Computing Section 2801 Tax

You compute the section 2801 tax by multiplying the net covered gifts and covered bequests (as defined below) received during the applicable calendar year by 40%.

Net covered gifts and covered bequests. The net covered gifts and covered bequests you receive during the applicable calendar year is the total value of all covered gifts and covered bequests you receive during the applicable calendar year, less the section 2801(c) amount, which is the dollar amount of the annual exclusion for gifts in effect under section 2503(b) for that calendar year. The amount of the section 2503(b) exclusion and therefore the section 2801(c) amount are subject to an annual inflation adjustment, and the adjusted amounts will be published in an annual revenue procedure.

Foreign gift and estate taxes. You reduce the section 2801 tax computed above by the amount of any gift or estate tax paid to a foreign country with respect to the covered gift or covered bequest. To claim the reduction of section 2801 tax, you must complete Part V of the Form 708 and must attach to the Form 708 a copy of the foreign gift or estate tax return and a copy of the receipt or canceled check for payment of the foreign gift or estate tax.

If any gift or estate tax with respect to a covered gift or covered bequest is owed but not yet paid to a foreign country, you may file a protective claim for refund at any time before the expiration of the period of limitation prescribed in section 6511(a) for filing a claim for refund to preserve your right to claim a refund once the gift or estate tax is paid to the foreign country. You file the protective claim in accordance with the usual procedures for filing a claim for refund. See Form 843, Claim for Refund and Request for Abatement, and its instructions.

Value of covered gift or covered bequest. The value of a covered gift or covered bequest, including a distribution from a non-electing foreign trust attributable to covered gifts or covered bequests, is the fair market value of the property as of the date you receive it. See Date of receipt , below. 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, when neither is forced to buy or sell, and when both have reasonable knowledge of relevant facts.

You determine the fair market value of a covered gift in accordance with the federal gift tax valuation principles of section 2512 and chapter 14 and the corresponding regulations. You determine the fair market value of a covered bequest 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.

Covered gift or covered bequest received from non-electing foreign trust. Use the section 2801 ratio to determine the amount of any distribution you received from a non-electing foreign trust that is attributable to covered gifts

or covered bequests received by the trust. See Section 2801 ratio , earlier, and the specific instructions for Part VI, Section 2, later, for more details. Supplemental documents. To support the value of covered gifts or covered bequests received by you, you must provide information showing how it was determined.

Also attach any appraisal used to determine the value of real estate or other property. If you do not attach this information, Part IV must include a full explanation of how value was determined.

Date of receipt. The section 2801 tax is imposed upon your receipt of a covered gift or covered bequest.

In general, the date you receive a covered gift is the same as the date of the gift for purposes of chapter 12, determined as if the covered expatriate had been a U.S. citizen at the time of the transfer. However, for an asset or property interest subject to a claim of right of another involving a bona fide dispute, the date you receive the covered gift is the date on which such claim is terminated.

In general, the date you receive 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. However, the date you receive 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 both of these general rules, for an asset or property interest subject to a claim of right of another involving a bona fide dispute, the date you receive such covered bequest is the date on which such claim is terminated.

Future interest in property not in trust. The date you receive a future interest in property not held in trust is the earlier of the date you may transfer such interest and the date that is the later of the date that your interest vests 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.

Election under Regulations section 28.2801-4(d)(8)(ii) for future interest not in trust. If you are to receive a covered gift or covered bequest that is a future interest in property not held in trust, you may elect to treat the date of receipt as the date of the gift in the event of a covered gift, or as the date of death of the covered expatriate in the event of a covered bequest. You make this election by checking the box on Part IV, Section 1, line 1, column (c), of Form 708 for the year in which this elective date of receipt occurs.