H. Jacob Lager

An unpleasant surprise for expat family members: A look at Section 2801

In Expat taxes, IRS regulations, U.S. Tax policies on September 21, 2012 at 1:18 pm

Are you a family member or friend of an expat?  Get ready to be surprised!

I always hated surprises.

Actually, that’s not quite right.  I love being truly surprised.  Its terrific when someone actually keeps something totally secret and then drops it on me.  Especially when its good news.  In fact, that’s pretty much exactly what happened when my wife told me we were going to have a baby.

But when you keep something from me AND  let me know you are doing so?  That stinks.  This is pretty much how my wife tortured me for 15 awful seconds when she discovered before me that our baby was going to be a girl.

So you might imagine how I react when the IRS says, “Yeah, your clients might owe that tax, or they might not.  We’re not really sure when we’re going to start enforcing that tax, but when we do it’s going to be retroactive to … sometime in the past.”

Don’t believe that the IRS says that?  Then you’ve never read Section 2801.  That section imposes a gift tax liability on U.S. taxpayers who receive gifts or bequests from tax expatriates.  So if you’re anticipating any looming generosity from Ed Saverin or Denise Rich, you may want to pay attention.

Regardless of whether one finds this tax a travesty to liberty or a justified clawback, the real sinister element here is that Treasury has not issued forms on which to report a subject gift and has publicly stated that it’s not going to enforce the tax until . . . it does.  In Notice 2009-85, the IRS stated that expatriate gifts received on or after June 17, 2008, are subject to tax, but that “[s]atisfaction of the reporting and tax obligations for covered gifts or bequests received will be deferred, pending the issuance of guidance.”

That was three years ago.  So far – no guidance.

Even the government doesn’t really know what to do about this one.  Last week, Catherine Hughes, attorney-adviser, Treasury Office of Tax Legislative Counsel, attempted to address the issue at the American Bar Association Section of Taxation meeting in Boston.  According to Hughes, issuing 2801 guidance is a “top priority” for Treasury, but she also acknowledged that “figuring out when to say these returns are due is a huge issue.” The statute itself provides no due date and savvy taxpayers who reported the gift may be able to avail themselves of statute of limitation protection if the gift is old enough.  Others may not know whether the tax is owed until after the due date for those returns.


  1. I love/hate surprises, too. Forwarding to some expat friends. Hopefully, this doesn’t catch them too off-guard.

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