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American citizens are subject to U.S. estate taxation with respect to their worldwide assets. An estate tax return, Form 706, United States Estate (and Generation-Skipping) Tax Return, Estate of a citizen or resident of the United States, is required for a deceased American citizen, if the fair market value at death of the decedent's worldwide assets exceeds the "unified credit exemption" amount in effect on the date of death. However, if the U.S. citizen made substantial lifetime gifts, and used the applicable “unified credit exemption” amount to eliminate or reduce any gift tax on the lifetime gifts, a U.S. estate tax return may still be required even if the value of the decedent’s worldwide assets is less than the “unified credit exemption” amount at the date of death (due to the decrease in the “unified credit exemption” for the lifetime gifts). To determine the “unified credit exemption” amount for American citizens for any particular year, refer to the Instructions to Form 706 or to Publication 559, Survivors, Executors, and Administrators.

The Internal Revenue Service may collect any unpaid estate tax from any person receiving a distribution of the decedent’s property under transferee liability provisions of the tax code.

U.S. citizens and long-term residents who relinquished their U.S. citizenship or ceased to be U.S. lawful permanent residents (green card holders) on or after June 17, 2008, and who meet specific average tax or net worth thresholds on the day prior to their expatriation are considered “covered expatriates” – subject to IRC section 877A. See Expatriation Tax for more information on covered expatriates.


U.S. citizens and residents who receive gifts or bequests from covered expatriates under IRC 877A may be subject to tax under new IRC section 2801, which imposes a transfer tax on U.S. persons who receive gifts or bequests on or after June 17, 2008, from such former U.S. citizens or former U.S. lawful permanent residents.

In addition, covered expatriates under IRC 877A are not considered U.S. expatriates for purposes of Form 706NA, United States Estate (and Generation-Skipping) Tax Return, Estate of a nonresident not a citizen of the United States.

Robert S. Blumenfeld  - 

Mr. Blumenfeld concentrates his practice in the areas of International Tax and Estate Planning, Probate Law, and Representation of Resident and Non-Resident Aliens before the IRS.

Prior to joining Marini & Associates, P.A., he spent 32 years as the Senior Attorney with the Internal Revenue Service (IRS), Office of Deputy Commissioner, International.

In August last year, two women, Gwen Deegan of Toronto and Virginia Hillis of Windsor, launched a challenge to the Ottawa government's implementation of the US Foreign Account Tax Compliance Act (FATCA). Both are US citizens by birth but have lived in Canada since infancy and have no US passport, but are still liable to US worldwide taxation and FATCA reporting requirements.

FATCA requires banks in every country to identify their US clients and report their accounts to the US Internal Revenue Service (IRS), either directly or indirectly through the banks' own domestic tax agency. In February 2014, the Canadian government signed a 'Model 1 agreement' with the US requiring Canadian banks to make FATCA reports to the Canada Revenue Agency (CRA), which will automatically forward the information to the IRS. This agreement was later translated into Canadian law through implementing legislation.

 Contact the Tax Lawyers at

Marini & Associates, P.A.  

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at: www.TaxAid.us or www.TaxLaw.ms or

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• Financial Post
• Offshore Newsflash
• STEP news story (14 August 2014)
• Canadian Federal Finance Ministry
• Moody
• STEP International News Digest Lead Story August 27, 2015

The United States Internal Revenue Service has issued proposed regulations to give guidance under section 2801 of the US tax code that imposes a tax (at the highest applicable gift or estate tax rates) on US residents and citizens receiving gifts and bequests from expatriates.

The number of people giving up their U.S. citizenship has accelerated in recent years, in part due to the Foreign Account Tax Compliance Act (FATCA). As we previously posted "It Must Be The Time To Expatriate?" where we discussed that the list of recent US expatriates’ is a diverse: one of the world’s greatest soul singers; a best-selling author, a professional basketball player, architects, artists, lawyers, retirees and financiers. The register of individuals who have “chosen to expatriate”, as the US puts it, shows an increase in the number of Americans who are renouncing their US citizenship or turning in their green card.

When the number reached 3,415 last year it was a record, although the figures are still tiny, especially in comparison with those being granted US citizenship, nearly 780,000 in 2013. But it is also the case that the numbers have risen more than 10-fold since 2008. 

These newly issued proposed regulations relate to the 2008 Heroes Earnings Assistance and Relief Tax Act (HEART Act) which 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 until now, the Treasury and the IRS had not issued guidance for Section 2801. Before these proposed regulations there have been no forms or means to comply or report the tax consequences of any of these transactions.

As provided for in the HEART Act, the regulations impose a gift and/or estate tax on gifts or bequests received from "covered expatriates" who relinquished US citizenship or ceased to be lawful permanent residents of the United States on or after June 17, 2008.

"Covered expatriate" is defined as an individual who expatriated on or after that date, and who, on the expatriation date, had an average annual net income tax liability greater than USD124,000 (indexed for inflation) for the previous five taxable years, had a net worth of at least USD2m (not indexed), or had failed to certify that he or she had complied with all US tax obligations for the five preceding taxable years.

The tax will be payable by US residents and citizens who receive gifts or bequests from such individuals, but is reduced by any estate or gift tax paid to a foreign jurisdiction. For the purposes of section 2801, domestic trusts and foreign trusts electing to be treated as domestic trusts are treated as US citizens.

In addition, section 2801 tax applies with regard to any property transferred to a US citizen or resident which qualifies as a gift or bequest, regardless of whether the property transferred was acquired by the donor or decedent covered expatriate before or after expatriation. Its value is its fair market value at the time the gift or bequest is received.

However, a gift or bequest to a covered expatriate's US citizen spouse is excepted from the provisions of section 2801, if such a gift or bequest would, if given by a US citizen or resident, qualify for the US gift or estate tax marital deduction. Charitable donations that would qualify for the US gift or gift tax charitable deduction are also excepted.

One area that could is still uncertain is how section 2801applies to life insurance. Someone who is a covered expat could buy a life insurance policy, be that term or variable, have some type of insurance payment go to a US residents and citizens and that probably would not be included as a covered gift or bequest from such individuals.

However, the proposed regulations do mention that 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 if the covered expatriate had been a U.S. citizen at the time of death.

The number of Swiss banks that have entered deferred prosecution agreements with the U.S. government keeps growing. The IRS keeps updating its list of foreign banks where the holders of these offshore accounts are subject to a 50% (rather than 27.5%) penalty in the IRS’s Offshore Voluntary Disclosure Program (OVDP). This penalty is based on the highest account balance measured over up to eight years.

1. UBS AG (effective 8/4/14)
2. Credit Suisse AG, Credit Suisse Fides, and Clariden Leu Ltd. (effective 8/4/14)
3. Wegelin & Co. (effective 8/4/14)
4. Liechtensteinische Landesbank AG (effective 8/4/14)
5. Zurcher Kantonalbank (effective 8/4/14)
6. swisspartners Investment Network AG, swisspartners Wealth Management AG, swisspartners Insurance Company SPC Ltd., and swisspartners Versicherung AG (effective 8/4/14)
7. CIBC FirstCaribbean International Bank Limited, its predecessors, subsidiaries, and affiliates (effective 8/4/14)
8. Stanford International Bank, Ltd., Stanford Group Company, and Stanford Trust Company, Ltd. (effective 8/4/14)
9. The Hong Kong and Shanghai Banking Corporation Limited in India (HSBC India) (effective 8/4/14)
10. The Bank of N.T. Butterfield & Son Limited (also known as Butterfield Bank and Bank of Butterfield), its predecessors, subsidiaries, and affiliates (effective 8/4/14)
11. Sovereign Management & Legal, Ltd., its predecessors, subsidiaries, and affiliates (effective 12/19/14)
12. Bank Leumi le-Israel B.M., the Bank Leumi le-Israel Trust Compay Ltd., Bank Leumi (Luxembourg) S.A., Leumi Private Bank S.A., and Bank Leumi USA (effective 12/22/14)
13. BSI SA (effective 3/30/15)
14. Vadian Bank AG (effective 5/8/15)
15. Finter Bank Zurich AG (effective 5/15/15)
16. Societe Generale Private Banking (Lugano-Svizzera) SA (effective 5/28/15)
17. MediBank AG (effective 5/28/15)
18. LBBW (Schweiz) AG (effective 5/28/15)
19. Scobag Privatbank AG (effective 5/28/15)
20. Rothschild Bank AG (effective 6/3/15)
21. Banca Credinvest SA (effective 6/3/15)
22. Societe Generale Private Banking (Suisse) SA (effective 6/9/15)
23. Berner Kantonalbank AG (effective 6/9/15)
24. Bank Linth LLB AG (effective 6/19/15)
25. Bank Sparhafen Zurich AG (effective 6/19/15)
26. Ersparniskasse Schaffhausen AG (effective 6/26/15)
27. Privatbank Von Graffenried AG (effective 7/2/15)
28. Banque Pasche SA (effective 7/9/15)
29. ARVEST Privatbank AG (effective 7/9/15)
30. Mercantil Bank (Schweiz) AG (effective 7/16/15)
31. Banque Cantonale Neuchateloise (effective 7/16/15)
32. Nidwaldner Kantonalbank (effective 7/16/15)
33. SB Saanen Bank AG (effective 7/23/15)
34. Privatbank Bellerive AG (effective 7/23/15)
35. PKB Privatbank AG (effective 7/30/15)
36. Falcon Private Bank AG (effective 7/30/15)
37. Credito Privato Commerciale in liquidazione SA (effective 7/30/15)
38. Bank EKI Genossenschaft (effective 8/3/15)
39. Privatbank Reichmuth & Co. (effective 8/6/15)
40. Banque Cantonale du Jura SA (effective 8/6/15)
41. Banca Intermobiliare di Investimenti e Gestioni (Suisse) SA (effective 8/6/15)
42. bank zweiplus ag (effective 8/20/15)
43. Banca dello Stato del Cantone Ticino (effective 8/20/15)
44. Hypothekarbank Lenzburg AG (effective 8/27/15)
45. Schroder & Co. Bank AG (effective 9/3/15)
46. Valiant Bank AG (effective 9/10/15)
47. Bank La Roche & Co AG (effective 9/15/15)
48. Belize Bank International Limited, Belize Bank Limited, Belize Corporate Services Limited, their predecessors, subsidiaries, and affiliates (effective 9/16/15)

Outside of these banks, the norm within the OVDP remains 27.5%. That is far better than prosecution or much bigger civil penalties. Some taxpayers can opt for the easier and less costly Streamlined program. This list does not impact the Streamlined programs because you must be non-willful to qualify. All of this is part of the June 2014 improvements to the OVDP, which sparked new interest in cleaning up offshore accounts.

With roughly 96 Swiss banks taking the DOJ deal and FATCA requiring the entire world to report to the IRS resulting in increasing disclosures, everyone American is eventually going to be discovered.

Banks worldwide want to know if there US clients are compliant with the IRS.

Within the OVDP, people who pre-cleared before the various effective dates are generally safe from the higher 50% penalty. As additional banks are added to the list, only those American taxpayers that request pre-clearance before their bank is listed, will get the 27 1/2% OVDP penalty. The 50% penalty now applies to all taxpayers with accounts at financial institutions or with facilitators which are named, are cooperating or are identified in a court filing such as a John Doe summons.

Although the 50% penalty is high, willful civil violations can result in tax, penalties and interest totaling 325% of the highest balance in the account for the  most recent six years period. Recent guidance suggests that the IRS could be more lenient in the future, but the IRS’s definition of leniency can still make the OVDP a very good deal that provides certainty.