Form 708 Covered Expatriate Gift Tax: The 2026 Guide for U.S. Recipients

The Form 708 covered expatriate gift tax catches thousands of American citizens and green card holders off guard every year not because they did anything wrong, but because someone else in their family gave up U.S. citizenship or a green card years earlier, and a gift or inheritance from that person now triggers a tax bill that only the recipient can pay. If you’ve received money, property, or a trust distribution connected to a relative who expatriated from the United States, this guide walks through exactly when IRC §2801 applies, how much you’d owe, and the filing deadline you cannot afford to miss.

The Short Version

• If you’re a U.S. citizen, resident, domestic trust, or electing foreign trust and you receive a gift or bequest from a “covered expatriate,” you not the person who gave it to you owe a 40% tax on the value above $19,000 per year.
• You report and pay this using Form 708, a new IRS form finalized in December 2025 under final regulations (Treasury Decision 10027, effective January 14, 2025).
• The deadline is the 15th day of the 18th month after the close of the calendar year you received the gift or bequest. For anything received in 2025, that’s June 15, 2027.
• Your own lifetime gift and estate tax exemption (over $15 million in 2026) does not help you here. The only offset is a credit for foreign gift or estate tax already paid on the same transfer.

Why This Tax Exists

When a U.S. citizen or long term green card holder expatriates gives up citizenship, or ends green card status held in at least 8 of the last 15 tax years and crosses certain thresholds, they become what the tax code calls a “covered expatriate.” Section 877A’s exit tax makes them settle up with the IRS on the way out, generally taxing most of their worldwide assets as if sold the day before they left. (We cover exactly who this applies to and how it’s calculated in our guide to the exit tax for green card holders.)

But the exit tax only reaches assets the expatriate holds and disposes of at the moment they leave. It does nothing about wealth that same person gives away or leaves behind at death years later, once they’re no longer inside the U.S. tax system at all. This is the same gap we walked through in our guides to estate tax for green card holders and gift tax for green card holders except those articles cover what happens while someone is still a U.S. person. IRC §2801 covers what happens once they’re not.

Under Treas. Reg. §28.2801-1(a), Section 2801 imposes a separate transfer tax on any U.S. citizen, resident, domestic trust, or electing foreign trust that receives a “covered gift” or “covered bequest” from a covered expatriate at any point, even decades later. The twist is who pays it: the recipient, not the giver. The IRS generally has no practical way to collect from someone who has already left the U.S. tax system, so instead it collects from whoever is still inside it.

Who Counts as a “Covered Expatriate”

Section 2801(f) borrows its definition of “covered expatriate” directly from IRC §877A(g)(1) the same test used for the exit tax. An expatriate is “covered” if they meet any one of three tests on their expatriation date:

A quick word of caution on that third test: if your relative used the Streamlined Filing Compliance Procedures to catch up on delinquent returns before expatriating, that is not automatically the same thing as satisfying the 5 year certification requirement on Form 8854. The streamlined program’s lookback period and the certification test’s 5 year compliance requirement are different rules serving different purposes conflating them is one of the most common mistakes people make in this area.

Once someone is a covered expatriate, that status generally follows them for as long as Section 2801 applies to them a gift they make 20 years after expatriating is still subject to this tax, unless they later repatriate and become a U.S. citizen or resident again.

A trap worth knowing: if you’re not sure whether your relative meets these tests, you don’t get to assume the best. Under Treas. Reg. §28.2801-7(b)(2), if a living donor refuses to authorize the IRS to disclose their covered expatriate status to you under §6103, the regulations create a rebuttable presumption that they are covered the burden shifts to you to prove otherwise, not the other way around.

What Counts as a “Covered Gift” or “Covered Bequest”

Under Treas. Reg. §28.2801-2(g), a covered gift is any property you receive, directly or indirectly, from a covered expatriate regardless of where in the world the property sits, and regardless of whether the expatriate acquired it before or after leaving the U.S. tax system. A covered bequest, defined at Treas. Reg. §28.2801-2(f), is the same idea applied to property you receive because of the covered expatriate’s death.

“Indirectly” does a lot of work in that definition. Under Treas. Reg. §28.2801-2(i), the regulations reach well beyond a check handed to you directly:

• Trust distributions distributions from a foreign trust that hasn’t elected domestic treatment, to the extent attributable to covered gifts or bequests the trust itself received (more on this below).
• Entity transfers property a covered expatriate moves into a corporation, partnership, or similar entity can be treated as an indirect gift to the U.S. owners of that entity, in proportion to their ownership stake.
• Debt satisfaction if a covered expatriate pays off your debt or liability, or covers your mortgage on your behalf, that’s treated as a covered gift to you (Treas. Reg. §28.2801-2(i)(2)).
• Powers of appointment a covered expatriate granting you a general power of appointment over property is itself a covered gift or bequest to you (Treas. Reg. §28.2801-3(e)). The exercise, release, or lapse of such a power can independently trigger the tax as well (Treas. Reg. §28.2801-2(i)(3)).
• Anything routed through an intermediary a catch all rule at Treas. Reg. §28.2801-2(i)(4) taxes property acquired through any person not themselves subject to Section 2801, where the transfer is in substance a covered gift or bequest. You can’t route a covered gift through a friend who isn’t a covered expatriate to avoid the tax.

How the Tax Is Calculated

Section 2801 doesn’t use the graduated rates or multi million dollar exemption that apply to regular U.S. gift and estate tax. Under IRC §2801(a) (c), the formula is simple and unforgiving:

(Total covered gifts and bequests received in the year $19,000) × 40%

Two details in that formula matter more than most people expect:

• The $19,000 exclusion (the “section 2801(c) amount,” matching the regular annual gift tax exclusion for 2025 and 2026) applies once per year, to your combined total from every covered expatriate not once per gift and not once per donor.
• The 40% rate is simply the highest federal estate tax rate in effect under IRC §2001(c) currently 40%, but tied to whatever that top rate happens to be, rather than a fixed number written permanently into §2801 itself.

Worked example: In 2026, Priya receives a $50,000 cash gift from her uncle, a covered expatriate, and separately inherits an $80,000 bequest from a family friend who was also a covered expatriate. Her combined covered receipts for the year total $130,000. Subtracting the $19,000 exclusion leaves $111,000 taxable. At 40%, Priya owes $44,400, due with her Form 708 regardless of the fact that she’s never touched her own lifetime exemption (over $15 million in 2026).

That exemption simply doesn’t apply here: Section 2801 has no unified credit of its own, so the recipient’s personal exemption cannot offset it. The only thing that can reduce this bill is a credit for foreign gift or estate tax the covered expatriate already paid on the same transfer, under IRC §2801(d).

Form 708 Filing Deadline

This is where a lot of secondary sources get sloppy. The deadline is not “18 months after you receive the gift.” It’s the 15th day of the 18th month after the close of the calendar year in which you received it (Treas. Reg. §28.6071-1(a)(1)) a distinction that can shift your actual due date by the better part of a year depending on when in the year the gift arrived.

Covered bequests follow a modified rule when the date you actually receive the property is later than the covered expatriate’s date of death for example, if an estate takes years to settle. In that case, the due date is the later of (a) the 15th day of the 18th month after the close of the year the covered expatriate died, or (b) the 15th day of the 6th month of the year after the year you actually received the bequest.

Example: A covered expatriate dies in March 2026, but the estate doesn’t distribute the inheritance to the U.S. beneficiary until 2028. Rule (a) points to June 15, 2028 (18 months after the close of 2026, the year of death). Rule (b) points to June 15, 2029 (6 months after the close of 2028, the year of actual receipt). The later of the two June 15, 2029 controls.

You can request an automatic 6 month extension to file using Form 7004 but that only buys more time to file the paperwork, not more time to pay. Interest and penalties on unpaid tax start running on the original due date regardless.

Transfers That Don’t Count as Covered Gifts or Bequests

Section 2801(e) carves out several categories so the same transfer isn’t taxed twice, or taxed where it shouldn’t be:

• Already taxed transfers. If the covered expatriate reported the transfer as a taxable gift on a timely filed Form 709 or Form 709NA, it’s excluded from the covered gift definition entirely (Treas. Reg. §28.2801-3(c)(1)). A parallel exclusion applies to property properly reported on a timely filed Form 706, Form 706NA, or Form 706QDT.
• Marital and charitable equivalents. Transfers that would have qualified for the marital or charitable deduction had the expatriate still been a U.S. person are excluded with real limits. If the recipient spouse isn’t a U.S. citizen, the marital exclusion is capped at the annual exclusion amount for gifts to noncitizen spouses, not an unlimited amount.
• A meaningful easing in the final rules: the proposed regulations would have required the expatriate’s own gift or estate tax return to be both timely filed and timely paid for this exclusion to apply. The final regulations dropped the payment requirement timely filing is enough, since a recipient generally has no way to control whether the expatriate actually paid what they owed.

Foreign Trusts and the “Section 2801 Ratio”

If you’re receiving distributions from a foreign family trust rather than a direct gift, the mechanics get more involved. Under Treas. Reg. §28.2801-5, a distribution from a non electing foreign trust (one that hasn’t elected to be treated as domestic for Section 2801 purposes) is taxable to the extent it’s attributable to covered gifts or bequests the trust itself received.

That attribution is calculated using what the regulations call the “section 2801 ratio” the percentage of the trust’s value, immediately before a distribution, that traces back to covered gifts or bequests. If a trust’s assets are made up entirely of covered gifts and bequests (plus the income and appreciation on them), that ratio is 1 every dollar distributed to a U.S. beneficiary is taxable. If only part of the trust traces to covered sources, only that proportional slice of each distribution is taxed.

Example: A family trust holds $500,000, of which $200,000 traces to covered gifts from a covered expatriate relative a section 2801 ratio of 40%. The trust distributes $50,000 to a U.S. beneficiary. Under the ratio rule, $20,000 of that distribution (40% of $50,000) is treated as a covered gift subject to Section 2801 tax (after the annual exclusion); the remaining $30,000 is not.

A foreign trust can instead elect to be treated as domestic for Section 2801 purposes, but that requires designating a U.S. agent, submitting to U.S. court supervision, and generally paying a catch up tax on the trust’s historical covered assets. It isn’t a box to check lightly if the trust later fails to maintain a U.S. agent or comply with IRS information requests, the election can be treated as invalid, retroactively.

Because foreign trust distributions can also trigger separate reporting requirements, don’t assume Form 708 is the only form in play. See our guide to Form 3520 foreign gift reporting for what else may apply to the same distribution.

What If You’re Not Sure Your Relative Is a “Covered Expatriate”?

This is the most common practical problem for recipients, and the one most professional coverage of this topic glosses over. You may have no idea what your relative’s net worth was on their expatriation date, what their U.S. tax liability looked like for the five years before they left, or whether they properly certified compliance on Form 8854. That information sits with them, not you.

The regulations give you two tools:

• IRS disclosure. A living donor can authorize the IRS to confirm their covered expatriate status to you under §6103. If they refuse, Treas. Reg. §28.2801-7(b)(2) presumes they are covered you would need other documentation to overcome that presumption.
• Protective Form 708. If you reasonably conclude the transfer isn’t subject to Section 2801 but aren’t fully certain, Treas. Reg. §28.2801-7(c) lets you file a protective Form 708 along with a sworn affidavit explaining your conclusion. Filing protectively starts the IRS’s statute of limitations running on that transfer, rather than leaving it open to audit indefinitely.

Guessing wrong in either direction is expensive. Guess “not covered” incorrectly and skip filing, and you’re exposed with no limitations period ever starting. File protectively instead, and at worst you’ve spent a bit more time on paperwork with the clock now running in your favor.

Foreign Tax Credit and Tax Treaties

If the covered expatriate already paid a foreign country’s gift, estate, or inheritance tax on the same transfer, IRC §2801(d) lets you credit that foreign tax against your Section 2801 liability, reducing double taxation.

Tax treaties are a separate, thornier question. The United States currently has estate and/or gift tax treaties in force with only 15 countries: Australia, Austria, Canada (estate provisions folded into the income tax treaty), Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, the Netherlands, South Africa, Switzerland, and the United Kingdom. Neither India nor Nepal has an estate or gift tax treaty with the United States so for most of this site’s readers, treaty relief isn’t on the table, and the foreign tax credit under §2801(d) is the relief that actually applies.

Even where a treaty exists, whether it overrides Section 2801 at all is genuinely unsettled. Because Section 2801 is structured as a tax on the recipient rather than a conventional estate or gift tax on the person who transferred the property, standard treaties most written decades before this provision existed may simply not contemplate it. Don’t assume treaty protection without advice specific to the treaty country involved. For general background on how these treaties work, see our guide to U.S. tax treaties for immigrants.

What’s Still Genuinely Unsettled

Most coverage of this topic presents Section 2801 as fully settled law. It isn’t, entirely:

• The 2008–2024 gap. Section 2801 was enacted in June 2008, but Treasury didn’t finalize regulations until January 2025 a 17 year delay during which Notice 2009-85 deferred reporting and payment obligations. The final regulations apply prospectively to transfers received on or after January 1, 2025, and are silent on what happens to covered gifts and bequests received during that dormant 2008–2024 window. If you received a large gift from a covered expatriate at any point in that stretch and never reported it, that’s a genuinely unresolved area worth discussing with a professional rather than guessing at.
• Treaty interaction, as covered above.

Anyone telling you this area has no gray zones left is oversimplifying it.

Where and How to File

Form 708 is a paper return, and it’s an individual return there’s no joint Form 708, so spouses who each receive covered transfers file separately. Check the current Instructions for Form 708 directly for the current mailing address and any requirements if using an IRS designated private delivery service, since these details can change between revisions.

Frequently Asked Questions

What is Form 708?

Form 708 is the IRS return U.S. citizens, residents, domestic trusts, and electing foreign trusts use to report and pay tax on covered gifts and covered bequests received from a covered expatriate, under IRC §2801. The final version was released in December 2025, following final regulations (Treasury Decision 10027) effective January 14, 2025.

Who has to pay the Form 708 covered expatriate gift tax?

The recipient does, not the person who gave the gift or left the bequest. If you’re a U.S. citizen, resident, domestic trust, or electing foreign trust who received property from a covered expatriate, you owe the 40% tax and file Form 708, even though you had no say in anyone’s decision to expatriate.

How much is the Form 708 gift tax?

The tax is 40% the top federal estate tax rate under IRC §2001(c) of the total covered gifts and bequests you receive in a calendar year, after subtracting a $19,000 annual exclusion. That exclusion applies once per year to your combined receipts from all covered expatriates, not per gift or per donor.

When is the Form 708 deadline for gifts received in 2025?

June 15, 2027. The deadline is the 15th day of the 18th month after the close of the calendar year you received the gift or bequest, not 18 months from the date of the gift itself. A 6 month filing extension is available via Form 7004, though it doesn’t extend the deadline to pay.

Can my own lifetime exemption offset the covered expatriate gift tax?

No. Section 2801 has no unified credit of its own, and the recipient’s personal lifetime gift and estate tax exemption over $15 million in 2026 cannot be used to reduce this tax. The only available offset is a credit for foreign gift or estate tax the covered expatriate already paid on the same transfer.

What if I’m not sure whether my relative is a covered expatriate?

You can ask them to authorize IRS disclosure of their status under §6103. If a living donor refuses, the regulations presume they are covered until you show otherwise. If you’re genuinely uncertain, you can file a protective Form 708 with a sworn affidavit, which starts the statute of limitations running instead of leaving the transfer open to audit indefinitely.

Does a tax treaty reduce Form 708 covered expatriate gift tax?

Only for the 15 countries with a U.S. estate or gift tax treaty in force, and even then it’s unsettled whether those treaties written long before Section 2801 existed actually apply to a recipient based tax like this one. Neither India nor Nepal has such a treaty, so the foreign tax credit under §2801(d) is the relief that applies for most immigrant families.

What happens if I receive distributions from a foreign family trust instead of a direct gift?

Distributions from a non electing foreign trust are taxed to the extent they’re attributable to covered gifts or bequests the trust received, using a “section 2801 ratio” that tracks what portion of the trust’s value traces to covered sources. You may also have separate Form 3520 reporting obligations on the same distribution.

Disclaimer:

This article is for educational and informational purposes only and is not intended as tax, legal, or financial advice. The rules under IRC Section 2801 and Form 708 are complex and depend on your specific facts.

Tax laws and IRS guidance can change. We recommend consulting a qualified tax professional or attorney familiar with U.S. international tax matters before taking any action, especially if you are uncertain about a donor’s covered expatriate status, dealing with foreign trusts, or received transfers before 2025.

Honestmoneyadvice.com and its authors are not liable for any loss or damage resulting from reliance on this information. Always verify the latest IRS forms, instructions, and regulations directly.