Liability for and Payment of Section 2801 Tax

A U.S. citizen or resident who receives a covered gift or covered bequest is liable for payment of the section 2801 tax.

A domestic trust or an electing foreign 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.

A trust’s payment of the tax does not result in a taxable distribution under section 2621 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 tax.

A migrated foreign trust is liable for payment of the section 2801 tax, if any, 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 immediately 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 calendar 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 tax. For calendar years after the year in which the trust became a domestic trust, the migrated foreign trust is liable for payment of the section 2801 tax as a domestic trust.

A non-electing 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 section 2801(e)(4)(B)(iii) and Regulations section 28.2801-5(d). Absent such an election, or to the extent such an election is terminated, invalid or otherwise defective, 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 attributable to a covered gift or covered bequest made to the foreign trust. See Termination of domestic trust election, later, for additional information regarding the termination of a foreign trust’s election to be treated as a domestic trust.

For information related to an income tax deduction allowed under section 164 for U.S. recipients of distributions from non-electing foreign trusts in the calendar year in which the U.S. recipient paid or accrued the section 2801 tax, see Regulations section 28.2801-4(a)(3)(ii).