

foreign trust as a result of the death of 

a covered expatriate. However, for the 

reasons previously stated, the final 

regulations retain the section 2801 ratio 

concepts enumerated in the proposed 

regulations. 

ii. Inadequate Information To Calculate 

Section 2801 Ratio 

Section 28.2801–5(c)(3) of the 

proposed regulations provides that, if 

the trustee of the foreign trust does not 

have sufficient books and records to 

calculate the section 2801 ratio, or if the 

U.S. recipient is unable to obtain the 

necessary information with regard to the 

foreign trust, the U.S. recipient must 

proceed upon the assumption that the 

entire distribution for purposes of 

section 2801 is attributable to a covered 

gift or covered bequest. Some comments 

object to this assumption, contending 

that it is unduly harsh in that U.S. 

recipients of foreign trust distributions 

may be unable to determine the section 

2801 ratio despite their best efforts. 

Comments also suggest applying a 

presumption under which property 

acquired by a non-electing foreign trust 

prior to June 17, 2008, would be 

presumed not to be a covered gift or 

covered bequest, and property acquired 

on or after that date would be presumed 

to be a covered gift or covered bequest. 

The Treasury Department and the IRS 

are persuaded that the entire trust 

should not be assumed to have a section 

2801 ratio of one merely because the 

U.S. recipient cannot determine 

whether certain transfers are attributable 

to covered gifts and covered bequests. 

Accordingly, the final regulations retain 

the rule in the proposed regulations, but 

clarify that the assumption applies only 

to the extent the section 2801 ratio 

cannot be substantiated. See § 28.2801– 

5(c)(3) of these final regulations. For 

instance, even if the U.S. recipient lacks 

adequate information to determine 

whether certain transfers to a nonelecting foreign trust are covered gifts or 

covered bequests, the U.S. recipient can 

still treat other transfers to the nonelecting foreign trust as not being 

covered gifts or covered bequests if the 

U.S. recipient has adequate information 

to show that those transfers are not 

covered gifts or covered bequests. 

Additionally, the final regulations 

clarify that the assumption that a 

distribution is attributable to a covered 

gift or covered bequest can be rebutted 


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to the extent the taxpayer can supply 

information sufficient to persuade the 

Commissioner that the assumption is 

not correct. 

As to the suggestion to apply a 

presumption about property acquired by 

a non-electing foreign trust prior to the 

effective date of section 2801, the 

Treasury Department and the IRS agree 

that the final regulations should clarify 

the status of pre-enactment 

contributions to non-electing foreign 

trusts. However, rather than a 

presumption, the final regulations 

update the definitions of covered gift 

and covered bequest to clarify that such 

terms include only gifts and bequests 

made to the non-electing foreign trust 

after the effective date of section 2801. 

Thus, property attributable to a covered 

gift or covered bequest does not include 

pre-section 2801 contributions to the 

non-electing foreign trust. See 

§ 28.2801–2(f) and –2(g) and Example 3 

of § 28.2801–5(e) of these final 

regulations. 

Other comments propose that a U.S. 

recipient of a distribution from a nonelecting foreign trust may use any 

reasonable method to estimate the 

section 2801 ratio based on the 

information available, such as affidavits 

from persons with relevant knowledge 

and reasonable assumptions regarding 

growth rates, contributions, and other 

pertinent information. The adequacy of 

the method and information used to 

compute the section 2801 ratio to avoid 

application of the assumption is most 

appropriately determined on a case-bycase basis. Accordingly, these final 

regulations do not contain a detailed list 

of the types of information, and the 

combinations thereof, that may be used 

to calculate the section 2801 ratio and 

rebut the presumption in § 28.2801– 

5(c)(3) of the final regulations. 

One comment suggests that the 

burden to establish the section 2801 

ratio should shift to the IRS if the U.S. 

recipient (i) affirms under penalties of 

perjury that best attempts were made to 

obtain necessary information, (ii) 

discloses all relevant information that 

the U.S. recipient has to the IRS, and 

(iii) identifies parties believed to have 

the necessary information. The Treasury 

Department and the IRS acknowledge 

that U.S. recipients of distributions from 

non-electing foreign trusts whose 

trustees do not keep proper records, or 

who do not cooperate with the U.S. 

recipients, may end up computing their 

section 2801 tax using an overstated 

section 2801 ratio. However, because all 

the information is in the hands of the 

trustees of the foreign trust (over which 

the IRS is unlikely to have any 

jurisdiction) and the IRS has limited 

ability to independently determine the 

section 2801 ratio of a non-electing 

foreign trust, leaving the burden of proof 

with the U.S. recipient more likely 

ensures that section 2801 tax is levied 

on all covered gifts and covered 

bequests. Accordingly, the final 

regulations do not adopt the suggestion 

to shift the burden in establishing the 

section 2801 ratio to the IRS. 

iii. Impact of Section 2801(c) Amount 

on Section 2801 Ratio 

One comment requests clarification 

on when a section 2801 tax is deemed 

to have been paid and suggests that an 

example be added to the final 

regulations. Section 28.2801–5(c)(2) of 

the proposed regulations provides that, 

once a section 2801 tax has been timely 

paid on property that thereafter remains 

in a foreign trust, that property is no 

longer considered to be, or to be 

attributable to, a covered gift or covered 

bequest to the foreign trust for purposes 

of determining the trust’s section 2801 

ratio. Section 28.2801–5(c)(2) of the 

proposed regulations further provides 

that a section 2801 tax is deemed to 

have been timely paid on amounts for 

which no section 2801 tax was due as 

long as those amounts were reported as 

a covered gift or covered bequest on a 

timely filed Form 708. The final 

regulations clarify in § 28.2801–5(c)(1) 

that, because a non-electing foreign trust 

itself is not taxed on its receipt of 

covered gifts and covered bequests, the 

trust is not entitled to the exclusion 

under section 2801(c); instead, the 

section 2801(c) exclusion is allowed to 

the U.S. recipient with regard to 

distributions from the non-electing 

foreign trust. In addition, the final 

regulations expand an example to 

illustrate this situation. See Example 4 

of § 28.2801–5(e) of the final 

regulations. In addition, section 

28.2801–5(c)(2) of the final regulations 

also is modified to provide that section 

2801 tax is deemed to have been timely 

paid on amounts for which no section 

2801 tax was due as a result of the 

section 2801(c) amount, whether or not 

those amounts were reported as a 

covered gift or covered bequest on a 

timely filed Form 708. 

C. Income Tax Deduction for Section 

2801 Tax on Certain Distributions 

Section 2801(e)(4)(B)(ii) allows a U.S. 

recipient of a distribution from a nonelecting foreign trust to deduct under 

section 164 the section 2801 tax 

imposed on the portion of the 

distribution included in the U.S. 

recipient’s gross income for the year. 

Section 28.2801–4(a)(3)(ii) of the 

proposed regulations provides 

instructions for calculating the amount 

of this deduction. That income tax 

deduction is available for the year in 

which the section 2801 tax is paid. 

Commenters questioned whether an 

accumulation distribution, taxable to a 

U.S. person in a given year, is to be 

included in this reference to ‘‘gross 

income’’ when computing this 

deduction. 

Section 662(a), in effect, determines 

how to determine the portion of a trust’s 

distributable net income (DNI) that is 

taxable to each beneficiary of the trust 

in a given year. That section provides 

that the gross income of a beneficiary of 

a complex trust includes both amounts 

required to be distributed to the 

beneficiary and amounts properly 

distributed to the beneficiary. That 

section and § 1.662(a)–3(c) provide that 

a beneficiary receiving such a 

distribution in a given year will 

recognize the distribution as gross 

income only to the extent the 

distribution is made out of the trust’s 

DNI for the year. 

Under section 665, a foreign trust’s 

distribution to a beneficiary of income 

that exceeds that trust’s DNI for the year 

is a distribution of income earned by the 

trust in a prior year, which is an 

accumulation distribution that is 

comprised of undistributed net income 

(UNI). That amount, therefore, would 

not be included in the reference to gross 

income as used in section 662(a). 

Section 667(a) provides that a 

beneficiary receiving such an 

accumulation distribution must include 

that distribution as income in the year 

the distribution is received but must 

compute the tax on that distribution (to 

the extent it would have been included 

in the beneficiary’s income under 

section 662) as though it had been 

received in a preceding taxable year. 

Section 667 provides the mechanism to 

compute the applicable income tax and 

interest charge on the distribution 

(throwback tax). 

One comment suggests that the final 

regulations permit a deduction under 

section 164 of the full amount of the 

section 2801 tax paid on an 

accumulation distribution. The 

comments observe that, if any portion of 

a distribution from a non-electing 

foreign trust is attributable to a covered 

gift or covered bequest and is an 

accumulation distribution, the aggregate 

amount of the section 2801 tax and the 

throwback tax might exceed the amount 

of the distribution. 

Other comments suggest limiting the 

total tax liability under section 2801 and 

the throwback tax on a specific 

distribution to the amount of the 

distribution. One comment suggests this 


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might be achieved by reducing the 

amount of the distribution that is treated 

as an accumulation distribution. The 

final regulations do not adopt the 

commenters’ suggestions that involve 

limiting the total tax liability, other than 

through a deduction under section 164 

as provided in section 2801(e)(4)(B)(ii) 

and described above. There is no 

mechanism under the income tax rules 

to re-classify an accumulation 

distribution as DNI because an 

accumulation distribution is, by 

definition, income in excess of DNI. 

Section 2801 does not limit the total tax 

liability under that section or the 

throwback tax. 

Although section 2801(e)(4)(B)(ii) 

uses the term gross income, that section 

merely limits the available tax 

deduction to tax paid on income that 

was subjected to income tax. The 

reference to gross income does not 

reference any particular definition of 

that term and thus does not appear to 

create a distinction between different 

types of taxable income. For that reason, 

the final regulations provide that the 

reference to gross income in this section 

includes all forms of income subject to 

income tax in that year, including an 

accumulation distribution. 

Section 28.2801–4(a)(3)(ii) of the 

proposed regulations provides that the 

deduction under section 164 provided 

in section 2801(e)(4)(B)(ii) is available 

in the year in which the tax is paid or 

accrued. As a result, a cash method 

taxpayer will be entitled to the 

deduction only in the tax year in which 

the section 2801 tax is paid. Several 

comments suggest that the deduction 

instead should be available to a cash 

method taxpayer in the year the 

distribution is received and subject to 

income tax. The final regulations do not 

adopt this suggestion for the following 

reasons. Both section 2801(e)(4)(B)(ii) 

and section 164(a) allow the deduction 

only in the year in which the tax is paid 

or accrued, and references in the Code 

to items accrued generally do not apply 

to cash basis taxpayers. Congress has 

not provided a special rule (such as 

section 164(b)(4)(B) or 691(c), for 

example) allowing the deduction in the 

year of the distribution. Additionally, 

allowing the deduction in the year of 

the distribution for cash method 

taxpayers would be administratively 

difficult because the section 2801 tax for 

a distribution from a non-electing 

foreign trust attributable to a covered 

gift or covered bequest generally is due 

in the calendar year after the income tax 

attributable to that distribution is due 

(17.5 months after the close of the 

calendar year of receipt versus 3.5 

months after the close of the calendar 

year). Although the deduction for 

section 2801 tax paid cannot be taken 

against the income carried out from the 

distribution attributable to the covered 

gift or bequest, the deduction can be 

taken against income in the year the 

section 2801 tax is paid (including 

against distributions of accumulated 

income). Accordingly, the final 

regulations retain the rule in the 

proposed regulations that the deduction 

under section 164 is available only in 

the year the section 2801 tax is paid or 

accrued. 

8. Election by Foreign Trust To Be 

Treated as Domestic Trust 

Section 2801(e)(4)(B)(iii) allows a 

foreign trust to elect to be treated as a 

domestic trust solely for purposes of 

section 2801. That election may be 

revoked with the consent of the 

Secretary of the Treasury or her 

delegate, but also may be terminated by 

the trust’s failure to comply with the 

requirements for maintaining a valid 

election. An election to be treated as a 

domestic trust causes the electing 

foreign trust to become liable for the 

section 2801 tax liability on covered 

gifts and covered bequests received by 

the trust, thus relieving each U.S. 

citizen or resident receiving a trust 

distribution attributable to such covered 

gifts or bequests from that tax liability. 

A. Reporting Requirements 

Section 28.2801–5(d)(4) of the 

proposed regulations provides that the 

trustee of an electing foreign trust must 

file a timely Form 708 annually either 

to report and pay the section 2801 tax 

on all covered gifts and covered 

bequests received by the trust during the 

calendar year, or to certify that the 

electing foreign trust did not receive any 

covered gifts or covered bequests during 

the calendar year. One comment 

requests that the final regulations 

eliminate the requirement to file a Form 

708 for years in which no covered gift 

or covered bequest was received. The 

Treasury Department and the IRS agree 

that the trustee’s requirement to certify 

annually that the electing foreign trust 

did not receive any covered gifts or 

bequests creates a burden that 

outweighs the benefit to the 

enforcement and administration of the 

section 2801 tax. Accordingly, the final 

regulations do not require annual 

reporting for electing foreign trusts. 

Instead, reporting will be required only 

by an electing foreign trust for years in 

which the total value of the covered 

gifts and covered bequests received by 

the electing foreign trust in that year 

exceeds the section 2801(c) amount for 

that year. 

Section 28.2801–5(d)(3)(ii) of the 

proposed regulations details the 

requirements for a valid election. 

Among these is the requirement to 

notify and provide to the IRS 

information on each U.S. citizen or 

resident who is a permissible distributee 

of the trust. For this purpose, a 

permissible distributee is a U.S. citizen 

or resident who either may or must 

receive trust distributions, has a right 

(whether current or future) to withdraw 

income or principal from the trust, or 

would have been so described if either 

the trust or the interest of all persons so 

described had just terminated. 

Comments observe that this requirement 

is burdensome, infringes upon 

disclosure and privacy standards, and 

requests information that is not required 

to ensure that the tax is adequately 

administered. One comment suggests 

revising the requirements for making the 

election to be treated as a domestic trust 

so that only beneficiaries that have 

received distributions during the 

relevant period must be identified on 

Form 708. Another comment suggests 

adopting the standards devised for the 

Foreign Account Tax Compliance Act 

(FATCA) information reporting under 

sections 1471 and 1472, so that only 

beneficiaries who actually receive a 

distribution or who have a mandatory 

payment right during the relevant 

period must be identified on Form 708. 

It is necessary for the trustee to 

provide information to the IRS on all 

U.S. citizens or residents who may 

receive distributions from the trust, 

because those persons may have to pay 

tax under section 2801 if the election 

terminates. Although the Treasury 

Department and the IRS are sensitive to 

the policy concerns of the commenters, 

this concern is outweighed by the IRS’s 

need to obtain information from the 

trustee that would be necessary to 

assure the collection of tax should the 

election terminate. Additionally, 

because the final regulations do not 

require annual filings in the absence of 

the receipt of a covered gift or covered 

bequest by the electing foreign trust, as 

the proposed regulations did, an 

electing foreign trust’s most recent 

return may be filed many years before 

the termination of the election (for 

example, if the election terminates for 

failure to pay 2801 tax or to file a return 

in a year that a contribution is made to 

the trust). In that event, the commenter’s 

request would deprive the IRS of 

needed information about the actual 

distributees in the year of the 

termination of the election. 

Accordingly, the final regulations retain 


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the definition of permissible distributee 

under the proposed regulations. 

Section 28.2801–5(d)(3)(iv) of the 

final regulations confirms that the 

appointment of the required U.S. agent 

is made by filing Form 2848, Power of 

Attorney and Declaration of 

Representative, or as may be directed 

otherwise in IRS forms or publications. 

Merely confirming the name and 

identifying information of that agent on 

the electing trust’s Form 708 is not 

sufficient for this purpose. 

B. Termination of Electing Foreign Trust 

Status 

Under § 28.2801–5(d)(5)(ii) of the 

proposed regulations, an election to be 

treated as a domestic trust is terminated 

by the failure of the foreign trust to 

timely file Form 708 or timely pay any 

required section 2801 tax. The 

termination is effective as of the first 

day of the calendar year for which the 

failure occurs. 

A comment suggests that the trustee 

of an electing foreign trust should be 

permitted to cure the late filing of Form 

708 and/or late payment of the section 

2801 tax to avoid the retroactive 

termination of the foreign trust’s 

election to be treated as a domestic trust 

for purposes of the section 2801 tax. The 

comment contends that an opportunity 

to cure is needed to avoid placing a 

reporting burden on a U.S. citizen or 

resident who received a distribution 

during the year for which the election 

is being terminated. 

As provided in paragraph 8.A. of the 

Summary of Comments and 

Explanation of Revisions section of this 

preamble, the final regulations do not 

require annual filings for electing 

foreign trusts for years in which the 

electing foreign trust receives no 

covered gifts or covered bequests. 

Accordingly, under the final 

regulations, an electing foreign trust’s 

election will not terminate for the 

failure to file a Form 708 for such a year. 

The final regulations, however, require 

that, unless the total value of the 

covered gifts and covered bequests 

received by the electing foreign trust in 

a calendar year does not exceed the 

section 2801(c) amount, the trustee of an 

electing foreign trust must report all 

covered gifts and covered bequests 

received during that calendar year on a 

timely filed Form 708 and timely pay 

the section 2801 tax in full. Because the 

IRS may lack jurisdiction to assess tax 

on a foreign trustee, voluntary payment 

by the foreign trustee is the only way to 

ensure collection of section 2801 tax on 

an electing foreign trust. If the foreign 

trustee fails to pay the section 2801 tax, 

then the section 2801 tax must be 

collected from the U.S. recipient to 

ensure collection. Providing a grace 

period to file a return and make a 

payment of tax beyond the original due 

date of the required return to provide 

the suggested opportunity to cure is not 

tenable because the identity of the 

taxpayer during this period would be 

uncertain, creating confusion and 

delaying finality as to whether the U.S. 

beneficiaries of the trust or the trustee 

of the trust is responsible for the 

payment of the section 2801 tax. In 

addition, providing such a grace period 

could encourage trustees to delay 

payment to the end of the grace period, 

notwithstanding that the original due 

date for such payment already is more 

than 17.5 months after the close of the 

year in which the covered gift or 

covered bequest was received. For these 

reasons, the regulations provide that, 

unless the total value of the covered 

gifts and covered bequests received by 

the electing foreign trust in a calendar 

year does not exceed the section 2801(c) 

amount, the failure to report all covered 

gifts and covered bequests received on 

a timely filed Form 708 or to timely pay 

the section 2801 tax in full will result 

in the termination of the foreign trust’s 

election. The final regulations in 

§ 28.2801–5(d)(5)(ii)(A)(3) further 

provide a method for the trust to 

affirmatively terminate its election to be 

treated as a domestic trust for purposes 

of section 2801. 

C. Dispute as to Amount of Section 2801 

Tax Owed 

Section 28.2801–5(d)(6)(i) of the 

proposed regulations describes the 

process for resolving or otherwise 

accounting for proposed adjustments to 

the amount of the section 2801 tax owed 

by an electing foreign trust. The 

proposed procedure entails the IRS 

notifying the trustee of the foreign trust 

of the additional tax due, including any 

penalties and interest, and the due date 

of payment. If the trustee of the electing 

foreign trust and the IRS are unable to 

come to an agreement and the trustee 

fails to timely pay the additional tax and 

other asserted amounts by the stated 

due date, then the election is terminated 

retroactively, effective as of January 1 of 

the year for which the Form 708 was 

filed and is converted as of that same 

date to an imperfect election. Any 

additional value determined by the IRS 

on which the foreign trust did not 

timely pay the section 2801 tax then is 

treated as a covered gift or covered 

bequest to the trust and should be taken 

into account as a covered gift or covered 

bequest by a U.S. recipient in 

computing the section 2801 ratio 

applicable to any distribution from the 

trust, although that valuation 

adjustment is an issue that may be 

challenged or otherwise resolved on 

examination of that U.S. recipient’s 

Form 708 reporting a distribution. 

Comments suggest that the final 

regulations provide the same 

opportunity, procedures, and rights to 

the electing foreign trust as are 

applicable to any other U.S. taxpayer, 

with regard to any challenge to the IRS’s 

determination of value. One comment 

recommends that the IRS issue a 

statutory notice of deficiency to make 

possible these administrative and 

judicial review processes. Another 

comment suggests that allowing the 

electing foreign trust to resolve these 

valuation issues with the IRS would 

avoid the possibility that different trust 

beneficiaries might reach different 

resolutions of the same issue as their 

individual Forms 708 are separately 

examined by the IRS. 

Establishing a statutory notice of 

deficiency process for resolving or 

otherwise addressing proposed 

adjustments to the amount of the section 

2801 tax owed by an electing foreign 

trust would have a harmful effect on the 

IRS’s ability to collect any unpaid 

deficiency, even a deficiency that has 

been reduced to judgment, given the 

IRS’s lack of jurisdiction over the 

trustees and assets of a foreign trust. 

Additionally, if the foreign trust in such 

a situation refuses to pay the deficiency, 

it is not clear that the IRS would have 

the ability to assert transferee liability 

against a U.S. citizen or resident 

receiving distributions from the trust 

under section 6901 or 31 U.S.C. 3713. 

Therefore, allowing the continued 

validity of the election despite an 

unresolved dispute or unpaid tax and 

issuing a statutory notice of deficiency 

would jeopardize the IRS’s ability to 

collect the unpaid deficiency from 

either the foreign trust or the U.S. 

recipient of a trust distribution. 

Given the jurisdictional limitations 

and because the statute contemplates 

that the section 2801 tax will be paid by 

the electing foreign trust, the proposed 

procedures for handling disputes 

involving electing foreign trusts are the 

practical approach and strike the 

appropriate balance of fairness, 

administrability, and enforcement of the 

section 2801 tax. However, the final 

regulations improve administrability by 

clarifying in § 28.2801–5(d)(6)(i) that the 

payment of any additional amount of 

section 2801 tax must be made either by 

the due date specified in the letter or the 

due date otherwise agreed to by the 

Commissioner. Note that the procedures 

as finalized also include the availability 

of a reasonable cause defense to the 


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imposition of failure to file and failure 

to pay penalties under section 6651 on 

the U.S. recipient’s obligations with 

regard to distributions made from the 

trust. See, for example, § 28.2801– 

5(d)(6)(iii)(C) of the final regulations. 

Thus, the request of the commenters is 

not adopted. 

9. Income Tax Effects of Section 2801 

Tax 

A. Income Tax Basis 

Section 28.2801–6(a) of the proposed 

regulations provides that the recipient’s 

basis in property received as a covered 

gift is determined under section 1015. 

The proposed regulations further 

provide that section 1015(d) does not 

apply to increase the basis in a covered 

gift by the amount of the section 2801 

tax paid with respect to that covered 

gift. Several comments state that a basis 

increase should be allowed for the 

section 2801 tax paid with respect to a 

covered gift based on simple fairness 

and to serve the statutory goal of tax 

neutrality. One comment acknowledges 

that section 1015(d) is inapplicable to 

section 2801 because section 1015(d) 

applies only to gift taxes paid under 

chapter 12 of the Code, not to the taxes 

on covered gifts defined in chapter 15. 

However, this comment states that 

section 164 does apply to increase basis 

in property received as a covered gift by 

the amount of the section 2801 tax paid 

because section 164(a) treats taxes that 

have been paid but are not deductible 

under section 164 as part of the 

acquisition cost of the property. As 

such, the comment concludes that 

payment of the section 2801 tax does 

increase the recipient’s basis in the 

property. 

The comment is correct that the basis 

adjustment available under section 

1015(d) is applicable only to gift tax 

paid under chapter 12. Section 2801 

does not apply the rule of section 

1015(d) to the section 2801 tax, which 

is in chapter 15 of subtitle B of the 

Code. However, neither does section 

164 provide for an increase in the basis 

of property received as a covered gift by 

the amount of the section 2801 tax paid. 

The flush language in section 164(a) 

clarifies the treatment of certain taxes 

(other than those enumerated in section 

164(a)) that are incurred in a trade or 

business or in an income-producing 

activity and are connected with the 

acquisition or disposition of property. 

Specifically, such taxes are treated as 

part of the cost of the acquired property 

or, in the case of a disposition, as a 

reduction in the amount realized on the 

disposition. See H. Conf. Rept. 99–841 

(Vol. 2), at II–20 (1986), 1986–3 C.B. 20 

(Vol. 4); Sleiman v. Commissioner, T.C. 

Memo. 1997–530 at 10. The section 

2801 tax paid on the receipt of a covered 

gift or covered bequest does not come 

within this description because, by its 

nature, it is not a tax that is incurred in 

a trade or business or an incomeproducing activity. 

The Treasury Department and the IRS 

understand the general proposition of 

the commenters that allowing a basis 

increase for the section 2801 tax paid 

with respect to a covered gift would be 

consistent with the rule in section 

1015(d) that takes gift tax paid into 

account and thus would further serve 

the goal of tax neutrality and that such 

a rule might more fairly represent the 

acquisition cost of property received in 

a covered bequest. However, in order to 

create a special rule for an adjustment 

to the basis in property subject to the 

section 2801 tax, a statutory amendment 

to section 1015, 2801, or other statutory 

authority would be needed. 

B. Deduction for Portion of Section 2801 

Tax Paid Attributable to Income in 

Respect of a Decedent 

Section 691(c)(1) provides that a 

person who includes an amount of 

income in respect of a decedent (IRD) in 

gross income under section 691(a) is 

allowed as an income tax deduction, for 

the same taxable year, a portion of the 

estate tax paid by reason of the 

inclusion of that IRD in the decedent’s 

gross estate. A comment likens the 

estate tax paid to the section 2801 tax 

paid and suggests that, in the interest of 

tax neutrality, the final regulations 

should allow a U.S. recipient to deduct 

from gross income the portion of the 

section 2801 tax paid with respect to an 

item of IRD, when the amount of IRD is 

included in the U.S. recipient’s gross 

income for the same taxable year. 

Although estate tax may be similar to 

section 2801 tax on the receipt of a 

covered bequest, in section 691(c)(2)(A), 

Congress explicitly defined the term 

estate tax for purposes of that section as 

the tax imposed on the estate of a 

decedent under section 2001 or 2101, 

and did not include analogous taxes 

imposed under other sections of the 

Code such as section 2801. Furthermore, 

where Congress believed that a 

deduction for section 2801 taxes paid is 

appropriate, it provided for that 

deduction explicitly. While section 

2801(e)(4)(B)(ii) provides for an income 

tax deduction under section 164 for a 

certain amount of section 2801 tax 

imposed on a distribution from a nonelecting foreign trust included in gross 

income that is attributable to a covered 

gift or covered bequest, Congress did not 

provide an income tax deduction under 

section 691(c) for section 2801 tax that 

is attributable to IRD. 

Additionally, the method for 

computing the deduction under section 

691(c)(2) for estate taxes paid uses 

variables that are not applicable to the 

tax under section 2801. For instance, 

section 691(c)(1)(A) provides a 

deduction based on the ‘‘net value’’ for 

estate tax purposes of all items of IRD 

described in section 691(a). Section 

691(c)(2)(C) provides that the net value 

shall be an amount equal to the excess 

of the estate tax over the estate tax 

computed without including in the 

gross estate such net value. Therefore, 

there would be no way to calculate the 

amount of an IRD deduction for section 

2801 tax paid using the rules provided 

under section 691. Accordingly, in order 

to establish a similar regime for section 

2801, the final regulations would need 

to contain a new set of comprehensive 

rules for determining the amount of a 

deduction against items of IRD for 

section 2801 tax paid. 

For these reasons, adopting the 

commenter’s suggestion would be both 

impractical and beyond what is 

provided by statute. 

10. Information Reporting Under 

Sections 6039F and 6048(c) 

Generally, sections 6039F and 

6048(c), respectively, require each U.S. 

person (as defined for income tax 

purposes) who receives a gift or bequest 

from a foreign person or a distribution 

from a foreign trust to report such 

receipt or transaction by filing Form 

3520, Annual Return to Report 

Transactions With Foreign Trusts and 

Receipt of Certain Foreign Gifts. 

However, § 28.2801–6(c)(1) and (2) of 

the proposed regulations provides that, 

for purposes of the information 

reporting provisions of sections 6039F 

and 6048(c), U.S. person is defined to 

include a U.S. citizen or resident, as that 

term is defined in proposed § 28.2801– 

2(b), which adopts the gift and estate tax 

meaning of the term resident under 

subtitle B, based on domicile. 

Several comments request that the 

final regulations revise the rule in 

§ 28.2801–6(c) of the proposed 

regulations to reflect that the reporting 

requirements under sections 6039F and 

6048(c) apply to U.S. residents as the 

term U.S. person is defined for income 

tax purposes. See section 7701(a)(30) 

and (b)(1)(A). Under this suggestion, the 

scope of the reporting requirements on 

Form 3520 would not be expanded to 

individuals who are U.S. residents for 

transfer tax purposes but not for income 

tax purposes. The comments point out 

that these taxpayers who are U.S. 

residents only for transfer tax purposes 


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are the same persons (other than an 

electing foreign trust) who will be 

required to file a Form 708 to report the 

receipt of a covered gift or covered 

bequest and thus that the proposed 

expanded scope of the reporting 

requirements would be duplicative and 

would serve no tax enforcement 

purpose. Consequently, the comments 

contend that the expanded scope of the 

reporting requirements would serve 

only to add complexity and burden to 

information reporting and to increase 

the risk of the imposition of penalties. 

The Treasury Department and the IRS 

agree that the definition of U.S. person 

under section 7701(b)(1)(A) is the 

appropriate definition for purposes of 

the information reporting requirements 

under sections 6039F and 6048. 

Accordingly, the final regulations 

provide that the information reporting 

requirements in sections 6039F and 

6048(c) apply only to U.S. persons 

within the meaning of section 

7701(a)(30), and thus only apply to 

recipients of a covered gift or covered 

bequest who are U.S. persons for 

income tax purposes. See § 28.2801– 

6(c)(1) and (2) of the final regulations. 

This will include all U.S. citizens and 

domestic trusts receiving covered gifts 

and covered bequests, as well as U.S. 

residents as defined for income tax 

purposes. 

11. Determining Responsibility Under 

Section 2801 

The proposed regulations confirm, in 

§ 28.2801–7(a), that it is the 

responsibility of the U.S. recipient of a 

gift or bequest from an expatriate, or a 

distribution from a trust funded at least 

in part by an expatriate, to determine 

whether the expatriate is a covered 

expatriate and whether the gift or 

bequest is a covered gift or covered 

bequest. Proposed § 28.2801–7(b)(1) 

further provides that, in some 

circumstances to be described in IRB 

guidance, the IRS may be permitted to 

disclose return or return information of 

the donor or decedent expatriate upon 

the request of a U.S. citizen or resident 

in receipt of a gift or bequest from such 

expatriate. In the event of a living donor 

expatriate, § 28.2801–7(b)(2) of the 

proposed regulations creates a 

rebuttable presumption that the donor is 

a covered expatriate and that the gift is 

a covered gift if donor does not 

authorize the disclosure of the donor’s 

relevant return information. 

The proposed rule further provides 

that a recipient may file a protective 

Form 708 in accordance with 

procedures set forth in proposed 

§ 28.6011–1(b), to start the running of 

the period of limitations for the 

assessment of any section 2801 tax in 

the event the recipient reasonably 

concludes that a gift or bequest is not 

subject to section 2801. 

Several comments request guidance 

and suggest additional rules as to how 

a U.S. citizen or resident receiving a gift 

or bequest may avoid penalties and 

interest for nonpayment or 

underpayment of the section 2801 tax if 

the U.S. recipient incorrectly concludes 

that section 2801 does not apply. The 

comments ask how a recipient can 

satisfy its responsibility to ascertain 

whether the donor or decedent is a 

covered expatriate, and how to 

determine whether the gift or bequest is 

a covered gift or covered bequest. These 

comments note that the ability to 

comply is based on access to a donor’s 

private information that the IRS may not 

be able to provide. These comments 

predict that the U.S. recipient of a gift 

or bequest may encounter significant 

impediments to gathering the necessary 

information about the donor or 

decedent. Thus, the comments request 

that the rebuttable presumption be 

eliminated, and that the final 

regulations provide a safe harbor for 

making covered expatriate 

determinations based on facts 

reasonably available to the recipient. 

Comments also request that the final 

regulations elaborate on the acceptable 

criteria necessary to satisfy the due 

diligence requirement for filing a 

protective Form 708 as set forth in 

§ 28.6011–1(b) of the proposed 

regulations, to start the running of the 

period of limitations for the assessment 

of any section 2801 tax, and to avoid 

penalties. For instance, some comments 

suggest that reliance on a certification as 

to covered expatriate status provided by 

the living donor or the decedent’s estate 

should be sufficient, unless the U.S. 

recipient has reason to believe the 

certification is false. Alternatively, the 

comment suggests that the expatriate be 

required, on the Form 8854, Initial and 

Annual Expatriation Statement, filed at 

the time of expatriating, to authorize the 

IRS to disclose the relevant return 

information to each U.S. recipient of a 

gift from that expatriate. Another 

comment suggests that requesting 

certain information from the IRS and 

carrying out a background check on the 

donor or decedent should be sufficient 

for these purposes. Comments also 

suggest the creation of a searchable 

database of Forms 8854 that would 

allow the identification of covered 

expatriates. One comment suggests 

requiring the IRS to have a good faith 

basis for alleging that a donor or 

decedent is a covered expatriate before 

assessing a section 2801 tax because, 

otherwise, the IRS would be forcing 

recipients to prove a negative even 

where the IRS may have actual evidence 

to the contrary. Finally, another 

comment suggests creating a 

presumption in the final regulations that 

a donor is not a covered expatriate if the 

donor files a Form 709, United States 

Gift (and Generation-Skipping Transfer) 

Tax Return and provides a copy to the 

U.S. recipient. 

The Treasury Department and the IRS 

carefully considered during the 

development and drafting of the 

proposed regulations the potential 

difficulty a U.S. recipient may face in 

obtaining the information necessary to 

determine whether it has a tax 

obligation under section 2801. For the 

reasons stated below, the final 

regulations do not adopt the 

commenters’ suggestions. 

Regarding a certification as to covered 

expatriate status or a background check 

to establish that a gift or bequest is not 

a covered gift or covered bequest from 

a covered expatriate, requesting 

information from the donor or 

decedent’s estate and the IRS is the most 

tenable option because of the factual 

nature of the determination and 

jurisdictional limitations with respect to 

the expatriate. For instance, although a 

certification from the donor or the 

decedent’s estate provides some 

evidence of covered expatriate status, 

the particular facts in a given situation 

may cause the IRS to require 

corroborating information (for example, 

in the event of conflicting information 

discovered during examination or 

otherwise). As to the relevance of the 

filing of a Form 709 by an expatriate, the 

filing of a Form 709 does not suggest a 

determination as to covered expatriate 

status, although a timely filing supports 

a determination that a gift or bequest is 

excepted from the definition of a 

covered gift or covered bequest. 

A comment suggests eliminating the 

rebuttable presumption in proposed 

§ 28.2801–7(b)(2) based on the 

contention that neither section 2801 nor 

the general rule-making authority 

provided in section 7805(a) authorize 

creating a rule that requires U.S. 

recipients of gifts and bequests to 

demand proof of a living donor’s status. 

The Treasury Department and the IRS 

do not agree that providing a rebuttable 

presumption that, in certain 

circumstances, a living donor is a 

covered expatriate is beyond its 

regulatory authority for implementing 

the Congressional mandate of section 

2801. A rebuttable presumption is not a 

mandate or final determination. Rather, 

a rebuttable presumption provides an 

opportunity and an incentive for the 


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recipient to overcome the presumption 

through the exercise of due diligence. It 

is the recipient’s responsibility to 

determine whether section 2801 tax 

liability applies to a transfer received 

from a donor or decedent’s estate. In the 

absence of evidence sufficient to allow 

the recipient to determine whether the 

donor is a covered expatriate, if the 

living donor refuses to cooperate or 

otherwise fails to authorize the 

disclosure of relevant return 

information, the presumption is 

reasonable. 

Finally, additional comments suggest 

that the IRS take action beyond issuing 

final regulations to make the 

information about the covered 

expatriate status of the donor or 

decedent more readily accessible. 

Specifically, comments suggest creating 

and administering a searchable and 

secure registry or database of expatriates 

and covered expatriates; modifying 

certain IRS forms (for example, Forms 

8821, Tax Information Authorization, or 

Form W–8 BEN, Certificate of Foreign 

Status of Beneficial Owner for United 

States Tax Withholding and Reporting 

(Individuals)), or creating new ones, to 

ensure only limited information 

relevant to the covered expatriate status 

of the donor or decedent is provided to 

the recipient. This would require the 

reconsideration of the retention policies 

and procedures of certain tax forms 

because section 2801 could require 

access to decades-old tax information. 

The Treasury Department and the IRS 

understand the potential difficulties 

underlying the commenters’ concerns. 

However, the resolution of these 

concerns also must take into account 

both the IRS’s resource constraints and 

disclosure and privacy concerns. 

Additional procedures, as requested by 

the commenters, may be forthcoming in 

guidance published in the Internal 

Revenue Bulletin. 

12. Recordkeeping Requirements 

Section 28.6001–1 of the proposed 

regulations provides that all documents 

and vouchers used in preparing the 

Form 708 must be retained by the 

person required to file the return so as 

to be available for inspection whenever 

required. A comment suggests that this 

retention standard be clarified, because 

it is open-ended and appears not to bear 

any relation to the three-to-six-year 

period of limitations for assessment for 

such return prescribed in section 6501. 

The retention standard in § 28.6001– 

1(a) of the proposed regulations is the 

same as the retention standard for both 

the estate and gift taxes under 

§§ 20.6001–1(a) and 25.6001–1(a), 

respectively. This expansive standard is 

appropriate for estate and gift tax, 

because the records associated with 

estate and gift tax returns can be 

relevant many years later in the context 

of a GST tax return, a surviving spouse’s 

gift and/or estate tax return, and income 

tax basis, well after the period of 

limitations for assessment under section 

6501 has expired for such returns. 

Additionally, because the gift tax and 

estate tax computations are cumulative 

in nature, the records associated with 

gift tax returns filed during life may be 

relevant many years later in the 

preparation and filing of the estate tax 

return. 

The section 2801 tax is less likely 

than the estate and gift taxes to have 

application for as long a period of time 

after the period of limitations for 

assessment has expired. Therefore, upon 

consideration of the comments, the 

Treasury Department and the IRS agree 

that a less expansive retention standard 

is appropriate for the section 2801 tax. 

Accordingly, the final regulations adopt 

the more limited income tax retention 

standard under § 1.6001–1(e), which 

requires documentation be retained so 

long as the contents thereof may become 

material in the administration of any 

internal revenue law. 

13. Miscellaneous 

A. Power of Appointment Over Property 

Not in Trust 

Various sections of the proposed 

regulations refer to a power of 

appointment over property that is not in 

trust. Multiple comments request an 

example, explaining that a power of 

appointment typically is over trust 

property. For purposes of the Code, the 

classification of an arrangement as a 

trust is determined under § 301.7701–4 

rather than under local law. 

Consequently, an arrangement that is 

classified as a trust under local law may 

not be a trust under the Code. Such an 

arrangement may include a grant of a 

power to an individual that is in 

substance a power of appointment but, 

because the arrangement does not 

constitute a trust under the Code, the 

power of appointment is over property 

that is not in trust. This is merely one 

example but, given the variety of 

arrangements worldwide that are 

available to a covered expatriate seeking 

to transfer property by gift or by reason 

of death, there may be several others. 

Because the determination of whether a 

certain arrangement is a power of 

appointment not in trust is fact specific, 

the final regulations do not include 

specific examples of a power of 

appointment over property that is not in 

trust. 

B. Estate and Gift Tax Treaties 

The proposed regulations do not 

address the effect of estate and gift tax 

treaties on the section 2801 tax, except 

to explicitly state in several examples 

that the covered expatriate in the 

example resides in a non-treaty country. 

Several comments request guidance on 

the application of estate and gift tax 

treaties to section 2801 when a gift or 

bequest is made by a covered expatriate 

domiciled in a treaty country. One 

comment requests that the final 

regulations provide that section 2801 

does not apply to property transfers by 

covered expatriates domiciled in a 

treaty country. 

Neither the statutory language nor the 

legislative history of section 2801 

provides any indication of 

Congressional intent concerning the 

effect of existing estate and gift treaties 

on the application of section 2801. In 

the absence of specific language 

overriding treaties, statutes generally are 

to work in harmony with existing 

treaties but, with the exception of 

certain treaty obligations in effect on 

August 16, 1954, neither the treaty nor 

the statute has preferential status. See 

section 7852(d). The U.S. currently has 

estate and gift tax treaties with 

Australia, Austria, Denmark, France, 

Germany, Japan, and the United 

Kingdom and estate tax-only treaties 

with Finland, Greece, Ireland, Italy, the 

Netherlands, South Africa, and 

Switzerland. There are also estate tax 

provisions in the U.S.-Canada income 

tax treaty. The effect of a particular 

treaty on the application of section 2801 

to a gift or bequest by a covered 

expatriate in a treaty country must be 

evaluated on a case-by-case basis when 

a particular transfer falls within the 

reach of both section 2801 and an estate 

or gift tax treaty. Any unresolved issue 

at that time as to the effect of a 

particular treaty may be elevated under 

the competent authority procedures. In 

view of the above, the final regulations 

do not include guidance on the effect of 

existing gift and estate tax treaties on 

the application of section 2801. 

C. Correction in § 28.2801–6(b) 

Section 28.2801–6(b) of the proposed 

regulations clarifies the applicability of 

the GST tax to certain section 2801 

transfers. A comment points out that the 

last sentence of § 28.2801–6(b) of the 

proposed regulations mistakenly refers 

to the failure to timely file and pay the 

section 2801 tax and suggests this 

language be replaced with a reference to 

the failure to timely file and pay the 

estate or gift tax under chapters 11 and 

12, respectively. In the final regulations, 


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the last sentence of § 28.2801–6(b) is 

revised to refer to the failure to timely 

file an estate or gift tax return. See 

§ 28.2801–3(c)(1) and (2) of the final 

regulations and part 3.A.i. of the 

Summary of Comments and 

Explanation of Revisions section of this 

preamble (discussing the accepted 

recommendation of commenters to 

remove the timely paid requirement 

from these final regulations). 

Effect on Other Documents 

Announcement 2009–57, 2009–29 

I.R.B. 158, is obsolete as of January 14, 

2025. 

Special Analyses 

1. Regulatory Planning and Review 

Pursuant to the Memorandum of 

Agreement, Review of Treasury 

Regulations under Executive Order 

12866 (June 9, 2023), tax regulatory 

actions issued by the IRS are not subject 

to the requirements of section 6 of 

Executive Order 12866, as amended. 

Therefore, a regulatory impact 

assessment is not required. 

2. Paperwork Reduction Act 

The collection of information 

contained in these final regulations 

under section 2801 is reported on Form 

708, United States Return of Tax for 

Gifts and Bequests Received from 

Covered Expatriates, and has been 

reviewed and approved by the Office of 

Management and Budget in accordance 

with the Paperwork Reduction Act of 

1995 (44 U.S.C. 3507(d)) under control 

number 1545–2309. The collection of 

information in these final regulations is 

in §§ 28.2801–4(e), 28.2801–5(d), 

28.6001–1, and 28.6011–1. 

The collection of information in 

§ 28.2801–4(e) is required to enable the 

IRS to verify that the U.S. citizens or 

residents who receive covered gifts and 

covered bequests are entitled to reduce 

the section 2801 tax by certain foreign 

taxes paid with respect to such gifts and 

bequests and, if so, the amount of the 

reduction. The collection of information 

is required to obtain a benefit. The 

likely respondents are individuals, 

domestic trusts, and electing foreign 

trusts. 

The collection of information in 

§ 28.2801–5(d) is required to notify the 

IRS and certain U.S. citizen or resident 

beneficiaries of a foreign trust that the 

foreign trust is electing to be treated as 

a domestic trust for purposes of section 

2801. It also is required for the IRS to 

verify the proper amount of the section 

2801 tax due. This alerts the IRS and the 

U.S. citizen or resident beneficiaries 

that the foreign trust will be liable for 

payment of the section 2801 tax while 

the election is in effect. This collection 

of information is necessary for the 

proper performance of IRS functions in 

the collection of the section 2801 tax. 

This collection of information is 

required to obtain a benefit. The likely 

respondents are foreign trusts. 

The collection of information in 

§ 28.6001–1 is required for the IRS to 

verify the books and records pertaining 

to covered gifts and covered bequests 

and for the proper performance of IRS 

functions in the collection of the section 

2801 tax. It also is required to verify the 

receipt of covered gifts and covered 

bequests by U.S. citizens or residents 

and the value of such gifts and bequests. 

This collection of information is 

mandatory. The likely respondents are 

individuals and trusts. 

The collection of information in 

§ 28.6011–1 is required for the IRS to 

verify the receipt of covered gifts and 

covered bequests and other information 

relevant to the tax imposed under 

section 2801. This collection of 

information is necessary for the proper 

performance of IRS functions in the 

collection of the section 2801 tax. This 

collection of information is mandatory. 

The likely respondents are individuals 

and trusts. 

Estimated total annual reporting 

burden: 6,000 hours. 

Estimated average annual burden 

hours per respondent: 1 hour to prepare 

and attach documentation to Form 708 

for the reduction of the section 2801 tax 

for foreign taxes paid; 2 hours to elect 

to treat a foreign trust as a domestic 

trust and notify the U.S. citizen or 

resident beneficiaries; 1 hour to notify 

the U.S. citizen or resident beneficiaries 

that the election is terminated; and 2 

hours to prepare taxpayer records and 

the Form 708 to report the section 2801 

tax. 

Estimated number of respondents: 

1,000. 

Estimated annual frequency of 

responses: Annually or less. 

An agency may not conduct or 

sponsor, and a person is not required to 

respond to, a collection of information 

unless it displays a valid control 

number. 

Books and records relating to a 

collection of information must be 

retained as long as their contents might 

become material in the administration 

of any internal revenue law. Generally, 

tax returns and tax return information 

are confidential, as required by 26 

U.S.C. 6103. 

3. Regulatory Flexibility Act 

It is hereby certified that the 

collection of information contained in 

these regulations will not have a 

significant economic impact on a 

substantial number of small entities. 

These regulations do not affect small 

entities because they apply to 

individuals and certain trusts. Thus, the 

number of affected small entities is not 

substantial. 

4. Unfunded Mandates Reform Act 

Section 202 of the Unfunded 

Mandates Reform Act of 1995 (UMRA) 

requires that agencies assess anticipated 

costs and benefits and take certain other 

actions before issuing a final rule that 

includes any Federal mandate that may 

result in expenditures in any one year 

by a State, local, or Tribal government, 

in the aggregate, or by the private sector, 

of $100 million in 1995 dollars, updated 

annually for inflation. The final 

regulations do not include any Federal 

mandate that may result in expenditures 

by State, local, or Tribal governments, or 

by the private sector in excess of that 

threshold. 

5. Executive Order 13132: Federalism 

Executive Order 13132 (entitled 

‘‘Federalism’’) prohibits an agency from 

publishing any rule that has federalism 

implications if the rule either imposes 

substantial, direct compliance costs on 

State and local governments, and is not 

required by statute, or preempts State 

law, unless the agency meets the 

consultation and funding requirements 

of section 6 of the Executive Order. 

These proposed regulations do not have 

federalism implications and do not 

impose substantial direct compliance 

costs on State and local governments or 

preempt State law within the meaning 

of the Executive Order. 

6. Congressional Review Act 

Pursuant to the Congressional Review 

Act (5 U.S.C. 801 et seq.), the Office of 

Information and Regulatory Affairs 

designated this rule as not a major rule, 

as defined by 5 U.S.C. 804(2). 

Availability of Documents 

IRS Revenue Procedures, Revenue 

Rulings, Notices, and other guidance 

cited in this document are published in 

the Internal Revenue Bulletin (or 

Cumulative Bulletin) and are available 

from the Superintendent of Documents, 

U.S. Government Publishing Office, 

Washington, DC 20402, or by visiting 

the IRS website at https://www.irs.gov. 

Drafting Information 

The principal authors of these 

regulations are Mayer R. Samuels, 

Daniel J. Gespass, and S. Eva Wolf of the 

Office of the Associate Chief Counsel 

(Passthroughs and Special Industries). 


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However, other personnel from the IRS 

and the Treasury Department 

participated in their development. 

List of Subjects in 26 CFR Part 28 

Taxes, Expatriate gifts and bequests, 

Reporting and recordkeeping 

requirements. 

Amendments to the Regulations 

Accordingly, the Treasury Department 

and the IRS amend 26 CFR subchapter 

B as follows: 

■ Paragraph 1. Part 28 is added to read 

as follows: 

PART 28—IMPOSITION OF TAX ON 

GIFTS AND BEQUESTS FROM 

COVERED EXPATRIATES 

Authority: 26 U.S.C. 7805. 

Section 28.2801–0 through 28.2801–7 also 

issued under 26 U.S.C. 2801. 

Section 28.6001–1 also issued under 26 

U.S.C. 6001. 

Section 28.6011(a)–1 also issued under 26 

U.S.C. 6011 and 6011(a). 

Section 28.6060–1 also issued under 26 

U.S.C. 6060 and 6060(a). 

Section 28.6071(a)–1 also issued under 26 

U.S.C. 6071 and 6071(a). 

Section 28.6081–1 also issued under 26 

U.S.C. 6081 and 6081(a). 

Section 28.6091–1 also issued under 26 

U.S.C. 6091 and 6091(a). 

Section 28.6101–1 also issued under 26 

U.S.C. 6101. 

Section 28.6107–1 also issued under 26 

U.S.C. 6107 and 6107(c). 

Section 28.6109–1 also issued under 26 

U.S.C. 6109 and 6109(a). 

Section 28.6151–1 also issued under 26 

U.S.C. 6151. 

Section 28.6694–1 through 28.6694–4 also 

issued under 26 U.S.C. 6694. 

Section 28.6695–1 also issued under 26 

U.S.C. 6695. 

Section 28.6696–1 also issued under 26 

U.S.C. 6696 and 6696(c). 

Section 28.7701–1 also issued under 26 

U.S.C. 7701. 

Sec. 

28.2801–0 Table of contents. 

28.2801–1 Tax on certain gifts and 

bequests from covered expatriates. 

28.2801–2 Definitions. 

28.2801–3 Rules and exceptions applicable 

to covered gifts and covered bequests. 

28.2801–4 Liability for and payment of tax 

on covered gifts and covered bequests; 

computation of tax. 

28.2801–5 Foreign trusts. 

28.2801–6 Special rules and crossreferences. 

28.2801–7 Determining responsibility 

under section 2801. 

28.6001–1 Records required to be kept. 

28.6011–1 Returns. 

28.6060–1 Reporting requirements for tax 

return preparers. 

28.6071–1 Time for filing returns. 

28.6081–1 Extension of time for filing 

returns reporting gifts and bequests from 

covered expatriates. 

28.6091–1 Place for filing returns. 

28.6101–1 Period covered by returns. 

28.6107–1 Tax return preparer must 

furnish copy of return or claim for 

refund to taxpayer and must retain a 

copy or record. 

28.6109–1 Tax return preparers furnishing 

identifying numbers for returns or claims 

for refund. 

28.6151–1 Time and place for paying tax 

shown on returns. 

28.6694–1 Section 6694 penalties 

applicable to return preparer. 

28.6694–2 Penalties for understatement 

due to an unreasonable position. 

28.6694–3 Penalty for understatement due 

to willful, reckless, or intentional 

conduct. 

28.6694–4 Extension of period of collection 

when tax return preparer pays 15 percent 

of a penalty for understatement of 

taxpayer’s liability and certain other 

procedural matters. 

28.6695–1 Other assessable penalties with 

respect to the preparation of tax returns 

for other persons. 

28.6696–1 Claims for credit or refund by 

tax return preparers and appraisers. 

28.7701–1 Tax return preparer. 

PART 28—IMPOSITION OF TAX ON 

GIFTS AND BEQUESTS FROM 

COVERED EXPATRIATES 

§ 28.2801–0 Table of contents. 

This section lists the headings in 

§§ 28.2801–1 through 28.2801–7. 

§ 28.2801–1 Tax on certain gifts and 

bequests from covered expatriates. 

(a) In general. 

(b) Applicability date. 

§ 28.2801–2 Definitions. 

(a) Overview. 

(b) U.S. citizen or resident. 

(c) Domestic trust. 

(d) Foreign trust. 

(1) In general. 

(2) Electing foreign trust. 

(3) Non-electing foreign trust. 

(e) U.S. recipient. 

(f) Covered bequest. 

(g) Covered gift. 

(h) Expatriate and covered expatriate. 

(i) Indirect acquisition of property. 

(j) Power of appointment. 

(k) Section 2801 tax. 

(l) Section 2801(c) amount. 

(m) Statutory references. 

(1) Code. 

(2) Subtitle B. 

(n) Applicability date. 

§ 28.2801–3 Rules and exceptions 

applicable to covered gifts and covered 

bequests. 

(a) Covered gift. 

(b) Covered bequest. 

(c) Exceptions to covered gift and covered 

bequest. 

(1) Reported taxable gifts. 

(2) Property reported as subject to estate 

tax. 

(3) Covered bequest previously subject to 

section 2801 tax as a covered gift. 

(4) Transfers to charity. 

(5) Transfers to spouse. 

(6) Qualified disclaimers. 

(d) Covered gifts and covered bequests 

made in trust. 

(e) Powers of appointment. 

(1) Covered expatriate as holder of power. 

(2) Covered expatriate as grantor of power. 

(f) Examples. 

(g) Applicability date. 

§ 28.2801–4 Liability for and payment of tax 

on covered gifts and covered bequests; 

computation of tax. 

(a) Liability for tax. 

(1) U.S. citizen or resident. 

(2) Domestic trust. 

(i) In general. 

(ii) Generation-skipping transfer tax. 

(iii) [Reserved]. 

(iv) Migrated foreign trust. 

(3) Foreign trust. 

(i) In general. 

(ii) Income tax deduction. 

(b) Computation of tax. 

(1) In general. 

(2) Net covered gifts and covered bequests. 

(c) Value of covered gift or covered 

bequest. 

(d) Date of receipt. 

(1) In general. 

(2) Covered gift. 

(3) Covered bequest. 

(4) Domestic trusts and electing foreign 

trusts. 

(5) Non-electing foreign trusts. 

(6) Powers of appointment. 

(i) Covered expatriate as holder of power. 

(ii) Covered expatriate as grantor of power. 

(7) Indirect receipts. 

(8) Future interest in property not in trust. 

(i) Date of receipt. 

(ii) Date-of-receipt election for future 

interest in property not in trust. 

(e) Reduction of tax for foreign gift or estate 

tax paid. 

(1) In general. 

(2) Protective claim for refund. 

(f) Examples. 

(g) Applicability date. 

§ 28.2801–5 Foreign trusts. 

(a) In general. 

(b) Distribution defined. 

(c) Amount of distribution attributable to 

covered gift or covered bequest. 

(1) Section 2801 ratio. 

(i) In general. 

(ii) Computation. 

(2) Effect of reported transfer and tax 

payment. 

(3) Inadequate information to calculate 

section 2801 ratio. 

(d) Foreign trust treated as domestic trust. 

(1) Election required. 

(2) Effect of election. 

(3) Time and manner of making the 

election. 

(i) When to make the election. 

(ii) Requirements for a valid election. 

(iii) Section 2801 tax payable with the 

election. 

(iv) Designation of U.S. agent. 

(A) In general. 

(B) Role of designated agent. 

(C) Effect of appointment of agent. 

(4) Filing requirement. 

(5) Duration of status as electing foreign 

trust. 


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(i) In general. 

(ii) Termination. 

(A) Manner of termination. 

(B) Effective date of termination. 

(C) Notice requirements upon termination. 

(iii) Subsequent elections. 

(6) Dispute as to amount of section 2801 

tax owed by electing foreign trust. 

(i) Procedure. 

(ii) Effect of compliance. 

(iii) Effect of failing to comply (imperfect 

election). 

(A) In general. 

(B) Notice to permissible distributees. 

(C) Reasonable cause. 

(D) Interim period. 

(7) No overpayment caused solely by virtue 

of defect in election. 

(e) Examples. 

(f) Applicability date. 

§ 28.2801–6 Special rules and crossreferences. 

(a) Determination of basis. 

(b) Generation-skipping transfer tax. 

(c) Information returns. 

(1) Gifts and bequests. 

(2) Foreign trust distributions. 

(3) Penalties and use of information. 

(d) Application of penalties. 

(1) Accuracy-related penalties on 

underpayments. 

(2) Penalty for substantial and gross 

valuation misstatements attributable to 

incorrect appraisals. 

(3) Penalty for failure to file a return and 

to pay tax. 

(e) Applicability date. 

§ 28.2801–7 Determining responsibility 

under section 2801. 

(a) Responsibility of U.S. citizens or 

residents receiving gifts or bequests from 

expatriates. 

(b) Disclosure of return and return 

information. 

(1) In general. 

(2) Rebuttable presumption. 

(c) Protective return. 

(d) Applicability date. 

§ 28.2801–1 Tax on certain gifts and 

bequests from covered expatriates. 

(a) In general. Section 2801 of the 

Internal Revenue Code (Code) imposes a 

tax (section 2801 tax) on covered gifts 

and covered bequests, including 

distributions attributable to covered 

gifts and covered bequests from nonelecting foreign trusts, received by a 

U.S. citizen or resident from a covered 

expatriate during a calendar year. 

Domestic trusts, as well as electing 

foreign trusts, are subject to tax under 

section 2801 in the same manner as if 

the trusts were U.S. citizens. See section 

2801(e)(4)(A)(i) and (B)(iii). 

Accordingly, the section 2801 tax is 

paid by the U.S. citizen or resident, 

domestic trust, or electing foreign trust 

that receives the covered gift or covered 

bequest, including distributions 

attributable to covered gifts and covered 

bequests from non-electing foreign 

trusts. For purposes of the regulations in 

this part 28 (26 CFR part 28), references 

to U.S. citizens are considered to 

include domestic trusts and electing 

foreign trusts. 

(b) Applicability date. This section 

applies to covered gifts or covered 

bequests received on or after January 1, 

2025. 

§ 28.2801–2 Definitions. 

(a) Overview. This section provides 

definitions of terms applicable solely for 

purposes of section 2801 of the Code 

and the regulations in this part 28. 

(b) U.S. citizen or resident. A U.S. 

citizen or resident is an individual who 

is a citizen or resident of the United 

States for purposes of chapter 11 or 12 

of subtitle B, as the case may be, at the 

time of receipt of the covered gift or 

covered bequest. Furthermore, 

references to a U.S. citizen also include 

a domestic trust, as well as an electing 

foreign trust. See § 28.2801–1(a). 

(c) Domestic trust. The term domestic 

trust means a trust defined in section 

7701(a)(30)(E) of the Code. References to 

a domestic trust include an electing 

foreign trust. 

(d) Foreign trust—(1) In general. The 

term foreign trust means a trust defined 

in section 7701(a)(31)(B). 

(2) Electing foreign trust. The term 

electing foreign trust means a foreign 

trust that has in effect a valid election 

to be treated as a domestic trust for 

purposes of section 2801. See 

§ 28.2801–5(d). 

(3) Non-electing foreign trust. The 

term non-electing foreign trust means 

any foreign trust other than an electing 

foreign trust described in paragraph 

(d)(2) of this section. 

(e) U.S. recipient. The term U.S. 

recipient means a U.S. citizen or 

resident, a domestic trust, or an electing 

foreign trust that receives a covered gift 

or covered bequest, whether directly or 

indirectly, during the calendar year. The 

term U.S. recipient includes a U.S. 

citizen or resident receiving a 

distribution from a non-electing foreign 

trust if the distribution is attributable (in 

whole or in part) to one or more covered 

gifts or covered bequests received by the 

non-electing foreign trust. See 

§ 28.2801–5(c) to determine the amount 

of a distribution attributable to covered 

gifts and covered bequests. This term 

also includes the U.S. citizen or resident 

shareholders, partners, or other interestholders, as the case may be (if any), of 

a business entity that receives a covered 

gift or covered bequest. 

(f) Covered bequest. The term covered 

bequest means any property acquired by 

a recipient on or after June 17, 2008, 

directly or indirectly by reason of the 

death of a covered expatriate, regardless 

of the situs of the property and of 

whether such property was acquired by 

the covered expatriate before or after 

expatriation from the United States, but 

only to the extent the property would 

have been included in the covered 

expatriate’s gross estate for Federal 

estate tax purposes if the covered 

expatriate had been a U.S. citizen 

immediately before death. See 

paragraph (i) of this section for guidance 

in determining when property is 

acquired indirectly for purposes of this 

paragraph (f). The term covered bequest 

also includes any other property that 

would have been included in the 

covered expatriate’s gross estate for 

Federal estate tax purposes (for 

example, under section 2035 of the 

Code) if the covered expatriate had been 

a U.S. citizen immediately before death, 

as well as distributions made by reason 

of the death of a covered expatriate from 

a non-electing foreign trust to the extent 

the distributions are attributable to 

covered gifts and covered bequests 

made to the non-electing foreign trust 

on or after June 17, 2008. See § 28.2801– 

3 for additional rules and exceptions 

applicable to the term covered bequest. 

(g) Covered gift. The term covered gift 

means any property acquired by a 

recipient on or after June 17, 2008, by 

gift directly or indirectly from an 

individual who is a covered expatriate 

at the time the property is received by 

the recipient, regardless of the situs of 

such property and of whether such 

property was acquired by the covered 

expatriate before or after expatriation 

from the United States. See paragraph (i) 

of this section for guidance in 

determining when property is acquired 

indirectly for purposes of this paragraph 

(g). The term covered gift also includes 

distributions made, other than by reason 

of the death of a covered expatriate, 

from a non-electing foreign trust to the 

extent the distributions are attributable 

to covered gifts and covered bequests 

made to the non-electing foreign trust 

on or after June 17, 2008. See § 28.2801– 

3 for additional rules and exceptions 

applicable to the term covered gift. 

(h) Expatriate and covered expatriate. 

The term expatriate has the same 

meaning for purposes of section 2801 as 

that term has in section 877A(g)(2) of 

the Code. The term covered expatriate 

has the same meaning for purposes of 

section 2801 as that term has in section 

877A(g)(1). The determination of 

whether an individual is a covered 

expatriate is made as of the expatriation 

date as defined in section 877A(g)(3), 

and if an expatriate meets the definition 

of a covered expatriate, the expatriate is 

a covered expatriate for purposes of 

section 2801 at all times after the 


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expatriation date. However, an 

expatriate is not treated as a covered 

expatriate for purposes of section 2801 

during any period beginning after the 

expatriation date during which such 

individual is subject to United States 

estate or gift tax (chapter 11 or chapter 

12 of subtitle B) as a U.S. citizen or 

resident. See section 877A(g)(1)(C). An 

individual’s status as a covered 

expatriate will be determined as of the 

date of the most recent expatriation, if 

there has been more than one. 

(i) Indirect acquisition of property. 

For purposes of paragraphs (f) and (g) of 

this section, an indirect acquisition of 

property means the receipt of an interest 

in property, gratuitously passed from or 

conferred by the covered expatriate, by 

or on behalf of the recipient through 

another person, or by a trust or entity in 

which the recipient has an interest, 

regardless of the means or device 

employed. Such an indirect acquisition 

includes but is not limited to— 

(1) Property acquired by a recipient 

through a transfer to a corporation or 

other entity other than a trust or estate, 

to the extent of the ownership interest 

of the recipient in that corporation or 

other entity; 

(2) Money paid or property 

distributed by a covered expatriate, or 

distributed from a non-electing foreign 

trust that received a covered gift or 

covered bequest, in satisfaction of a debt 

or liability of the recipient, regardless of 

the payee of that payment or 

distribution; 

(3) Property acquired by or on behalf 

of a recipient pursuant to the exercise, 

release, or lapse (without regard to the 

exception in section 2041(b)(2) or 

2514(e) of the Code) of a non-covered 

expatriate’s power of appointment 

granted by a covered expatriate over 

property not in trust, unless the 

property previously was subjected to 

section 2801 tax upon the grant of the 

power or the covered expatriate had no 

more than a non-general power of 

appointment over that property; and 

(4) 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. 

(j) Power of appointment. The term 

power of appointment refers to both a 

general and non-general power of 

appointment, except as expressly 

limited to one or the other in a 

particular provision of the regulations in 

this part 28. The term general power of 

appointment has the same meaning as 

in sections 2041(b)(1) and 2514(c). The 

term non-general power of appointment 

means any power of appointment that is 

not a general power of appointment. For 

purposes of section 2801, the term 

power of appointment is defined 

without regard to the exception in 

section 2041(b)(2) or 2514(e). 

(k) Section 2801 tax. The term section 

2801 tax has the meaning provided in 

§ 28.2801–1(a). 

(l) Section 2801(c) amount. The term 

section 2801(c) amount is the dollar 

amount of the per-donee gift tax 

exclusion in effect under section 

2503(b) for that calendar year. 

(m) Statutory references—(1) Code. 

The term Code means the Internal 

Revenue Code. 

(2) Subtitle B. The term subtitle B 

means subtitle B of the Code. 

(n) Applicability date. This section 

applies to covered gifts or covered 

bequests received on or after January 1, 

2025. 

§ 28.2801–3 Rules and exceptions 

applicable to covered gifts and covered 

bequests. 

(a) Covered gift. Subject to the 

provisions of paragraphs (c) through (e) 

of this section, the term gift as used in 

the definition of covered gift in 

§ 28.2801–2(g) has the same meaning as 

in chapter 12 of subtitle B, but without 

regard to the exceptions in section 

2501(a)(2), (4), and (5) of the Code, the 

per-donee exclusion under section 

2503(b) of the Code for certain transfers 

of a present interest, the exclusion 

under section 2503(e) for certain 

educational or medical expenses, and 

the waiver of certain pension rights 

under section 2503(f). 

(b) Covered bequest. Subject to the 

provisions of paragraphs (c) through (e) 

of this section, property acquired by 

reason of the death of a covered 

expatriate (one of the types of transfers 

defined as a covered bequest in 

§ 28.2801–2(f)) includes any property 

that would have been includible in the 

gross estate of the covered expatriate 

under chapter 11 of subtitle B if the 

covered expatriate had been a U.S. 

citizen at the time of death. Therefore, 

property acquired by reason of a 

covered expatriate’s death includes, 

without limitation, property or an 

interest in property acquired by reason 

of a covered expatriate’s death— 

(1) By bequest, devise, trust provision, 

beneficiary designation, or other 

contractual arrangement, or by 

operation of law, to the extent the 

property would have been includible in 

the covered expatriate’s gross estate if 

the covered expatriate had been a U.S. 

citizen at death; 

(2) That was transferred by the 

covered expatriate during life, either 

before or after expatriation, and that 

would have been includible in the 

covered expatriate’s gross estate under 

section 2036, 2037, or 2038 of the Code 

had the covered expatriate been a U.S. 

citizen at death; 

(3) That was received for the benefit 

of a covered expatriate from such 

covered expatriate’s spouse, or 

predeceased spouse, for which a valid 

qualified terminable interest property 

(QTIP) election was made on such 

spouse’s, or predeceased spouse’s, Form 

709, United States Gift (and GenerationSkipping Transfer) Tax Return, Form 

709–NA, United States Gift (and 

Generation-Skipping Transfer) Tax 

Return of Nonresident Not a Citizen of 

the United States, Form 706, United 

States Estate (and Generation-Skipping 

Transfer) Tax Return, or Form 706–NA, 

United States Estate (and GenerationSkipping Transfer) Tax Return, Estate of 

nonresident not a citizen of the United 

States, which would have been 

includible in the covered expatriate’s 

gross estate under section 2044 of the 

Code if the covered expatriate had been 

a U.S. citizen at death; or 

(4) That otherwise passed from the 

covered expatriate by reason of his or 

her death, such as— 

(i) Property held by the covered 

expatriate and another person as joint 

tenants with right of survivorship or as 

tenants by the entirety, but only to the 

extent such property would have been 

includible in the covered expatriate’s 

gross estate under section 2040 of the 

Code if the covered expatriate had been 

a U.S. citizen at death; 

(ii) Any annuity or other payment that 

would have been includible in the 

covered expatriate’s gross estate if the 

covered expatriate had been a U.S. 

citizen at death; 

(iii) Property subject to a general 

power of appointment held by the 

covered expatriate at death that would 

have been includible in the covered 

expatriate’s gross estate under section 

2041 if the covered expatriate had been 

a U.S. citizen at death; or 

(iv) Life insurance proceeds payable 

upon the covered expatriate’s death that 

would have been includible in the 

covered expatriate’s gross estate under 

section 2042 of the Code if the covered 

expatriate had been a U.S. citizen at 

death. 

(c) Exceptions to covered gift and 

covered bequest. Notwithstanding the 

definitions of covered gift and covered 

bequest in § 28.2801–2(f) and (g), 

respectively, as further described in 

paragraphs (a) and (b) of this section, 

the terms covered gift and covered 

bequest do not include property 

described in paragraphs (c)(1) through 

(6) of this section. 


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(1) Reported taxable gifts. Property 

transferred as a taxable gift under 

section 2503(a) that is reported on the 

donor’s timely filed Form 709 or Form 

709–NA is not a covered gift. However, 

property excluded from the definition of 

a taxable gift, such as a present interest 

not in excess of the annual exclusion 

amount under section 2503(b), is not 

excluded from the definition of a 

covered gift under this paragraph (c)(1) 

even if reported on the donor’s Form 

709 or Form 709–NA. 

(2) Property reported as subject to 

estate tax. Property that is includible in 

the gross estate of the covered expatriate 

and is reported on a timely filed Form 

706, Form 706–NA, or Form 706–QDT, 

U.S. Estate Tax Return for Qualified 

Domestic Trusts, or any successor form, 

is not a covered bequest. Thus, if the 

covered expatriate’s gross estate is not of 

sufficient value to require the filing of 

a Form 706–NA, for example, and no 

Form 706–NA is timely filed, the 

property passing from that covered 

expatriate is not excluded from the 

definition of a covered bequest under 

the rule of this paragraph (c)(2). Further, 

this exclusion does not apply to the 

property not reported on such a form, 

whether or not subject to United States 

estate tax (that is, non-U.S. situs 

property that passes to U.S. citizens or 

residents). 

(3) Covered bequest previously subject 

to section 2801 tax as a covered gift. If 

a covered bequest from a covered 

expatriate previously constituted a 

covered gift from that covered expatriate 

(for example, because of a retained 

power or right described in section 

2036), the property is a covered bequest 

only to the extent that the value of the 

covered bequest exceeds the value of the 

covered gift that was subject to section 

2801. 

(4) Transfers to charity. A gift to a 

donee described in section 2522(b) of 

the Code or a bequest to a beneficiary 

described in section 2055(a) of the Code 

is not a covered gift or covered bequest 

to the extent a charitable deduction 

under section 2522 or 2055 would have 

been allowed if the covered expatriate 

had been a U.S. citizen at the time of the 

transfer. 

(5) Transfers to spouse. Property 

transferred from a covered expatriate to 

the covered expatriate’s spouse 

generally is not a covered gift or covered 

bequest to the extent a marital 

deduction under section 2523 or 2056 of 

the Code would have been allowed if 

the covered expatriate had been a U.S. 

citizen at the time of the transfer. To the 

extent that a gift or bequest of property 

to a trust (or to a separate share of the 

trust) would qualify for the marital 

deduction, the property transferred in 

the gift or bequest is not a covered gift 

or covered bequest. To the extent the 

gift or bequest of property to the trust 

(or to a separate share of the trust) 

would not qualify for the marital 

deduction, the property transferred in 

the gift or bequest is a covered gift or 

covered bequest to the trust, and in the 

case of a non-electing foreign trust, 

distributions attributable to such gift or 

bequest will subject the U.S. citizen or 

resident spouse receiving such 

distributions to the section 2801 tax. See 

§§ 28.2801–4(a)(3) and 28.2801–5(a). For 

qualified terminable interest property 

(QTIP) described in section 2056(b)(7) 

and for property in a qualified domestic 

trust (QDOT) described in section 

2056A of the Code, a valid QTIP and/ 

or QDOT election must be made by the 

covered expatriate or covered 

expatriate’s estate in order for the gift or 

bequest of such property to qualify for 

the marital exclusion under section 

2801(e)(3), and, thus not be a covered 

gift or covered bequest under this 

paragraph (c)(5). Such an election can 

be made only with respect to the 

transfer of property subject to gift or 

estate tax under section 2511(a) or 2103 

of the Code. Furthermore, to exclude 

from covered bequests property in a 

QDOT for the benefit of a covered 

expatriate, funded pursuant to a bequest 

by the covered expatriate’s predeceased 

spouse who also was a covered 

expatriate, a valid QDOT election must 

have been made in the predeceased 

covered expatriate’s estate. 

(6) Qualified disclaimers. Property 

transferred pursuant to a covered 

expatriate’s qualified disclaimer, as 

defined in section 2518(b) of the Code, 

is not a covered gift or covered bequest 

from that covered expatriate. 

(d) Covered gifts and covered bequests 

made in trust. For transfers of property 

to a trust that are covered gifts or 

covered bequests as described in 

§§ 28.2801–2 and 28.2801–3, the 

property is treated as a covered gift or 

covered bequest to the trust without 

regard to the beneficial interests in the 

trust or whether any person has a 

general power of appointment or a 

power of withdrawal over trust 

property. Accordingly, the rules in 

section 2801(e)(4) and § 28.2801–4(a) 

apply to determine liability for payment 

of the section 2801 tax. The U.S. 

recipient of a covered gift or a covered 

bequest made to a domestic trust or to 

an electing foreign trust is the domestic 

or electing foreign trust, and the U.S. 

recipient of a covered gift or a covered 

bequest made to a non-electing foreign 

trust is each U.S. citizen or resident 

receiving a distribution from the nonelecting foreign trust (without regard to 

whether that distribution is or is not 

pursuant to the exercise or release of a 

general power of appointment). See 

§ 28.2801–2(e) for the definition of a 

U.S. recipient. 

(e) Powers of appointment—(1) 

Covered expatriate as holder of power. 

The exercise or release of a general 

power of appointment held by a covered 

expatriate over property, whether or not 

in trust (even if that covered expatriate 

was a U.S. citizen or resident when the 

general power of appointment was 

granted), for the benefit of a U.S. citizen 

or resident is a covered gift or covered 

bequest. For this purpose, the lapse of 

a general power of appointment held by 

a covered expatriate is treated as a 

release to the extent provided in 

sections 2041(b)(2) and 2514(e) of the 

Code. Furthermore, the exercise of a 

power of appointment by a covered 

expatriate that creates another power of 

appointment as described in section 

2041(a)(3) or 2514(d) for the benefit of 

a U.S. citizen or resident is a covered 

gift or a covered bequest. 

(2) Covered expatriate as grantor of 

power. The grant by a covered expatriate 

to an individual who is a U.S. citizen or 

resident of a general power of 

appointment over property not held in 

trust is a covered gift or covered bequest 

to the powerholder. For the rule 

applying to the grant by a covered 

expatriate of a general power of 

appointment over property in trust, see 

paragraph (d) of this section. 

(f) Examples. The provisions of this 

section are illustrated by the following 

examples: 

(1) Example 1: Transfer to spouse. In 

Year 1, CE, a covered expatriate 

domiciled in Country F, a foreign 

country with which the United States 

does not have a gift tax treaty, gives 

$300,000 cash to his wife, W, a U.S. 

resident and citizen of Country F. Under 

paragraph (c)(5) of this section, the 

$100,000 exclusion for a noncitizen 

spouse, as indexed for inflation in Year 

1, is excluded from the definition of a 

covered gift under section 2801 because 

only that amount of the transfer would 

have qualified for the gift tax marital 

deduction if CE had been a U.S. citizen 

at the time of the gift. See sections 

2801(e)(3), 2523(i), and 2503(b). The 

remaining amount ($300,000, less the 

$100,000 exclusion for a noncitizen 

spouse, as indexed for inflation) is a 

covered gift from CE to W. W must 

timely file Form 708, United States 

Return of Tax for Gifts and Bequests 

Received from Covered Expatriates, and 

timely pay the tax. See §§ 28.6011–1(a), 

28.6071–1(a), and 28.6151–1(a). W also 

must report the transfer on Form 3520, 


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Annual Return to Report Transactions 

With Foreign Trusts and Receipt of 

Certain Foreign Gifts, and any other 

required form. See § 28.2801–6(c)(1). 

(2) Example 2: Reporting property as 

subject to estate tax—(i) Year 1. CE, a 

covered expatriate domiciled in Country 

F, a foreign country with which the 

United States does not have an estate 

tax treaty, owns a condominium in the 

United States with son, S, a U.S. citizen. 

CE and S each contributed their 

actuarial share of the purchase price 

when purchasing the condominium and 

own it as joint tenants with rights of 

survivorship. On December 14, Year 1, 

CE dies. At the time of CE’s death, the 

fair market value of CE’s share of the 

condominium, $250,000, is included in 

CE’s gross estate under sections 2040 

and 2103. 

(ii) Year 2. On September 14 of the 

following calendar year, Year 2, the 

executor of CE’s estate timely files a 

Form 4768, Application for Extension of 

Time to File a Return and/or Pay U.S. 

Estate (and Generation-Skipping 

Transfer) Taxes, requesting a 6-month 

extension of time to file Form 706–NA, 

and a 1-year extension of time to pay the 

estate tax. The Internal Revenue Service 

grants both extensions, but CE’s 

executor fails to file the Form 706–NA 

until after March 14 of Year 3. 

(iii) Analysis. S learns that the 

executor of CE’s estate did not timely 

file Form 706–NA. CE’s estate remains 

liable for estate tax on CE’s interest in 

the condominium. In addition, because 

CE is a covered expatriate and CE’s 

estate failed to timely file the tax return 

reporting the transaction, S received a 

covered bequest as defined in 

§ 28.2801–2(f) and paragraph (b) of this 

section and must timely file Form 708 

and pay the section 2801 tax. See 

§§ 28.6011–1(a), 28.6071–1(a), and 

28.6151–1(a). S also must file Form 

3520 to report a large gift or bequest 

from a foreign person and any other 

required form. See § 28.2801–6(c)(1). 

(3) Example 3: Covered gift in trust 

with grant of general power of 

appointment over trust property—(i) 

Facts. On October 20, Year 1, CE, a 

covered expatriate domiciled in Country 

F, a foreign country with which the 

United States does not have a gift tax 

treaty, transfers $500,000 in cash from 

an account in Country F to an 

irrevocable foreign trust created on that 

same date. The foreign trust does not 

elect to be treated as a domestic trust for 

purposes of section 2801. Under section 

2511(a), no gift tax is imposed on the 

transfer and thus, CE is not required to 

file a U.S. gift tax return. Under the 

terms of the foreign trust, A, CE’s child 

and a U.S. resident, and Q, A’s child 

and a U.S. citizen, may receive 

discretionary distributions of income 

and principal during life. At A’s death, 

the assets remaining in the foreign trust 

will be distributed to B, CE’s other U.S. 

resident child, or if B is not living at the 

time of A’s death, then to CE’s thenliving issue, per stirpes. The terms of 

the foreign trust also allow A to appoint 

trust principal and/or income to A, A’s 

estate, A’s creditors, the creditors of A’s 

estate, or A’s issue at any time. On 

March 5, Year 2, A exercises this power 

to appoint and causes the trustee to 

distribute $100,000 to Q. 

(ii) Effects on Q. On October 20, Year 

1, the irrevocable, non-electing foreign 

trust receives a covered gift for purposes 

of section 2801, but no section 2801 tax 

is imposed at that time. On March 5, 

Year 2, when Q receives $100,000 from 

the irrevocable foreign trust pursuant to 

the exercise of A’s power of 

appointment, Q receives a distribution 

attributable to a covered gift and section 

2801 tax is imposed on Q. See 

§ 28.2801–4(d)(5). Q must timely file 

Form 708 to report the covered gift from 

a foreign person (specifically, from CE). 

See section 6039F(a) and §§ 28.6011– 

1(a), 28.6071–1(a), and 28.6151–1(a). 

Furthermore, because the $100,000 is 

being distributed from a foreign trust, Q 

must report the gift on a Form 3520 as 

a distribution from a foreign trust. See 

§ 28.2801–6(c)(2). 

(iii) Effects on A. Although A has no 

section 2801 reporting requirement, 

under section 2501, A makes a taxable 

gift to Q of $100,000 when A exercises 

the general power of appointment for 

Q’s benefit. See section 2514(b). 

Accordingly, A must report A’s 

$100,000 gift to Q on a timely filed 

Form 709. See section 6019. Because A 

is considered the transferor of the 

$100,000 for gift and GST tax purposes, 

the distribution to Q is not a generationskipping transfer under chapter 13. See 

§ 26.2652–1(a)(1) of this chapter. 

(4) Example 4: Lapse of power of 

appointment held by covered expatriate. 

A, a U.S. citizen, creates an irrevocable 

domestic trust for the benefit of A’s 

issue, CE, and CE’s children. CE is a 

covered expatriate, but CE’s children are 

U.S. citizens. CE has the right to 

withdraw $5,000 in each year in which 

A makes a contribution to the trust, but 

the withdrawal right lapses 30 days after 

the date of the contribution. In Year 1, 

A funds the trust, but CE fails to 

exercise CE’s right to withdraw $5,000 

within 30 days of the contribution. The 

$5,000 lapse is not considered to be a 

release of the power by CE, so it is 

neither a gift for U.S. gift tax purposes, 

nor a covered gift for purposes of 

section 2801 under paragraph (e)(1) of 

this section. 

(5) Example 5: Property subject to 

section 2801 tax as a covered gift and 

as a covered bequest. F, a CE, transfers 

an income interest in property to A, a 

U.S. citizen, while retaining the 

remainder interest. F was not required 

to, and did not, file a gift tax return. 

Upon F’s death, A receives full title to 

the property. The initial transfer of the 

income interest was a covered gift 

valued at $1,000,000, upon which A 

paid the section 2801 tax. The value of 

the property at F’s death is $4,500,000. 

Because the full value of the property 

would have been included in F’s gross 

estate if F had died as a U.S. citizen, 

there is a covered bequest at F’s death. 

The covered bequest is subject to 

section 2801 tax on the excess of the 

value of the covered bequest over the 

value of the covered gift ($4,500,000 

minus $1,000,000), or $3,500,000. 

(g) Applicability date. This section 

applies to covered gifts or covered 

bequests received on or after January 1, 

2025. 

§ 28.2801–4 Liability for and payment of 

tax on covered gifts and covered bequests; 

computation of tax. 

(a) Liability for tax—(1) U.S. citizen or 

resident. A U.S. citizen or resident who 

receives a covered gift or covered 

bequest is liable for payment of the 

section 2801 tax. 

(2) Domestic trust—(i) In general. A 

domestic trust that receives a covered 

gift or covered bequest is treated as a 

U.S. citizen and is liable for payment of 

the section 2801 tax. See section 

2801(e)(4)(A)(i) and § 28.2801–2(b). 

(ii) Generation-skipping transfer tax. 

A trust’s payment of the section 2801 

tax does not result in a taxable 

distribution under section 2621 of the 

Code to any trust beneficiary for 

purposes of the generation-skipping 

transfer tax to the extent that the trust, 

rather than the beneficiary, is liable for 

the section 2801 tax. 

(iii) [Reserved]. 

(iv) Migrated foreign trust. A nonelecting foreign trust that has previously 

received a covered gift or covered 

bequest and that subsequently becomes 

a domestic trust as defined under 

section 7701(a)(30)(E) of the Code 

(migrated foreign trust), must file a 

timely Form 708, United States Return 

of Tax for Gifts and Bequests Received 

from Covered Expatriates, for the 

taxable year in which the trust becomes 

a domestic trust. The section 2801 tax, 

if any, must be paid by the due date of 

that Form 708. On that Form 708, the 

section 2801 tax is calculated in the 

same manner as if such trust were 


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making an election under § 28.2801– 

5(d) to be treated as a domestic trust 

solely for purposes of the section 2801 

tax. Accordingly, the trustee must report 

and pay the section 2801 tax on all 

covered gifts and covered bequests 

received by the trust during the year in 

which the trust becomes a domestic 

trust, as well as on the portion of the 

trust’s value at the end of the year 

preceding the year in which the trust 

becomes a domestic trust that is 

attributable to all prior covered gifts and 

covered bequests. Because the migrated 

foreign trust will be treated for purposes 

of section 2801 as a domestic trust for 

the entire year during which it became 

a domestic trust, distributions made to 

U.S. citizens or residents during that 

year but before the date on which the 

trust became a domestic trust will not be 

subject to section 2801. 

(3) Foreign trust—(i) In general. A 

foreign trust that receives a covered gift 

or covered bequest is not liable for 

payment of the section 2801 tax unless 

the trust makes an election to be treated 

as a domestic trust solely for purposes 

of section 2801 as provided in 

§ 28.2801–5(d). Absent such an election, 

each U.S. recipient is liable for payment 

of the section 2801 tax on that person’s 

receipt, either directly or indirectly, of 

a distribution from the foreign trust to 

the extent that the distribution is 

attributable to a covered gift or covered 

bequest made to the foreign trust. See 

§ 28.2801–5(b) and (c) regarding 

distributions from non-electing foreign 

trusts. 

(ii) Income tax deduction. The U.S. 

recipient of a distribution from a nonelecting foreign trust is allowed a 

deduction against income tax under 

section 164 in the calendar year in 

which the U.S. recipient paid or accrued 

the section 2801 tax. Thus, for cash 

method taxpayers, the calendar year in 

which the payment of the section 2801 

tax occurs is later than the year in 

which the distribution is received and 

becomes subject to income tax. The 

amount of the deduction is equal to the 

portion of the section 2801 tax 

attributable to such distribution, but 

only to the extent that portion of the 

distribution is included in the U.S. 

recipient’s gross income (which, for this 

purpose, also includes accumulation 

distributions under section 665(b)). The 

amount of the deduction allowed under 

section 164 is calculated as follows: 

(A) First, the U.S. recipient must 

determine the total amount of 

distribution(s) from all non-electing 

foreign trusts treated as covered gifts 

and covered bequests received by that 

U.S. recipient during the calendar year 

to which the section 2801 tax payment 

relates. 

(B) Second, of the amount determined 

in paragraph (a)(3)(ii)(A) of this section, 

the U.S. recipient must determine the 

amount that also is included in the U.S. 

recipient’s gross income for that 

calendar year. For purposes of this 

paragraph (a)(3)(ii)(B), distributions 

from non-electing foreign trusts 

included in the U.S. recipient’s gross 

income are deemed first to consist of the 

portion of those distributions, if any, 

that are attributable to covered gifts and 

covered bequests. 

(C) Finally, the U.S. recipient must 

determine the portion of the section 

2801 tax paid for that calendar year that 

is attributable to the amount determined 

in paragraph (a)(3)(ii)(B) of this section, 

the covered gifts and covered bequests 

received from non-electing foreign trusts 

that also are included in the U.S. 

recipient’s gross income. This amount is 

the allowable deduction. Thus, for a 

calendar year taxpayer, the deduction is 

determined by multiplying the section 

2801 tax paid during the calendar year 

by the ratio of the amount determined 

in paragraph (a)(3)(ii)(B) of this section 

to the total covered gifts and covered 

bequests received by the U.S. recipient 

during the calendar year to which that 

tax payment relates (that is, 2801 tax 

liability x [non-electing foreign trust 

distributions attributable to covered 

gifts and covered bequests that are also 

included in gross income/total covered 

gifts or covered bequests received]). 

(b) Computation of tax—(1) In 

general. The section 2801 tax is 

computed by multiplying the net 

covered gifts and covered bequests (as 

defined in paragraph (b)(2) of this 

section) received by a U.S. recipient 

during the calendar year by the highest 

rate of estate tax under section 2001(c) 

in effect for that calendar year. See 

paragraph (f)(1) of this section (Example 

1). 

(2) Net covered gifts and covered 

bequests. The net covered gifts and 

covered bequests received by a U.S. 

recipient during the calendar year is the 

total value of all covered gifts and 

covered bequests received by that U.S. 

recipient during the calendar year, less 

the section 2801(c) amount, which is the 

dollar amount of the per-donee 

exclusion in effect under section 

2503(b) for that calendar year. The total 

value of all covered gifts and covered 

bequests received by a U.S. recipient 

during the calendar year includes 

distributions made from a non-electing 

foreign trust to the extent the 

distributions are attributable to covered 

gifts or covered bequests made to the 

foreign trust on or after June 17, 2008. 

(c) Value of covered gift or covered 

bequest. The value of a covered gift or 

covered bequest is the fair market value 

of the property as of the date of its 

receipt by the U.S. recipient. See 

paragraph (d) of this section regarding 

the determination of the date of receipt. 

As in the case of chapters 11 and 12, the 

fair market value of a covered gift or 

covered bequest is the price, as of the 

date of receipt, at which such property 

would change hands between a willing 

buyer and a willing seller, neither being 

under any compulsion to buy or to sell 

and both having reasonable knowledge 

of relevant facts. The fair market value 

of a covered gift is determined in 

accordance with the Federal gift tax 

valuation principles of section 2512 and 

chapter 14 and the corresponding 

regulations. The fair market value of a 

covered bequest is determined by 

applying the Federal estate tax valuation 

principles of section 2031 and chapter 

14, to the extent applicable, and the 

corresponding regulations, but without 

regard to sections 2032 and 2032A. 

(d) Date of receipt—(1) In general. The 

section 2801 tax is imposed upon the 

receipt of a covered gift or covered 

bequest by a U.S. recipient. 

(2) Covered gift. The date of receipt of 

a covered gift is the same as the date of 

the gift for purposes of chapter 12 of 

subtitle B as if the covered expatriate 

had been a U.S. citizen at the time of the 

transfer (subject to the other provisions 

of this paragraph (d)). For example, for 

a gift of stock, if the covered expatriate 

delivers a properly endorsed stock 

certificate to the U.S. recipient, the date 

of delivery is the date of receipt for 

purposes of this section. Alternatively, 

if the covered expatriate delivers the 

stock certificate to the issuing 

corporation or its transfer agent in order 

to transfer title to the U.S. recipient, the 

date of receipt is the date the stock is 

transferred on the books of the 

corporation. However, for an asset or 

property interest subject to a claim of 

right of another involving a bona fide 

dispute, the date of receipt is the date 

on which such claim is extinguished. 

(3) Covered bequest. The date of 

receipt of a covered bequest is the date 

of distribution from the estate or the 

decedent’s revocable trust rather than 

the date of death of the covered 

expatriate (subject to the other 

provisions of this subparagraph (d)). 

However, the date of receipt for 

property passing on the death of the 

covered expatriate by operation of law, 

or by beneficiary designation or other 

contractual agreement, is the date of 

death of the covered expatriate. 

Notwithstanding the previous 

sentences, for an asset subject to a claim 


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of right of another involving a bona fide 

dispute, the date of receipt is the date 

on which such claim is extinguished. 

(4) Domestic trusts and electing 

foreign trusts. The U.S. recipient of a 

covered gift or covered bequest made to 

a domestic trust or an electing foreign 

trust is the trust. For a lifetime transfer 

of assets by a covered expatriate to a 

domestic trust or an electing foreign 

trust, the date of receipt of the covered 

gift is the date of the gift for purposes 

of chapter 12 of subtitle B, determined 

as if the covered expatriate had been a 

U.S. citizen at the time of the transfer. 

For example, in the event of a transfer 

by a covered expatriate to a revocable 

trust, the date of receipt is the later of 

the date the right to revoke the trust is 

relinquished or extinguished and the 

date when all powers over or interests 

in the trust (if any) that would prevent 

the transfer from being a completed 

transfer for gift tax purposes 

(determined as if the covered expatriate 

had been a U.S. citizen) are 

extinguished. Similarly, in the event of 

a transfer by a covered expatriate to an 

irrevocable domestic trust or electing 

foreign trust over or in which the 

covered expatriate retains powers or 

interests that would prevent the transfer 

from being a completed gift for gift tax 

purposes (determined as if the covered 

expatriate had been a U.S. citizen), the 

date of receipt by the trust is the date 

all such powers or interests are 

extinguished. Additionally, if before the 

relinquishment of the right to revoke the 

trust or relinquishment of some other 

powers or interests that would render 

the gift incomplete (determined as if the 

covered expatriate had been a U.S. 

citizen), such trust distributes property 

to a U.S. recipient not in discharge of a 

support or other obligation of the donor, 

then the U.S. recipient of that 

distribution receives a covered gift on 

the date of that distribution. 

(5) Non-electing foreign trusts. A U.S. 

citizen or resident is treated as receiving 

a covered gift or covered bequest on the 

date that person receives a distribution 

from a non-electing foreign trust 

attributable to a covered gift or covered 

bequest that was received by the trust. 

The date of such a receipt by a U.S. 

citizen or resident is the date of each 

distribution from the non-electing 

foreign trust. In the event of a sale, 

encumbrance, monetization, or other 

disposition of a U.S. recipient’s interest 

in a non-electing foreign trust, the date 

of receipt is the date of such sale, 

encumbrance, monetization, or other 

disposition of the interest. 

(6) Powers of appointment—(i) 

Covered expatriate as holder of power. 

In the case of the exercise, release, or 

lapse of a power of appointment held by 

a covered expatriate that is a covered 

gift pursuant to § 28.2801–3(e)(1), the 

date of receipt is the date of the 

exercise, release, or lapse of the power. 

In the case of the exercise, release, or 

lapse of a power of appointment held by 

a covered expatriate that is a covered 

bequest pursuant to § 28.2801–3(e)(1), 

the date of receipt is the date the 

property subject to the power is 

distributed from the decedent’s estate or 

any trust if the power of appointment is 

over property in such estate or trust, or 

the date of the covered expatriate’s 

death if the power of appointment is 

over property passing on the covered 

expatriate’s death by operation of law, 

or by beneficiary designation, or other 

contractual agreement. 

(ii) Covered expatriate as grantor of 

power. The date of receipt of property 

subject to a general power of 

appointment granted by a covered 

expatriate to a U.S. citizen or resident 

over property not transferred in trust 

that constitutes a covered gift or covered 

bequest pursuant to § 28.2801–3(e)(2) is 

the first date on which both the general 

power of appointment is exercisable by 

the U.S. citizen or resident and the 

property subject to the general power of 

appointment has been irrevocably 

transferred by the covered expatriate. 

The date of receipt of property subject 

to a general power of appointment over 

property in a domestic trust or an 

electing foreign trust is determined in 

accordance with paragraphs (d)(2) 

through (4) of this section, and over 

property in a non-electing foreign trust 

is determined in accordance with 

paragraph (d)(5) of this section. See 

§ 28.2801–3(d) for the rule applying to 

covered gifts and covered bequests 

made in trust. 

(7) Indirect receipts. The date of 

receipt by a U.S. recipient of a covered 

gift or covered bequest received 

indirectly from a covered expatriate is 

the date of its receipt, as determined 

under this paragraph (d), by the U.S. 

citizen or resident who is the first 

recipient of that property from the 

covered expatriate to be subject to 

section 2801 with regard to that 

property. For example, the date of 

receipt of property subject to a nongeneral power of appointment over 

property not held in trust given by a 

covered expatriate to a foreign person 

(other than another covered expatriate) 

is the date that property is received by 

the U.S. recipient in whose favor the 

power was exercised. Further, the date 

of receipt of property received through 

one or more entities not subject to 

section 2801 is the date of its receipt by 

the U.S. recipient from a conduit entity. 

(8) Future interest in property not in 

trust—(i) Date of receipt. The date of 

receipt by a U.S. recipient (including a 

domestic trust or an electing foreign 

trust) of a future interest in property not 

held in trust is the earlier of the date 

such interest may be transferred by the 

U.S. recipient and the date that is the 

later of the date that such interest vests 

in the U.S. recipient or the date that the 

last intervening interest in the property 

is extinguished. For this purpose, a 

transfer includes a sale, encumbering, 

monetization, or other disposition of the 

interest. 

(ii) Date-of-receipt election for future 

interest in property not in trust. A U.S. 

recipient of a covered gift or covered 

bequest that is a future interest in 

property not held in trust instead may 

elect to treat the date of receipt as the 

date of the donor’s transfer of that future 

interest in the event of a covered gift, or 

as the date of death of the covered 

expatriate in the event of a covered 

bequest. Such an election will be made 

on Form 708 for the year in which this 

elective date of receipt occurs, in 

accordance with the instructions for 

such form. 

(e) Reduction of tax for foreign gift or 

estate tax paid—(1) In general. The 

section 2801 tax is reduced by the 

amount of any gift or estate tax paid to 

a foreign country with respect to the 

covered gift or covered bequest. For this 

purpose, the term foreign country 

includes territories and political 

subdivisions of foreign states. However, 

no reduction is allowable for interest 

and penalties paid in connection with 

those foreign taxes. To claim the 

reduction of section 2801 tax, the U.S. 

recipient must attach to the Form 708 a 

copy of the foreign gift or estate tax 

return and a copy of the receipt or 

cancelled check for payment of the 

foreign gift or estate tax. The U.S. 

recipient also must report on an 

attachment to the Form 708: 

(i) The amount of foreign gift or estate 

tax paid with respect to each covered 

gift or covered bequest and the amount 

and date of each payment thereof; 

(ii) A description and the value of the 

property with respect to which such 

taxes were imposed; 

(iii) Whether any refund of part or all 

of the foreign gift or estate tax has been 

or will be claimed or allowed, and the 

amount of such refund; and 

(iv) All other information necessary 

for the verification and computation of 

the amount of the reduction of section 

2801 tax. 

(2) Protective claim for refund. A 

protective claim for refund under this 

section may be filed to preserve the U.S. 

recipient’s right to claim a refund in the 


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event any gift or estate tax with respect 

to the covered gift or covered bequest is 

owed but not yet paid to a foreign 

country until after the expiration of the 

period of limitation for filing a claim for 

refund. Such a protective claim may be 

filed at any time before the expiration of 

the period of limitation prescribed in 

section 6511(a) for the filing of a claim 

for refund and shall be made in 

accordance with the usual procedures 

for filing a claim for refund. See https:// 

www.irs.gov and Form 843, Claim for 

Refund and Request for Abatement, and 

its instructions. Action on a protective 

claim will proceed after the U.S. 

recipient has notified the Internal 

Revenue Service within a reasonable 

period that the gift or estate tax with 

respect to the covered gift or covered 

bequest has been paid to a foreign 

country. 

(f) Examples. The provisions of this 

section are illustrated by the following 

examples. 

(1) Example 1: Computation of tax. In 

Year 1, A, a U.S. citizen, receives a 

$50,000 covered gift from B and an 

$80,000 covered bequest from C. Both B 

and C are covered expatriates. In Year 

1, the highest estate tax rate is 40 

percent and the section 2801(c) amount 

is $16,000. A’s section 2801 tax for Year 

1 is computed by multiplying A’s net 

covered gifts and covered bequests by 

40 percent. A’s net covered gifts and 

covered bequests for Year 1 are 

$114,000, which is determined by 

reducing A’s total covered gifts and 

covered bequests received during Year 

1, $130,000 ($50,000 + $80,000), by the 

section 2801(c) amount of $16,000. A’s 

section 2801 tax liability then is 

reduced by any foreign gift or estate tax 

paid under paragraph (e) of this section. 

Assuming A, B, and C paid no foreign 

gift or estate tax on the transfers, A’s 

section 2801 tax liability for Year 1 is 

$45,600 ($114,000 × 0.4). 

(2) Example 2: Deduction of section 

2801 tax for income tax purposes. In 

Year 1, B receives a covered bequest of 

$25,000. Also in Year 1, B receives an 

aggregate $500,000 of distributions from 

a non-electing foreign trust of which 

$100,000 was attributable to a covered 

gift. In Year 1, the highest estate and gift 

tax rate is 40 percent and the section 

2801(c) amount is $16,000. Based on 

information provided by the trustee of 

the non-electing foreign trust, B 

includes $50,000 of the aggregate 

distributions from the non-electing 

foreign trust in B’s gross income for 

Year 1. Under paragraph (a)(3)(ii) of this 

section, B (a cash basis taxpayer) is 

entitled to an income tax deduction 

under section 164 for the calendar year 

in which the section 2801 tax is paid. 

In Year 2, B timely reports the 

distributions from the non-electing 

foreign trust and pays $43,600 in section 

2801 tax (($125,000¥$16,000) × 0.4). In 

Year 2, B is entitled to an income tax 

deduction because B paid the section 

2801 tax in Year 2 on the Year 1 covered 

gift and covered bequest. B’s Year 2 

income tax deduction is computed as 

follows: 

(i) $100,000 of B’s total covered gifts 

and covered bequests of $125,000 

received in Year 1 consisted of the 

portion of the distributions from the 

non-electing foreign trust attributable to 

covered gifts and covered bequests 

received by the trust. See paragraph 

(a)(3)(ii)(A) of this section. 

(ii) $50,000 of the $500,000 of trust 

distributions were includible in B’s 

gross income for Year 1. This amount is 

deemed to consist first of distributions 

subject to the section 2801 tax 

($100,000). Thus, the entire amount 

included in B’s gross income ($50,000) 

also is subject to the section 2801 tax, 

and is used in the numerator to 

determine the income tax deduction 

available to B. See paragraph (a)(3)(ii)(B) 

of this section. 

(iii) The portion of B’s section 2801 

tax liability attributable to distributions 

from a non-electing foreign trust that are 

both covered gifts or covered bequests 

and includible in B’s taxable income is 

$17,440 ($43,600 × ($50,000/$125,000)). 

Therefore, B’s deduction under section 

164 is $17,440. See paragraph 

(a)(3)(ii)(C) of this section. 

(3) Example 3: Date of receipt; bona 

fide claim. On October 10, Year 1, CE, 

a covered expatriate, died testate as a 

resident of Country F, a foreign country 

with which the United States does not 

have an estate tax treaty. CE designated 

his son, S, as the beneficiary of CE’s 

retirement account. S is a U.S. citizen. 

CE’s wife, W, who is a citizen and 

resident of Country F, elects to take her 

elective share of CE’s estate under local 

law. S contests whether the retirement 

account is property subject to the 

elective share. S and W agree to settle 

their respective claims by dividing CE’s 

assets equally between them. On 

December 15 of Year 2, Country F’s 

court enters an order accepting the 

terms of the settlement agreement and 

dismissing the case. Under paragraph 

(d)(3) of this section, S received a 

covered bequest of one-half of CE’s 

retirement account on December 15, 

Year 2, when W’s claim of right was 

extinguished. 

(g) Applicability date. This section 

applies to covered gifts or covered 

bequests received on or after January 1, 

2025. 

§ 28.2801–5 Foreign trusts. 

(a) In general. The section 2801 tax is 

imposed on a U.S. recipient who 

receives distributions, whether of 

income or principal, from a non-electing 

foreign trust to the extent the 

distributions are attributable to one or 

more covered gifts or covered bequests 

made to that foreign trust. See paragraph 

(d) of this section regarding a foreign 

trust’s election to be treated as a 

domestic trust for purposes of section 

2801. 

(b) Distribution defined. For purposes 

of determining whether a U.S. recipient 

has received a distribution from a nonelecting foreign trust, the term 

distribution means any direct, indirect, 

or constructive transfer from a nonelecting foreign trust, including a 

transfer to the extent made for less than 

full and adequate consideration in 

money or money’s worth. Although 

section 643(i) of the Code does not 

apply for the purpose of defining a 

distribution under this section, certain 

loans from or uncompensated use of 

property held by a non-electing foreign 

trust nevertheless may satisfy the 

definition of a distribution under this 

paragraph if the loan or use of trust 

property would be a gift as defined for 

purposes of chapter 12 of subtitle B. For 

purposes of determining whether a U.S. 

recipient has received a distribution 

from a non-electing foreign trust, the 

term distribution also includes each 

distribution from a non-electing foreign 

trust pursuant to the exercise, release, or 

lapse (without regard to the exception in 

section 2041(b)(2) or 2514(e) of the 

Code) of a power of appointment, 

whether or not such power is a general 

power of appointment. In addition, the 

term distribution also includes the 

domestication of a foreign trust, and any 

sale, encumbering, monetization, or 

other disposition by the U.S. recipient 

of the recipient’s interest in the trust to 

the extent of that disposition. See 

§ 28.2801–4(a)(2)(iv). The determination 

of whether a U.S. recipient has received 

a distribution is made without regard to 

whether any portion of the non-electing 

foreign trust is treated as owned by the 

U.S. recipient or any other person under 

subpart E of part I, subchapter J, chapter 

1 of the Code (pertaining to grantors and 

others treated as substantial owners), 

and without regard to whether the U.S. 

recipient of the transfer is designated as 

a beneficiary by the terms of the trust. 

A U.S. recipient receiving a distribution 

for purposes of this section must 

determine whether the information 

reporting requirements of section 

6048(c) apply. See § 28.2801–6(c)(2). 


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(c) Amount of distribution attributable 

to covered gift or covered bequest—(1) 

Section 2801 ratio—(i) In general. A 

foreign trust may have received covered 

gifts and covered bequests as well as 

contributions that were not covered gifts 

or covered bequests. Under such 

circumstances, the fair market value of 

the foreign trust at any time consists, in 

part, of a portion of the trust attributable 

to the covered gifts and covered 

bequests it has received (covered 

portion) and in part of a portion of the 

trust attributable to other contributions 

(non-covered portion). The covered 

portion of the trust includes the ratable 

portion of appreciation and income that 

has accrued on the foreign trust’s assets 

from the date of the contribution of the 

covered gifts and covered bequests to 

the foreign trust. For purposes of section 

2801, the amount of each distribution 

from the foreign trust, whether made 

from the income or principal of the 

trust, that is considered attributable to 

the foreign trust’s covered gifts and 

covered bequests is determined on a 

proportional basis, by reference to the 

section 2801 ratio (as described in 

paragraph (c)(1)(ii) of this section), and 

not by the identification or tracing of 

particular trust assets. Specifically, this 

portion of each distribution is 

determined by multiplying the 

distributed amount by the percentage of 

the trust that consists of its covered 

portion immediately prior to that 

distribution (section 2801 ratio). Thus, 

for example, the section 2801 ratio of a 

foreign trust whose assets are comprised 

exclusively of covered gifts or covered 

bequests and the income and 

appreciation thereon, would be one and 

the full amount of each distribution 

from that foreign trust to a U.S. citizen 

or resident would be attributable to the 

foreign trust’s covered gifts and covered 

bequests and subject to the imposition 

of section 2801 tax. Because the nonelecting foreign trust itself is not taxed 

on its receipt of covered gifts and 

covered bequests, the trust is not 

entitled to an annual exclusion pursuant 

to section 2801(c); that exclusion is 

available only in computing the section 

2801 tax payable by the U.S. recipient 

filing a Form 708, United States Return 

of Tax for Gifts and Bequests Received 

from Covered Expatriates. 

(ii) Computation. The section 2801 

ratio, which must be redetermined after 

each contribution to the foreign trust, is 

computed by using the following 

fraction: 

Where, 

X = The value of the trust attributable to 

covered gifts and covered bequests, if 

any, immediately before the contribution 

(pre-contribution value); this value is 

determined by multiplying the fair 

market value of the trust assets 

immediately prior to the contribution by 

the section 2801 ratio in effect 

immediately prior to the current 

contribution. This amount will be zero 

for all years prior to the year in which 

the foreign trust receives its first covered 

gift or covered bequest; 

Y = The portion, if any, of the fair market 

value of the current contribution that 

constitutes a covered gift or covered 

bequest; and 

Z = The fair market value of the trust 

immediately after the current 

contribution. See paragraph (e)(1) of this 

section (Example 1), for an illustration of 

this computation. 

(2) Effect of reported transfer and tax 

payment. With regard to the value of 

property on which a section 2801 tax 

has been timely paid, even though that 

property thereafter remains in a nonelecting foreign trust, that value no 

longer is considered to be, or to be 

attributable to, a covered gift or covered 

bequest to that foreign trust for purposes 

of the computation described in 

paragraph (c)(1)(ii) of this section. For 

purposes of the prior sentence, a section 

2801 tax is deemed to have been timely 

paid on amounts for which no section 

2801 tax was due, provided those 

amounts were reported as a covered gift 

or covered bequest on a timely filed 

Form 708 or the total covered gifts and 

covered bequests received in a calendar 

year do not exceed the section 2801(c) 

amount. An amount for which no 

section 2801 tax was due refers to the 

amount of a covered gift or covered 

bequest received by an electing foreign 

trust not in excess of the section 2801(c) 

amount. See § 28.2801–5(e) (Example 4). 

(3) Inadequate information to 

calculate section 2801 ratio. A U.S. 

citizen or resident receiving a 

distribution from a non-electing foreign 

trust must proceed upon the assumption 

that the distribution is attributable to a 

covered gift or covered bequest to the 

extent the trustee of the foreign trust 

does not have sufficient books and 

records to calculate the section 2801 

ratio or the taxpayer is unable to obtain 

the necessary information regarding the 

foreign trust to calculate the section 

2801 ratio. The assumption is rebuttable 

to the extent the taxpayer can supply 

information sufficient to persuade the 

Internal Revenue Service (IRS) that the 

distribution is not entirely attributable 

to covered gifts and covered bequests. 

(d) Foreign trust treated as domestic 

trust—(1) Election required. To be 

considered an electing foreign trust, so 

that the foreign trust is treated as a 

domestic trust solely for purposes of the 

section 2801 tax, a valid election is 

required. 

(2) Effect of election—(i) A valid 

election subjects the electing foreign 

trust to the section 2801 tax on all 

covered gifts and covered bequests 

received by the foreign trust during that 

calendar year, the portion of the trust 

attributable to covered gifts and covered 

bequests received by the trust in prior 

years, as determined in paragraph 

(d)(3)(iii) of this section, and all covered 

gifts and covered bequests received by 

the foreign trust during calendar years 

subsequent to the first year in which the 

election is effective, unless and until the 

election is terminated. To the extent that 

covered gifts and covered bequests are 

subject to the section 2801 tax under the 

prior sentence, those trust receipts are 

no longer treated as a covered gift or 

covered bequest for purposes of 

determining the portion of the trust 

attributable to covered gifts and covered 

bequests. Therefore, upon making a 

valid election, the foreign trust’s section 

2801 ratio described in paragraph 

(c)(1)(ii) of this section will be zero until 

the effective date of any termination of 

the election and the subsequent receipt 

of any covered gift or covered bequest, 

and a distribution made from the foreign 

trust while this election is in effect is 

not taxable under section 2801 to the 

U.S. recipient. 

(ii) This election has no effect on any 

distribution from the foreign trust that 

was made to a U.S. recipient in a 

calendar year prior to the calendar year 

for which the election is made. Thus, 

even after a valid election is made, a 

distribution to a U.S. recipient in a 

calendar year prior to the calendar year 

for which the election is made that was 

attributable to one or more covered gifts 

or covered bequests continues to be a 

distribution attributable to one or more 

covered gifts or covered bequests and 

the section 2801 ratio in place at the 

time of the distribution continues to 

apply to that distribution. Furthermore, 

an election under this section does not 

relieve the U.S. recipient from the 

information reporting requirements of 

section 6048(c). See § 28.2801–6(c)(2). 

(3) Time and manner of making the 

election—(i) When to make the election. 

The election is made on a timely filed 

Form 708 for the calendar year for 

which the foreign trust seeks to subject 

itself to the section 2801 tax as 

described in paragraph (d)(2)(i) of this 

section. The election may be made for 

a calendar year whether or not the 

foreign trust received a covered gift or 

covered bequest during that calendar 

year. See § 28.6071–1. 


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(ii) Requirements for a valid election. 

To make a valid election to be treated 

as a domestic trust for purposes of 

section 2801, the foreign trust must 

timely file a Form 708 and must, on 

such form— 

(A) Make the election, timely pay the 

section 2801 tax, if any, as determined 

under paragraph (d)(3)(iii) of this 

section, and include a computation 

illustrating how the trustee of the 

foreign trust calculated both the section 

2801 ratio described in paragraph 

(c)(1)(ii) of this section and the section 

2801 tax; 

(B) Designate and authorize a U.S. 

agent as provided in paragraph (d)(3)(iv) 

of this section; 

(C) Agree to timely file Form 708 to 

report each covered gift and bequest 

made to the trust in accordance with 

§ 28.2801–5(d)(4); 

(D) Identify the amount and year of all 

prior distributions attributable to 

covered gifts and covered bequests 

made to a U.S. recipient, and provide 

the name, address, and taxpayer 

identification number of each U.S. 

recipient; 

(E) Provide a copy of the governing 

instrument of the trust and provide the 

name, address, and taxpayer 

identification number of each 

permissible distributee described in 

paragraph (d)(3)(ii)(F) of this section; 

and 

(F) Affirm under penalties of perjury 

that each permissible distributee was 

notified that the trustee is making (or 

has made) the election, effective as of 

January 1 of the calendar year for which 

the Form 708 on which the election is 

made is filed. For this purpose, a 

permissible distributee is any U.S. 

citizen or resident who: 

(1) Currently may or must receive 

distributions from the trust, whether of 

income or principal; 

(2) May withdraw income or principal 

from the trust during that year or in a 

future year, regardless of whether the 

right arises or lapses upon the 

occurrence of a future event; and 

(3) Would be described in either or 

both of paragraphs (d)(3)(ii)(F)(1) and (2) 

of this section upon an immediate 

termination of either the trust or the 

interest of any person described in 

either or both of paragraphs 

(d)(3)(ii)(F)(1) and (2) of this section. 

(iii) Section 2801 tax payable with the 

election. To make a valid election to be 

treated as a domestic trust for purposes 

of section 2801, the electing foreign 

trust must timely pay the section 2801 

tax on all covered gifts and covered 

bequests received by the electing foreign 

trust in the calendar year for which the 

Form 708 is being filed. In some cases, 

an electing foreign trust may have 

received covered gifts or covered 

bequests in prior calendar years during 

which no such election was in effect. In 

those cases, the trustee must also, at the 

same time, report and pay the tax on the 

fair market value, determined as of the 

last day of the calendar year 

immediately preceding the year for 

which the Form 708 is being filed, of the 

portion of the trust attributable to 

covered gifts and covered bequests 

received by such trust in prior calendar 

years (except as provided in paragraph 

(d)(6)(iii) of this section with regard to 

an imperfect election). That portion is 

determined by multiplying the fair 

market value of the trust, as of the 

December 31 immediately preceding the 

year for which the election is made, by 

the section 2801 ratio in effect on that 

date, as calculated under paragraph 

(c)(1)(ii) of this section. The trustee 

must proceed upon the assumption that 

the corpus and undistributed income 

are attributable to covered gifts and 

covered bequests to the extent the 

trustee does not have sufficient books 

and records to determine what amount 

of the corpus and undistributed income 

is attributable to prior covered gifts and 

covered bequests. The assumption is 

rebuttable by the taxpayer’s furnishing 

information sufficient to persuade the 

IRS that corpus and undistributed 

income is not attributable to prior 

covered gifts or covered bequests. See 

paragraph (c)(3) of this section. 

(iv) Designation of U.S. agent—(A) In 

general. The trustee of an electing 

foreign trust must designate and 

authorize a U.S. person, as defined in 

section 7701(a)(30) of the Code, to act as 

an agent for the trust for purposes of 

section 2801. The designation and 

authorization are made on a duly filed 

Form 2848, Power of Attorney and 

Declaration of Representative, or as may 

be directed otherwise in IRS forms or 

publications. By designating a U.S. 

agent, the trustee of the trust agrees to 

provide the agent with all information 

necessary to comply with any 

information request or summons issued 

by the Secretary of the Treasury or her 

delegate (Secretary) that is relevant to 

the collection or determination of tax 

under section 2801. Such information 

may include, without limitation, copies 

of the books and records of the trust, 

financial statements, and appraisals of 

trust property. 

(B) Role of designated agent. Acting as 

an agent for an electing foreign trust for 

purposes of section 2801 includes 

serving as the trust’s agent for purposes 

of section 7602 of the Code 

(Examination of books and witnesses), 

section 7603 of the Code (Service of 

summons), and section 7604 of the Code 

(Enforcement of summons) with respect 

to— 

(1) Any request by the Secretary to 

examine records or produce testimony 

related to the proper identification or 

treatment of covered gifts or covered 

bequests contributed to the foreign trust 

and distributions of such contributions 

and the income therefrom; and 

(2) Any summons by the Secretary for 

records or testimony related to the 

proper identification or treatment of 

covered gifts or covered bequests 

contributed to the foreign trust and 

distributions of such contributions and 

the income therefrom. 

(C) Effect of appointment of agent. An 

electing foreign trust that appoints such 

an agent is not considered to have an 

office or a permanent establishment in 

the United States, or to be engaged in a 

trade or business in the United States, 

solely because of the agent’s activities as 

an agent pursuant to this section. 

(4) Filing requirement. The trustee of 

an electing foreign trust must timely file 

a Form 708 to report and pay the section 

2801 tax on all covered gifts and 

covered bequests received by the trust 

during the calendar year. See § 28.6071– 

1. Nevertheless, the trustee of an 

electing foreign trust is not required to 

file Form 708 for a calendar year in 

which either the trust received no 

covered gifts or covered bequests, or the 

total fair market value of all covered 

gifts and covered bequests received by 

the electing foreign trust during that 

calendar year is less than or equal to the 

section 2801(c) amount. 

(5) Duration of status as electing 

foreign trust—(i) In general. A valid 

election (one that meets all of the 

requirements of paragraph (d)(3) of this 

section) is effective as of January 1 of 

the calendar year for which the Form 

708 on which the election is made is 

filed. The election, once made, applies 

for all calendar years until the election 

is terminated as described in paragraph 

(d)(5)(ii) of this section. 

(ii) Termination—(A) Manner of 

termination. An election to be treated as 

a domestic trust for purposes of section 

2801 is terminated by— 

(1) A failure of the foreign trust to 

timely file a required Form 708 and 

timely pay the section 2801 tax, as 

required by paragraph (d)(4) of this 

section; 

(2) A failure of the foreign trust to 

enter into a closing agreement and to 

timely pay any additional amount of 

section 2801 tax (in accordance with the 

requirements of paragraph (d)(6)(i) of 

this section) with respect to 

recalculations described in paragraph 

(d)(6) of this section (a termination that 


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also results in the conversion of the 

trust’s election to an imperfect election); 

or 

(3) An affirmative revocation of the 

election made in accordance with the 

instructions for Form 708. 

(B) Effective date of termination. The 

effective date of the termination of an 

election to be treated as a domestic trust 

for purposes of section 2801 is as 

follows: 

(1) For a termination described in 

paragraph (d)(5)(ii)(A)(1) of this section, 

the termination is effective as of the first 

day of the calendar year for which the 

Form 708 was required under paragraph 

(d)(4) of this section. 

(2) For a termination described in 

paragraph (d)(5)(ii)(A)(2) of this section, 

the termination is effective as of the first 

day of the calendar year for which the 

Form 708 was filed with respect to 

which the additional amount of section 

2801 tax is claimed to be due by the IRS. 

(3) For a termination described in 

paragraph (d)(5)(ii)(A)(3) of this section, 

the termination is effective as of the first 

day of the calendar year for which a 

Form 708 was filed to affirmatively 

revoke the election. 

(C) Notice requirements upon 

termination. In the case of a termination 

of the election, the trustee should notify 

promptly each permissible distributee of 

the trust, as defined in paragraph 

(d)(3)(ii)(F) of this section and 

determined as of the effective date of the 

termination of the election, that the 

foreign trust’s election was terminated 

(or terminated and converted to an 

imperfect election) and the effective 

date of the termination, and that each 

U.S. recipient of a distribution made 

from the foreign trust on or after the 

effective date of that termination is 

subject to the section 2801 tax on the 

portion of each such distribution that is 

attributable to covered gifts and covered 

bequests. See paragraph (d)(6)(iii)(B) of 

this section for an additional 

notification requirement in the case of 

an imperfect election. 

(iii) Subsequent elections. If a foreign 

trust’s election is terminated under 

paragraph (d)(5)(ii) of this section, the 

foreign trust is not prohibited from 

making another election in a future year, 

subject to the requirements of paragraph 

(d)(3) of this section. 

(6) Dispute as to amount of section 

2801 tax owed by electing foreign 

trust—(i) Procedure. If the IRS disputes 

the value of a covered gift or covered 

bequest, or otherwise challenges the 

computation of the section 2801 tax, 

that is reported on the electing foreign 

trust’s timely filed Form 708 for any 

calendar year, the IRS will issue a letter 

(but not a notice of deficiency as 

defined in section 6212 of the Code) to 

the trustee of the trust and the 

appointed U.S. agent that details the 

disputed information and the proper 

amount of section 2801 tax as 

recalculated. The trustee of the foreign 

trust must pay the additional amount of 

section 2801 tax including interest and 

penalties, if any, on or before the due 

date specified in the letter (or other date 

agreed to by the IRS) and enter into a 

closing agreement with the IRS as 

described in section 7121 to maintain its 

election. 

(ii) Effect of compliance. If the trustee 

of the foreign trust complies with the 

requirements of paragraph (d)(6)(i) of 

this section, then the foreign trust’s 

election to be treated as a domestic trust 

under paragraph (d) of this section 

remains in effect. In the absence of 

fraud, malfeasance, or misrepresentation 

of a material fact, any value determined 

in the closing agreement will be deemed 

to be final and binding on both the IRS 

and the foreign trust. Subsequently, the 

IRS will not challenge the amount of 

section 2801 tax due from either the 

foreign trust or any of its distributees 

who are U.S. citizens or residents for the 

year for which that Form 708 was filed 

by the foreign trust, except with respect 

to any covered gifts or covered bequests 

not reported on that return. In addition, 

neither the foreign trust nor any of its 

distributees will be able to file a claim 

for refund with respect to section 2801 

tax paid by the foreign trust on the 

covered gifts and covered bequests 

reported on that Form 708. 

(iii) Effect of failing to comply 

(imperfect election)—(A) In general. If 

the foreign trust fails to enter into the 

closing agreement and to timely pay any 

of the additional amount of section 2801 

tax (with interest and penalties, if any) 

determined to be due by the IRS in 

accordance with the procedure in 

paragraph (d)(6)(i) of this section, then 

the foreign trust’s valid election is 

terminated and is converted to an 

imperfect election. The conversion to an 

imperfect election is retroactive to the 

first day of the calendar year (subject 

year) for which the Form 708 was filed 

with respect to which the additional 

amount of section 2801 tax is claimed 

to be due by the IRS. The trust will be 

a non-electing foreign trust for the 

subject year and for each subsequent 

year until another valid election (if any) 

is made by the trust. However, the value 

the foreign trust reported on the Form 

708 for the subject year and each other 

year during the interim period described 

in paragraph (d)(6)(iii)(D) of this section, 

and on which the trust paid the section 

2801 tax, is no longer considered to be 

attributable to covered gifts or covered 

bequests when computing the section 

2801 ratio (described in paragraph 

(c)(1)(ii) of this section) that will be 

applicable to distributions made by the 

foreign trust to U.S. recipients during 

the subject year and thereafter until the 

effective date of any subsequent election 

meeting the requirements of paragraph 

(d)(3) of this section. The U.S. recipients 

of distributions from the foreign trust, 

however, should take into consideration 

the additional value determined by the 

IRS, on which the foreign trust did not 

timely pay the section 2801 tax, when 

computing the section 2801 ratio to be 

applied to a distribution from the trust. 

See paragraph (c) of this section. Any 

disagreement with regard to that 

additional value will be an issue to be 

resolved as part of the review of that 

U.S. recipient’s own Form 708 reporting 

a distribution. 

(B) Notice to permissible distributees. 

If the trustee of the foreign trust fails to 

enter into the closing agreement and to 

remit, by the due date specified or 

otherwise agreed to by the IRS, the 

additional section 2801 tax, including 

all interest and penalties, in accordance 

with the procedure in paragraph (d)(6)(i) 

of this section, the trustee should notify 

promptly each permissible distributee, 

as defined in paragraph (d)(3)(ii)(F) of 

this section: 

(1) That the foreign trust’s election 

was terminated and the effective date of 

the termination (see paragraph 

(d)(5)(ii)(B)(2) of this section); 

(2) Of the amount of additional value 

on which the foreign trust did not 

timely pay the section 2801 tax as 

determined or otherwise agreed to by 

the IRS, which value the IRS thus deems 

to be attributable to covered gifts and 

covered bequests; and 

(3) That each U.S. recipient of a 

distribution made from the foreign trust 

on or after that termination date is 

subject to the section 2801 tax on the 

portion of each such distribution 

attributable to covered gifts and covered 

bequests. 

(C) Reasonable cause. If a U.S. 

recipient received a distribution from 

the foreign trust on or after January 1 of 

the year for which the election was 

terminated and the election became an 

imperfect election, provided the U.S. 

recipient files a Form 708 and pays the 

section 2801 tax within a reasonable 

period of time after being notified by the 

trustee of the foreign trust or otherwise 

becoming aware that a valid election 

was not in effect when the distribution 

was made, the U.S. recipient’s failure to 

timely file and pay are due to reasonable 

cause and not willful neglect for 

purposes of section 6651. For this 

purpose, a reasonable period of time is 


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not more than six months after the U.S. 

recipient is notified by the trustee or 

otherwise becomes aware that a valid 

election is not in effect. 

(D) Interim period. If a foreign trust’s 

valid election is terminated and 

becomes an imperfect election, there is 

a period of time (interim period) that 

begins on the effective date of the 

termination of the election (see 

paragraph (d)(5)(ii)(B) of this section) 

during which both the foreign trust and 

its U.S. beneficiaries are likely to 

continue to comply with section 2801 as 

it applies to an electing foreign trust 

with a valid election in place. The 

interim period ends on the earlier of 

December 31 of the calendar year during 

which the additional amount of section 

2801 tax was due to be paid, as 

described in paragraph (d)(6)(i) of this 

section, or the effective date of a 

subsequent valid election to be treated 

as a domestic trust for purposes of 

section 2801. As described in paragraph 

(d)(6)(iii)(A) of this section regarding 

imperfect elections, the value of the 

covered gifts and covered bequests 

received by the foreign trust during this 

interim period, which the foreign trust 

has reported on one or more filed Forms 

708 and on which the foreign trust has 

paid the section 2801 tax, is no longer 

considered to be attributable to covered 

gifts and covered bequests for purposes 

of computing the section 2801 ratio 

described in paragraph (c)(1)(ii) of this 

section as it applies to distributions 

made by non-electing foreign trusts to 

their U.S. beneficiaries. In addition, 

each distribution made by the foreign 

trust to a U.S. citizen or resident during 

this interim period must be reported on 

that U.S. recipient’s Form 708 by 

applying the section 2801 ratio to that 

distribution. If, once the interim period 

has ended, the foreign trust has no 

election in place, the rules of section 

2801(e)(4)(B)(i) will apply until the 

foreign trust subsequently (if ever) 

makes another valid election to be 

treated as a domestic trust for purposes 

of section 2801. 

(7) No overpayment caused solely by 

virtue of defect in election. Any 

remittance of section 2801 tax made by 

an electing foreign trust does not 

become an overpayment solely by virtue 

of a defect in the election. Instead, if at 

some subsequent time the IRS 

determines that the election was not in 

fact a valid election, then the election 

shall be considered valid only with 

respect to the value of the covered gifts 

or covered bequests on which the 

section 2801 tax was paid by the foreign 

trust and such value on which the 

section 2801 tax has been paid is no 

longer treated as attributable to a 

covered gift or covered bequest for 

purposes of determining the portion of 

the foreign trust attributable to covered 

gifts and covered bequests. See 

paragraphs (d)(2)(i) and (6)(iii) of this 

section. 

(e) Examples. The provisions of this 

section are illustrated by the following 

examples. 

(1) Example 1: Computation of section 

2801 ratio. A and B each contribute 

$100,000 to a new foreign trust. A (but 

not B) is a covered expatriate and A’s 

contribution is a covered gift. The 

trustee of the trust does not make a valid 

election to have the trust treated as a 

domestic trust for purposes of section 

2801. The section 2801 ratio 

immediately after these two 

contributions is 0.50, computed as 

follows: the pre-contribution value of 

the trust ($0) multiplied by the precontribution section 2801 ratio (0), plus 

the current covered gift ($100,000), 

divided by the post-contribution fair 

market value of the trust ($200,000). See 

§ 28.2801–5(c). Therefore, 50 percent of 

each distribution from the trust to a U.S. 

recipient is subject to the section 2801 

tax until the next contribution is made 

to the trust. If the trustee distributes 

$40,000 to C, a U.S. citizen, before the 

trust receives any other contributions, 

then $20,000 ($40,000 × 0.5) is a 

covered gift to C. 

(2) Example 2: Distribution to spouse. 

In Year 1, A contributes $300,000 to a 

foreign trust. A is a covered expatriate. 

B, A’s U.S. citizen spouse, and A’s issue 

may receive discretionary distributions 

of income and principal. The transfer 

would not have qualified for the gift tax 

marital deduction if A had been a U.S. 

citizen or resident at the time of the gift; 

therefore, A’s contribution is a covered 

gift. See sections 2801(e)(3) and 2523. 

No one pays foreign gift taxes on A’s 

contribution. The trustee of the trust 

does not make a valid election to have 

the trust treated as a domestic trust for 

purposes of section 2801. The section 

2801 ratio immediately after A’s 

contribution is one. The highest gift tax 

rate is 40 percent, and the section 

2801(c) amount is $17,000. The trustee 

distributes $200,000 to B in Year 1. The 

entire amount is a covered gift to B. See 

section 28.2801–3(c)(5). This is the only 

covered gift B receives in Year 1. B 

receives no covered bequests in Year 1. 

B’s section 2801 tax for Year 1 is 

computed by multiplying B’s net 

covered gift by 40 percent. B’s net 

covered gift for Year 1 is $183,000, 

which is determined by reducing B’s 

covered gift received during Year 1 by 

the section 2801(c) amount. B’s section 

2801 tax liability for Year 1 is $73,200 

($183,000 × 0.4). 

(3) Example 3: Computation of section 

2801 ratio when multiple contributions 

are made to foreign trust. (i) In 2005, A, 

a U.S. citizen, established and funded 

an irrevocable foreign trust with 

$200,000. On January 1 of each of the 

following three years (2006 through 

2008), A contributed an additional 

$100,000 to the foreign trust. A reported 

A’s contributions to the foreign trust as 

completed gifts on timely filed Forms 

709, for calendar years 2005 through 

2008. None of these contributions is a 

covered gift because the gifts predated 

the effective date of section 2801. On 

August 8, 2008, a date after the effective 

date of section 2801 (June 17, 2008), A 

expatriated and became a covered 

expatriate. On January 1 of a year after 

2008 (Year X), A makes an additional 

$100,000 contribution to the trust. The 

aggregate $600,000 contributed to the 

trust by A, both before and after 

expatriation, are the only contributions 

to the trust. The trustee of the foreign 

trust does not make a valid election to 

have the trust treated as a domestic trust 

for purposes of section 2801. Each year, 

the trustee of the foreign trust provides 

beneficiary B, a U.S. citizen, with an 

accounting of the trust showing each 

receipt and disbursement of the trust 

during that year, including the date and 

amount of each contribution by A. 

(ii) The fair market value of the trust 

was $610,000 immediately prior to A’s 

contribution to the trust on January 1, 

Year X. Therefore, upon the Year X 

contribution of A’s first and only 

covered gift, the portion of the trust 

attributable to covered gifts and covered 

bequests (covered portion) changed 

from zero to 0.14 ([(section 2801 ratio of 

0 × $610,000 fair market value precontribution) plus the $100,000 covered 

gift]/$710,000 fair market value postcontribution). See paragraph (c) of this 

section. 

(iii) In February of Year X, B received 

a distribution of $225,000 from the 

foreign trust. Although A contributed a 

total of $600,000 to the foreign trust, 

only $100,000 of that total was a 

covered gift, being the only contribution 

made by A both after the enactment of 

section 2801 and after A’s expatriation. 

Under paragraph (c) of this section, the 

portion of the $225,000 distribution 

from the foreign trust attributable to a 

covered gift is $31,500 ($225,000 × 0.14 

(section 2801 ratio)) because the 

distribution is made proportionally from 

the covered and non-covered portions of 

the trust. See paragraph (c)(1) of this 

section. Accordingly, B received a 

covered gift of $31,500. 

(iv) Pursuant to the terms of the 

foreign trust, the trust made a 

terminating distribution on August 5, 


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Year X, when B turned 35, and B 

received the balance of the appreciated 

trust, $505,000. The portion of this 

distribution attributable to covered gifts 

and covered bequests is $70,700 

($505,000 × 0.14). Therefore, B has 

received covered gifts from the foreign 

trust during Year X in the total amount 

of $102,200 ($31,500 + $70,700). 

(4) Example 4: Termination of 

election. (i) In Year 1, A contributes 

$200,000 and B contributes $100,000 to 

Trust, a foreign trust. A and B are 

covered expatriates. A’s and B’s 

contributions are covered gifts. No one 

pays foreign gift taxes on A’s and B’s 

contributions. The trustee of Trust 

makes a valid election to have Trust 

treated as a domestic trust for purposes 

of section 2801. The highest gift tax rate 

is 40 percent, and the section 2801(c) 

amount is $17,000. The section 2801 tax 

for Year 1 is computed by multiplying 

the net covered gifts and covered 

bequests by 40 percent. The net covered 

gifts and covered bequests for Year 1 

total $283,000, determined by reducing 

the covered gifts and covered bequests 

received by Trust during Year 1, 

$300,000, by the section 2801(c) 

amount, $17,000. Trust’s 2801 tax 

liability for Year 1 is $113,200 ($283,000 

× 0.4). Any distributions made to U.S. 

recipients before the trust receives 

another contribution have a section 

2801 ratio of zero and are not subject to 

the section 2801 tax. See paragraph 

(d)(2)(i) of this section. 

(ii) In Year 2, A contributes $100,000 

to Trust, all of which is a covered gift. 

The trustee of Trust fails to timely file 

a Form 708 for Year 2 and timely pay 

the section 2801 tax. The fair market 

value of Trust was $400,000 

immediately prior to A’s contribution. 

The section 2801 ratio immediately after 

A’s contribution is 0.20, computed as 

follows: the pre-contribution value of 

Trust ($400,000) multiplied by the 

section 2801 ratio in effect immediately 

prior to the Year 2 contribution (0), plus 

the fair market value of the Year 2 

contribution that constitutes a covered 

gift ($100,000), divided by the fair 

market value of Trust after the Year 2 

contribution ($500,000). See paragraph 

(c)(1) and (2) of this section. If the 

trustee distributes $40,000 to C, a U.S. 

citizen, after the contribution in Year 2, 

then $8,000 ($40,000 × 0.20) is a 

covered gift to C. In Year 2, C also 

receives a covered gift of $50,000 

directly from B. No one pays foreign gift 

taxes on B’s covered gift. C receives no 

covered bequests in Year 2. C’s section 

2801 tax for Year 2 is computed by 

multiplying C’s net covered gifts and 

covered bequests by 40 percent. C’s net 

covered gifts and covered bequests for 

Year 2 total $41,000, determined by 

reducing the covered gifts and covered 

bequests received by C during Year 2, 

$58,000 ($8,000 + $50,000), by the 

section 2801(c) amount, $17,000. C’s 

section 2801 tax liability for Year 2 is 

$16,400 ($41,000 × 0.4). 

(5) Example 5: Imperfect election of 

foreign trust. (i) In Year 1, CE, a covered 

expatriate, gives a 20 percent limited 

partnership interest in a closely held 

business to a foreign trust created for the 

benefit of CE’s child, A, who is a U.S. 

citizen. The limited partnership interest 

is a covered gift. The trustee of the 

foreign trust makes a valid election to 

have the trust treated as a domestic trust 

for purposes of section 2801, trustee 

timely files a Form 708, reports the fair 

market value of the covered gift as 

$500,000, and timely pays the section 

2801 tax on the reported fair market 

value of the covered gift. Later in Year 

1, the trust makes a $100,000 

distribution to A. 

(ii) In Year 2, CE contributes $200,000 

in cash to the foreign trust. The cash is 

a covered gift. The trustee of the foreign 

trust timely files a Form 708 reporting 

the transfer and pays the section 2801 

tax. The trust does not make a 

distribution to any beneficiary during 

Year 2. In Year 3, the IRS disputes the 

reported value of the partnership 

interest transferred in Year 1 and 

determines that the proper valuation on 

the date of the gift was $800,000. In 

Year 3, the IRS issues a letter to the 

trustee of the foreign trust detailing its 

finding of the increased valuation and of 

the resulting additional section 2801 tax 

including accrued interest, if any, due 

on or before a later date in Year 3 

specified in the letter. The foreign trust 

fails to pay the additional section 2801 

tax liability on or before that due date. 

(iii) Under paragraph (d)(6)(iii) of this 

section, the foreign trust’s election for 

Year 1 is terminated and converted into 

an imperfect election as of January 1 of 

Year 1. In computing the foreign trust’s 

section 2801 ratio for Year 1, the 

$500,000 of value on which the section 

2801 tax was timely paid is no longer 

considered to be attributable to a 

covered gift. See paragraph (d)(6)(iii) of 

this section. When the trustee advises A 

of the letter from the IRS, A must file 

a late Form 708 reporting the portion of 

the Year 1 distribution attributable to 

covered gifts and covered bequests. 

Although A may owe section 2801 tax 

and interest, A will not owe any 

penalties under section 6651 as long as 

A files the Form 708 and pays the tax 

within six months after A receives 

notice of the termination of the election 

from the trustee of the foreign trust or 

otherwise becomes aware of the 

termination of the election. See 

paragraph (d)(6)(iii)(C) of this section. 

(iv) When A files a Form 708 to report 

the Year 1 distribution, the IRS will 

verify whether A treated the $300,000 

undervaluation claimed by the IRS as a 

covered gift in computing the section 

2801 ratio. As with any other item 

reported on that return, A has the 

burden to prove the value of the covered 

gift to the foreign trust, and the IRS may 

challenge that value. If A treats the 

$300,000 as a covered gift to the trust, 

under paragraph (c)(1)(ii) of this section, 

the section 2801 ratio after the Year 1 

contribution is 0.375 ($0 + ($300,000)/ 

$800,000)). Thus, 37.5 percent of all 

distributions made to A from the foreign 

trust during Year 1 are subject to the 

section 2801 tax (plus interest from the 

due date of the tax as if reported on a 

Form 708 that was timely filed as to 

Year 1). 

(v) Although the foreign trust timely 

filed the Form 708 for Year 2 and timely 

paid the section 2801 tax shown on that 

return, and although the foreign trust’s 

election had not yet been terminated 

and converted into an imperfect election 

during Year 2, the foreign trust 

nevertheless did not have a valid 

election for Year 2 because the trust did 

not timely pay the section 2801 tax on 

all covered gifts and covered bequests 

received in prior years as required in 

paragraph (d)(3) of this section, 

specifically, the tax on the additional 

$300,000 of value of the Year 1 transfer. 

However, under paragraph (d)(6)(iii)(D) 

of this section, because the foreign trust 

timely filed the Form 708 and paid the 

section 2801 tax on the Year 2 covered 

gift of $200,000, the $200,000 amount is 

no longer considered a covered gift for 

purposes of computing the section 2801 

ratio after that contribution. 

(6) Example 6: Subsequent election 

after termination of election. The facts 

are the same as in paragraph (e)(5) of 

this section (Example 5). In Year 3, the 

foreign trust does not receive a covered 

gift or covered bequest. However, the 

trustee decides that making another 

election to be treated as a domestic trust 

would be in the best interests of the 

trust’s beneficiaries. Accordingly, by the 

due date for the Form 708 for Year 3, the 

trustee timely files the return and pays 

the section 2801 tax on the portion of 

the trust attributable to covered gifts and 

covered bequests. See paragraph 

(d)(5)(iii) of this section. The trustee 

calculates the portion of the trust 

attributable to covered gifts and covered 

bequests received by the trust in prior 

calendar years by multiplying the fair 

market value of the trust on December 

31, Year 2, by the section 2801 ratio in 

effect on that date. See paragraph 


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(d)(3)(iii) of this section. The foreign 

trust is an electing foreign trust in Year 

3. 

(f) Applicability date. This section 

applies to covered gifts or covered 

bequests received on or after January 1, 

2025. 

§ 28.2801–6 Special rules and crossreferences. 

(a) Determination of basis. For 

purposes of determining the U.S. 

recipient’s basis in property received as 

a covered gift or covered bequest, see 

sections 1015 and 1014 of the Code, 

respectively. However, the basis 

adjustment provided in section 1015(d) 

does not apply to increase the basis in 

a covered gift to reflect the tax paid 

under this section. 

(b) Generation-skipping transfer tax. 

Transfers made by a nonresident not a 

citizen of the United States (NRNC 

transferor) are subject to generationskipping transfer (GST) tax only to the 

extent those transfers are subject to 

Federal estate or gift tax as described in 

§ 26.2652–1(a)(2) of this chapter. In 

applying this rule, taxable distributions 

and taxable terminations are subject to 

the GST tax only to the extent the NRNC 

transferor’s contributions to the trust, as 

defined in § 26.2652–1(b)(1) of this 

chapter, were subject to Federal estate 

or gift tax as described in § 26.2652– 

1(a)(2) of this chapter. See § 26.2663–2 

of this chapter. A transfer is subject to 

Federal estate or gift tax, regardless of 

whether a Federal estate or gift tax 

return reporting the transfer is timely 

filed and regardless of whether chapter 

15 of the Code applies because of a 

covered expatriate’s failure to timely file 

an estate or gift tax return. 

(c) Information returns—(1) Gifts and 

bequests. Pursuant to section 6039F of 

the Code and any corresponding 

regulations and Form 3520, Part IV, 

each U.S. person who treats an amount 

received from a foreign person (other 

than through a foreign trust) as a gift or 

bequest (whether or not a covered gift or 

covered bequest) must report such gift 

or bequest on Part IV of Form 3520 if the 

value of the total of such gifts and 

bequests exceeds a certain threshold. 

For purposes of this provision, a U.S. 

person is as defined in section 

7701(a)(30) of the Code and includes a 

U.S. resident within the meaning of 

section 7701(b)(1)(A) of the Code. 

(2) Foreign trust distributions. 

Pursuant to section 6048(c) of the Code 

and the corresponding regulations, and 

to the extent provided in Notice 97–34 

and Part III of Form 3520 and its 

Instructions, a U.S. person must report 

each distribution received during the 

taxable year from a foreign trust on Part 

III of Form 3520. Under section 6677(a) 

of the Code, a penalty of the greater of 

$10,000 or 35 percent of the gross value 

of the distribution may be imposed on 

a U.S. person who fails to timely report 

the distribution. For purposes of this 

provision, the term U.S. person is as 

defined in section 7701(a)(30) and 

includes both U.S. citizens and U.S. 

residents within the meaning of section 

7701(b)(1)(A). 

(3) Penalties and use of information. 

The filing of Form 706, Form 706–NA, 

Form 706–QDT, Form 708, Form 709, or 

Form 709–NA, or any successor form, 

does not relieve a U.S. citizen or 

resident who is required to file Form 

3520 from any penalties imposed under 

section 6677(a) for failure to comply 

with section 6048(c), or from any 

penalties imposed under section 

6039F(c) of the Code for failure to 

comply with section 6039F(a). Pursuant 

to section 6039F(c)(1)(A), the Secretary 

of the Treasury or her delegate may 

determine the tax consequences of the 

receipt of a purported foreign gift or 

bequest. 

(d) Application of penalties—(1) 

Accuracy-related penalties on 

underpayments. The section 6662 

accuracy-related penalty may be 

imposed upon any underpayment of tax 

attributable to— 

(i) A substantial valuation 

understatement under section 6662(g) of 

a covered gift or covered bequest; or 

(ii) A gross valuation misstatement 

under section 6662(h) of a covered gift 

or covered bequest. 

(2) Penalty for substantial and gross 

valuation misstatements attributable to 

incorrect appraisals. The section 6695A 

penalty for substantial and gross 

valuation misstatements attributable to 

incorrect appraisals may be imposed 

upon any person who prepares an 

appraisal of the value of a covered gift 

or covered bequest. 

(3) Penalty for failure to file a return 

and to pay tax. See section 6651 for the 

application of a penalty for the failure 

to file Form 708, or the failure to pay the 

section 2801 tax. 

(e) Applicability date. This section 

applies on and after January 14, 2025. 

§ 28.2801–7 Determining responsibility 

under section 2801. 

(a) Responsibility of U.S. citizens or 

residents receiving gifts or bequests from 

expatriates. It is the responsibility of the 

taxpayer (in this case, the U.S. citizen or 

resident receiving a gift or bequest from 

an expatriate or a distribution from a 

foreign trust funded at least in part by 

an expatriate) to ascertain the taxpayer’s 

obligations under section 2801 of the 

Code, which includes making the 

determination of whether the transferor 

is a covered expatriate and whether the 

transfer is a covered gift or covered 

bequest. 

(b) Disclosure of return and return 

information—(1) In general. In certain 

circumstances, the Internal Revenue 

Service (IRS) may be permitted, upon 

request of a U.S. citizen or resident in 

receipt of a gift or bequest from an 

expatriate, to disclose to the U.S. citizen 

or resident return or return information 

of the donor or decedent expatriate that 

may assist the U.S. citizen or resident in 

determining whether the donor or 

decedent was a covered expatriate and 

whether the transfer was a covered gift 

or covered bequest. See section 6103 of 

the Code. The U.S. citizen or resident 

may not rely upon this information, 

however, if the U.S. citizen or resident 

knows, or has reason to know, that the 

information received from the IRS is 

incorrect or incomplete. The 

circumstances under which such 

information may be disclosed to a U.S. 

citizen or resident, the process for 

authorizing disclosures, and the 

procedures for requesting such 

information from the IRS, will be as 

provided by publication in the Internal 

Revenue Bulletin (see 

§ 601.601(d)(2)(ii)(b) of this chapter). 

(2) Rebuttable presumption. Unless a 

living donor expatriate authorizes the 

disclosure of the donor expatriate’s 

relevant return or return information to 

the U.S. citizen or resident receiving the 

gift, there is a rebuttable presumption 

that the donor is a covered expatriate 

and that the gift is a covered gift. 

(c) Protective return. A taxpayer who 

reasonably concludes that a gift or 

bequest is not subject to section 2801 

may file a protective Form 708 to start 

the period of limitations for the 

assessment of any section 2801 tax. See 

§ 28.6011–1(b) that provides safe harbor 

procedures for filing a protective Form 

708. 

(d) Applicability date. This section 

applies on and after January 14, 2025. 

§ 28.6001–1 Records required to be kept. 

(a) In general. Every U.S. recipient (as 

defined in § 28.2801–2(e)) subject to 

taxation under chapter 15 of subtitle B 

must keep, for the purpose of 

determining the total amount of covered 

gifts and covered bequests, such 

permanent books of account or records 

as are necessary to establish the amount 

of that person’s aggregate covered gifts 

and covered bequests, and the other 

information required to be shown on 

Form 708, United States Return of Tax 

for Gifts and Bequests Received from 

Covered Expatriates, or any successor 

form. All documents and vouchers used 


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in preparing Form 708 must be retained 

by the person required to file the return 

so as to be available for inspection so 

long as the contents thereof may become 

material in the administration of any 

internal revenue law. 

(b) Supplemental information. The 

U.S. recipient, as defined in § 28.2801– 

2(e), must furnish such supplemental 

information as may be deemed 

necessary by the Internal Revenue 

Service (IRS) to allow the IRS to 

determine the correct amount of tax. 

Therefore, the U.S. recipient must 

furnish, upon request, copies of all 

documents relating to the covered gift or 

covered bequest, appraisals of any items 

included in the aggregate amount of 

covered gifts and covered bequests, 

copies of balance sheets and other 

financial statements obtainable by that 

person relating to the value of stock or 

other property constituting the covered 

gift or covered bequest, and any other 

information obtainable by that person 

that may be necessary in the 

determination of the tax. See section 

2801 of the Code and the corresponding 

regulations. For every policy of life 

insurance listed on the return, the U.S. 

recipient must procure a statement from 

the insurance company on Form 712, 

Life Insurance Statement, or any 

successor form, and file it with the IRS 

office where the return is filed. If 

specifically requested by the IRS, the 

insurance company must file this 

statement directly with the IRS. 

(c) Applicability date. This section 

applies on and after January 14, 2025. 

§ 28.6011–1 Returns. 

(a) Return required. The return of any 

section 2801 tax imposed by chapter 15 

of subtitle B of the Internal Revenue 

Code (Code) must be made on Form 708, 

United States Return of Tax for Gifts 

and Bequests Received from Covered 

Expatriates, in accordance with the 

instructions applicable to the form (or 

on such other form as may be provided 

in future guidance or instructions). With 

respect to each covered gift and covered 

bequest received during the calendar 

year, the U.S. recipient as defined in 

§ 28.2801–2(e) must include on Form 

708 the information set forth in 

§ 25.6019–4 of this chapter. The U.S. 

recipient must file Form 708 for each 

calendar year in which the U.S. 

recipient receives a covered gift or 

covered bequest. The U.S. recipient who 

receives the covered gift or covered 

bequest during the calendar year is the 

person required to file the return. A U.S. 

recipient is not required to file such 

form, however, for a calendar year in 

which the total fair market value of all 

covered gifts and covered bequests 

received by that person during that 

calendar year is less than or equal to the 

section 2801(c) amount (as defined in 

§ 28.2801–2(l)). 

(b) Protective return safe harbor. A 

U.S. citizen or resident (as defined in 

§ 28.2801–2(b)) who receives a gift or 

bequest from an expatriate and 

reasonably concludes that the gift or 

bequest is not a covered gift or a covered 

bequest from a covered expatriate may 

file a protective Form 708 to start the 

running of the period of limitations for 

assessment of tax. Under the safe harbor 

procedure of this paragraph (b), a Form 

708 will start the running of the period 

of limitations for assessment of tax if the 

return includes all of the information 

otherwise required on Form 708, along 

with an affidavit, signed under penalties 

of perjury, setting forth the information 

on which the U.S. citizen or resident 

has relied in concluding that the donor 

or decedent, as the case may be, was not 

a covered expatriate, or that the transfer 

was not a covered gift or a covered 

bequest, as well as that person’s efforts 

to obtain other information that might 

be relevant to these determinations. For 

purposes of this safe harbor, if the U.S. 

citizen or resident has obtained, and is 

permitted to rely on, information from 

the Internal Revenue Service (IRS) (as 

described in § 28.2801–7(b)(1)), the U.S. 

citizen or resident must attach a copy of 

such information to the protective 

return. For purposes of this safe harbor, 

the U.S. citizen or resident also must 

attach a copy of a completed Part III of 

Form 3520, Annual Return to Report 

Transactions With Foreign Trusts and 

Receipt of Certain Foreign Gifts, for all 

trust distributions, or Part IV of Form 

3520 for all gifts and bequests, if 

applicable. 

(c) Applicability date. This section 

applies on and after January 14, 2025. 

§ 28.6060–1 Reporting requirements for 

tax return preparers. 

(a) In general. A person that employs 

one or more signing tax return preparers 

to prepare a return or claim for refund 

of section 2801 tax, other than for that 

person, at any time during a return 

period, must satisfy the recordkeeping 

and inspection requirements in the 

manner stated in § 1.6060–1 of this 

chapter. 

(b) Applicability date. This section 

applies with regard to returns and 

claims for refund filed on or after 

January 14, 2025 

§ 28.6071–1 Time for filing returns. 

(a) In general—(1) Due Date. A U.S. 

recipient, as defined in § 28.2801–2(e), 

must file Form 708, United State.s 

Return of Tax for Gifts and Bequests 

Received from Covered Expatriates, or 

any substitute or successor form 

specified in guidance or instructions, on 

or before the fifteenth day of the 

eighteenth calendar month following 

the close of the calendar year in which 

the covered gift or covered bequest was 

received. Notwithstanding the 

preceding sentence, the due date for a 

Form 708 reporting a covered bequest 

that is not received on the decedent’s 

date of death under § 28.2801–4(d)(3) is 

the later of— 

(i) The fifteenth day of the eighteenth 

calendar month following the close of 

the calendar year in which the covered 

expatriate died; or 

(ii) The fifteenth day of the sixth 

month of the calendar year following 

the close of the calendar year in which 

the covered bequest was received. 

(2) If a U.S. recipient receives 

multiple covered gifts and covered 

bequests during the same calendar year, 

the rule in paragraph (a)(1) of this 

section may result in different due dates 

and the filing of multiple returns 

reporting the different transfers received 

during the same calendar year. 

(b) Migrated foreign trust. The due 

date for a Form 708 for the year in 

which a foreign trust becomes a 

domestic trust is the fifteenth day of the 

sixth month of the calendar year 

following the close of the calendar year 

in which the foreign trust becomes a 

domestic trust. 

(c) Certain returns by foreign trusts 

with election under § 28.2801–5(d) for 

calendar year in which no covered gift 

or covered bequest received. A foreign 

trust making an election to be treated as 

a domestic trust for purposes of section 

2801 under § 28.2801–5(d) (electing 

foreign trust) for a calendar year in 

which the foreign trust received no 

covered gifts or covered bequests must 

file a Form 708 on or before the fifteenth 

day of the sixth month of the calendar 

year following the close of the calendar 

year for which the election is made. 

(d) Applicability date. This section 

applies to covered gifts or covered 

bequests received on or after January 1, 

2025. 

§ 28.6081–1 Extension of time for filing 

returns reporting gifts and bequests from 

covered expatriates. 

(a) In general. A U.S. recipient as 

defined in § 28.2801–2(e) may request 

an extension of time to file a Form 708, 

United States Return of Tax for Gifts 

and Bequests Received from Covered 

Expatriates, by filing an appropriate 

form for extension as specified by 

guidance or instructions. A U.S. 

recipient must include on the form for 

extension an estimate of the amount of 


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section 2801 tax liability and must file 

the form for extension with the Internal 

Revenue Service in the manner 

designated in the instructions issued 

with respect to such form. 

(b) Automatic extension. A U.S. 

recipient as defined in § 28.2801–2(e) 

will be allowed an automatic six-month 

extension of time beyond the date 

prescribed in § 28.6071–1 to file Form 

708 if the form for extension is filed on 

or before the due date for filing Form 

708 in accordance with the procedures 

under paragraph (a) of this section. 

(c) No extension of time for the 

payment of tax. An automatic extension 

of time for filing a return granted under 

paragraph (b) of this section will not 

extend the time for payment of any tax 

due with such return. 

(d) Penalties. See section 6651 of the 

Code regarding penalties for failure to 

file the required tax return or failure to 

pay the amount shown as tax on the 

return. 

(e) Applicability date. This section 

applies on and after January 14, 2025. 

§ 28.6091–1 Place for filing returns. 

(a) In general. A U.S. recipient, as 

defined in § 28.2801–2(e), must file 

Form 708, United States Return of Tax 

for Gifts and Bequests Received from 

Covered Expatriates, with the Internal 

Revenue Service in the manner 

prescribed by the instructions issued 

with respect to that form. 

(b) Applicability date. This section 

applies on and after January 14, 2025. 

§ 28.6101–1 Period covered by returns. 

See § 28.6011–1 for the rules relating 

to the period covered by the return. 

§ 28.6107–1 Tax return preparer must 

furnish copy of return or claim for refund 

to taxpayer and must retain a copy or 

record. 

(a) In general. A person who is a 

signing tax return preparer of any return 

or claim for refund of any section 2801 

tax must furnish a completed copy of 

the return or claim for refund to the 

taxpayer and retain a completed copy or 

record in the manner stated in § 1.6107– 

1 of this chapter. 

(b) Applicability date. This section 

applies to returns and claims for refund 

filed on or after January 14, 2025. 

§ 28.6109–1 Tax return preparers 

furnishing identifying numbers for returns 

or claims for refund. 

(a) In general. Each tax return or claim 

for refund of the section 2801 tax 

prepared by one or more signing tax 

return preparers must include the 

identifying number of the preparer 

required by § 1.6695–1(b) of this chapter 

to sign the return or claim for refund in 

the manner stated in § 1.6109–2 of this 

chapter. 

(b) Applicability date. This section 

applies to returns and claims for refund 

filed on or after January 14, 2025. 

§ 28.6151–1 Time and place for paying tax 

shown on returns. 

(a) In general. The section 2801 tax 

shown on the return must be paid at the 

time prescribed in § 28.6071–1 for filing 

the return, and in the manner prescribed 

in § 28.6091–1 for filing the return. 

(b) Applicability date. This section 

applies to covered gifts or covered 

bequests received on or after January 1, 

2025. 

§ 28.6694–1 Section 6694 penalties 

applicable to return preparer. 

(a) In general. For general rules 

regarding penalties under section 6694 

of the Code applicable to preparers of 

returns or claims for refund of the 

section 2801 tax, see § 1.6694–1 of this 

chapter. 

(b) Applicability date. This section 

applies with regard to returns and 

claims for refund filed, and advice 

provided, on or after January 14, 2025. 

§ 28.6694–2 Penalties for understatement 

due to an unreasonable position. 

(a) In general. A person who is a tax 

return preparer of any return or claim 

for refund of any section 2801 tax is 

subject to penalties under section 

6694(a) of the Code in the manner stated 

in § 1.6694–2 of this chapter. 

(b) Applicability date. This section 

applies to returns and claims for refund 

filed, and advice provided, on or after 

January 14, 2025. 

§ 28.6694–3 Penalty for understatement 

due to willful, reckless, or intentional 

conduct. 

(a) In general. A person who is a tax 

return preparer of any return or claim 

for refund of any section 2801 tax is 

subject to penalties under section 

6694(b) of the Code in the manner stated 

in § 1.6694–3 of this chapter. 

(b) Applicability date. This section 

applies to returns and claims for refund 

filed, and advice provided, on or after 

January 14, 2025. 

§ 28.6694–4 Extension of period of 

collection when tax return preparer pays 15 

percent of a penalty for understatement of 

taxpayer’s liability and certain other 

procedural matters. 

(a) In general. For rules relating to the 

extension of the period of collection 

when a tax return preparer who 

prepared a return or claim for refund of 

the section 2801 tax pays 15 percent of 

a penalty for understatement of 

taxpayer’s liability, and for procedural 

matters relating to the investigation, 

assessment, and collection of the 

penalties under section 6694(a) and (b) 

of the Code, the rules under § 1.6694– 

4 of this chapter apply. 

(b) Applicability date. This section 

applies to returns and claims for refund 

filed, and advice provided, on or after 

January 14, 2025. 

§ 28.6695–1 Other assessable penalties 

with respect to the preparation of tax 

returns for other persons. 

(a) In general. A person who is a tax 

return preparer of any return or claim 

for refund of any section 2801 tax is 

subject to penalties for failure to furnish 

a copy to the taxpayer under section 

6695(a) of the Code, failure to sign the 

return under section 6695(b), failure to 

furnish an identification number under 

section 6695(c), failure to retain a copy 

or list under section 6695(d), failure to 

file a correct information return under 

section 6695(e), and negotiation of a 

check under section 6695(f), in the 

manner stated in § 1.6695–1 of this 

chapter. 

(b) Applicability date. This section 

applies to returns and claims for refund 

filed on or after January 14, 2025. 

§ 28.6696–1 Claims for credit or refund by 

tax return preparers and appraisers. 

(a) In general. With respect to claims 

for credit or refund by a tax return 

preparer who prepared a return or clai 

for refund for any section 2801 tax, or 

by an appraiser that prepared an 

appraisal in connection with such a 

return or claim for refund under section 

6695A of the Code, the rules under 

§ 1.6696–1 of this chapter will apply. 

(b) Applicability date. This section 

applies to returns and claims for refund 

filed, appraisals, and advice provided, 

on or after January 14, 2025. 

§ 28.7701–1 Tax return preparer. 

(a) In general. For the definition of the 

term tax return preparer, see 

§ 301.7701–15 of this chapter. 

(b) Applicability date. This section 

applies to returns and claims for refund 

filed, and advice provided, on or after 

January 14, 2025. 

Douglas W. O’Donnell, 

Deputy Commissioner. 

Approved: December 23, 2024. 

Aviva R. Aron-Dine, 

Deputy Assistant Secretary of the Treasury 

(Tax Policy). 

[FR Doc. 2025–00284 Filed 1–10–25; 8:45 am] 

BILLING CODE 4830–01–P 


khammond on DSK9W7S144PROD with RULES3