IRS Proposes Rules on Gifts and Inheritances from Expats

The proposed rules stem from the Heroes Earnings Assistance and Relief Tax Act of 2008, or “HEART Act,” which applied to certain individuals who terminate their U.S. citizenship or permanent residents who surrender their green cards on or after June 17, 2008.
The HEART Act introduced two new sections to the Tax Code, 877A and 2801. Section 877A imposed an exit tax on such individuals, and the Treasury and the IRS released guidance in 2009 for Section 877A. However, the Treasury and the IRS have not issued guidance for Section 2801 until now.
The key component of Section 2801 is that U.S. taxpayers who receive gifts and inheritances from people who previously expatriated are subject to gift and/or estate taxes on the receipt of such gift or bequest.
 The number of people giving up their U.S. citizenship has accelerated in recent years, in part due to later legislation such as the Foreign Account Tax Compliance Act, or FATCA, which was passed in 2010 as part of the Hiring Incentives to Restore Employment Act, also known as the “HIRE Act.” Last year, 3,415 Americans renounced their citizenship (see Americans Living Abroad Set Record for Giving Up Citizenship). There have been calls in Congress from Sen. Rand Paul, R-Ken., and others to repeal FATCA. But taxes aren’t the only reason why Americans move abroad.
 Under the estate and gift tax rules, a foreign person can make a gift to somebody in the U.S., and there is no gift tax as long as it’s not a U.S.-sited asset.