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pdfFederal Register / Vol. 80, No. 175 / Thursday, September 10, 2015 / Proposed Rules
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labeling regulations for conventional
foods and dietary supplements to
provide updated nutrition information.
More recently, in the Federal Register of
July 27, 2015 (80 FR 44302), we
reopened the comment period through
September 25, 2015, for the proposed
rule for the sole purpose of inviting
public comments on two consumer
studies being added to the
administrative record. The consumer
studies pertained to proposed changes
to the Nutrition Facts label formats. We
also issued a supplemental proposed
rule (80 FR 44303) with a comment
period through October 13, 2015. The
supplemental proposal included two
additional consumer studies pertaining
to the declaration of added sugars and
alternative footnote statements. We
proposed text for the footnotes to be
used on the Nutrition Facts label, after
completing our consumer research in
which we tested various footnote text
options for the label, and to establish a
Daily Reference Value of 10 percent of
total energy intake from added sugars.
The supplemental proposal also would
require the declaration of the percent
Daily Value for added sugars on the
label and provide an additional
rationale for the declaration of added
sugars on the label. We explained that
we were taking these actions based, in
part, on the science underlying a new
report released by the 2015 Dietary
Guidelines Advisory Committee.
We have received some comments
suggesting we are not eliciting comment
on the consumer studies in the
supplemental proposal published in
July 2015. We clarify in this notice that:
(1) The consumer studies on the added
sugars declaration and the alternative
footnote statements in the supplemental
proposal relate to topics on which we
sought comment and (2) the consumer
studies on the format published in a
separate notice in July 2015 were
included for comment, and were placed
in the docket at that time. We are now
responding to additional requests for the
raw data for each of these consumer
studies that are relevant to the summary
memoranda for the studies, also now
available for comment.
II. Updated Information
We are updating the docket for the
rulemaking with two additional
documents: A request from the Grocery
Manufacturers Association for the raw
data associated with the four consumer
studies described in this document, and
our response to that request indicating
that we will provide the raw data
underlying the four consumer studies to
anyone who submits a request to
ConsumerStudiesBranch@fda.hhs.gov.
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These documents may be seen by
interested persons at the Division of
Dockets Management, Food and Drug
Administration, 5630 Fishers Lane, Rm.
1061, Rockville, MD 20852, between 9
a.m. and 4 p.m., Monday through
Friday, and are available electronically
at http://www.regulations.gov.
In addition, we are extending to
October 13, 2015, the comment period
on the two consumer studies pertaining
to proposed changes to the Nutrition
Facts label formats, which had been
scheduled to close on September 25,
2015, to align the comment periods for
all consumer studies.
We will continue to take comment on
the supplemental proposed rule,
including taking comment on the
consumer studies on added sugars and
the footnote, until October 13, 2015.
Dated: September 3, 2015.
Leslie Kux,
Associate Commissioner for Policy.
[FR Doc. 2015–22757 Filed 9–9–15; 8:45 am]
BILLING CODE 4164–01–P
DEPARTMENT OF THE TREASURY
Internal Revenue Service
54447
a.m., must be received by December 9,
2015.
ADDRESSES: Send submissions to
CC:PA:LPD:PR (REG–112997–10), Room
5205, Internal Revenue Service, PO Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may be handdelivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to CC:PA:LPD:PR (REG–112997–10),
Courier’s Desk, Internal Revenue
Service, 1111 Constitution Avenue NW.,
Washington, DC; or sent electronically
via the Federal eRulemaking Portal at
http://www.regulations.gov (IRS–REG–
112997–10). The public hearing will be
held in the IRS Auditorium, Internal
Revenue Building, 1111 Constitution
Avenue NW., Washington, DC.
FOR FURTHER INFORMATION CONTACT:
Concerning the proposed regulations,
Karlene Lesho or Leslie Finlow at (202)
317–6859; concerning the submission of
comments, the public hearing, or to be
placed on the building access list to
attend the hearing, Oluwafunmilayo
Taylor at (202) 317–6901 (not toll-free
numbers) or email at
Oluwafunmilayo.P.Taylor@
irscounsel.treas.gov.
SUPPLEMENTARY INFORMATION:
26 CFR Part 28
Paperwork Reduction Act
[REG–112997–10]
The collections of information
contained in this notice of proposed
rulemaking have been submitted to the
Office of Management and Budget for
review in accordance with the
Paperwork Reduction Act of 1995 (44
U.S.C. 3507(d)). Comments on the
collection of information should be sent
to the Office of Management and
Budget, Attn: Desk Officer for the
Department of the Treasury, Office of
Information and Regulatory Affairs,
Washington, DC 20503, and to
Clearance Officer, SE:CAR:MP:T:T:SP,
Washington, DC 20224. Comments on
the collection of information should be
received by November 9, 2015.
Comments are specifically requested
concerning:
Whether the proposed collections of
information are necessary for the proper
performance of IRS functions, including
whether the information will have
practical utility;
The accuracy of the estimated burden
associated with the proposed collections
of information;
How the quality, utility, and clarity of
the information to be collected may be
enhanced;
How the burden of complying with
the proposed collections of information
may be minimized, including through
the application of automated collection
RIN 1545–BJ43
Guidance Under Section 2801
Regarding the Imposition of Tax on
Certain Gifts and Bequests From
Covered Expatriates
Internal Revenue Service (IRS),
Treasury.
ACTION: Notice of proposed rulemaking
and notice of public hearing.
AGENCY:
This document contains
proposed regulations relating to a tax on
United States citizens and residents
who receive gifts or bequests from
certain individuals who relinquished
United States citizenship or ceased to be
lawful permanent residents of the
United States on or after June 17, 2008.
These proposed regulations affect
taxpayers who receive covered gifts or
covered bequests on or after the date
these regulations are published as final
regulations in the Federal Register. This
document also provides notice of a
public hearing on these proposed
regulations.
SUMMARY:
Written or electronic comments
must be received by December 9, 2015.
Requests to speak and outlines of topics
to be discussed at the public hearing
scheduled for January 6, 2016, at 10
DATES:
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Federal Register / Vol. 80, No. 175 / Thursday, September 10, 2015 / Proposed Rules
techniques or other forms of information
technology; and
Estimates of capital or start-up costs
of operation, maintenance, and
purchase of services to provide
information.
The collections of information in
these proposed regulations are in
§§ 28.2801–4(e), 28.2801–5(d), 28.6001–
1, and 28.6011–1. The collection of
information requirement in proposed
regulation § 28.2801–4(e) is required in
order for the IRS to verify that the U.S.
person who received a covered gift or
covered bequest is entitled to a
reduction in the section 2801 tax for
certain foreign taxes paid on the transfer
and, if so, the amount of such reduction.
The collection of information is
mandatory to obtain a benefit. The
likely respondents are individuals,
domestic trusts, and foreign trusts
electing to be treated as domestic trusts.
The collection of information in
§ 28.2801–5(d) is required to notify the
IRS and the U.S. persons who are
beneficiaries of a foreign trust that the
trust is electing to be treated as a
domestic trust for purposes of section
2801. It is also required for the IRS to
verify the proper amount of section
2801 tax due and to notify the
beneficiaries who are U.S. citizens or
residents in the event the election
terminates. This alerts the IRS and the
U.S. citizens and residents who are
beneficiaries that the trust will be liable
for payment of the section 2801 tax
while the election is in effect, but that
the U.S. beneficiaries will be liable for
the tax if and when the election
terminates. This collection of
information is necessary for the proper
performance of IRS functions in the
collection of the section 2801 tax. This
collection of information is mandatory
to obtain a benefit. The likely
respondents are the trustees of foreign
trusts.
The collection of information in
§ 28.6001–1 is required for the IRS to
verify the books and records pertaining
to covered gifts and covered bequests
and for the proper performance of IRS
functions in the collection of the section
2801 tax. It is also required to verify the
receipt of covered gifts and covered
bequests by U.S. persons and the value
of such gifts and bequests. This
collection of information is mandatory.
The likely respondents are individuals
and trustees of trusts.
The collection of information in
§ 28.6011–1 is required for the IRS to
verify the receipt of a covered gift or
covered bequest and other information
relevant to the tax imposed under
section 2801. This collection of
information is necessary for the proper
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performance of IRS functions in the
collection of the section 2801 tax. This
collection of information is mandatory.
The likely respondents are individuals
and trustees of trusts.
Estimated total annual reporting
burden: 7,000 hours.
Estimated average annual burden
hours per respondent: 1 hour to prepare
and attach documentation to Form 708,
‘‘U.S. Return of Gifts or Bequests from
Covered Expatriates,’’ for the reduction
of tax for foreign taxes paid; 2 hours for
a trustee of an electing foreign trust to
make the election and notify the
beneficiaries; 1 hour for the trustee of
the foreign trust to prepare annual
certifications; 1 hour to notify the U.S.
persons who are beneficiaries of the
trust that the election is terminated;
and, 2 hours to prepare taxpayer records
and the Form 708 to report the section
2801 tax.
Estimated number of respondents:
1,000.
Estimated annual frequency of
responses: Annually or less.
An agency may not conduct or
sponsor, and a person is not required to
respond to, a collection of information
unless it displays a valid control
number assigned by the Office of
Management and Budget.
Books or records relating to a
collection of information must be
retained as long as their contents may
become material in the administration
of any internal revenue law. Generally,
tax returns and tax return information
are confidential, as required by 26
U.S.C. 6103.
Background
Section 301 of the Heroes Earnings
Assistance and Relief Tax Act of 2008,
Public Law 110–245 (122 Stat. 1624)
(the HEART Act), added new section
877A to subtitle A of the Internal
Revenue Code (Code), and new chapter
15 and new section 2801 to subtitle B,
effective June 17, 2008. Prior to the
addition of chapter 15, subtitle B
contained chapters 11 through 14
relating to the estate tax, the gift tax, the
generation-skipping transfer tax, and
special valuation rules for purposes of
subtitle B. New chapter 15 consists
solely of section 2801.
Prior to the enactment of the HEART
Act, citizens and long-term residents of
the United States who expatriated to
avoid U.S. taxes were subject to an
alternative regime of U.S. income,
estate, and gift taxes under sections 877,
2107, and 2501, respectively, for a
period of 10 years following
expatriation. Recognizing that citizens
and residents of the United States
generally are subject to estate tax on
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their world-wide assets at the time of
death, Congress determined that it was
appropriate, in the interests of tax
equity, to impose a tax on U.S. citizens
or residents who receive, from an
expatriate, a transfer that would
otherwise have escaped U.S. estate and/
or gift taxes as a consequence of
expatriation.
In an explanation of an earlier bill
also proposing enactment of new
chapter 15 and section 2801, the Report
of the House Ways and Means
Committee states that citizens and longterm residents of the United States have
a right to physically leave the United
States and relinquish their citizenship
or terminate their residency. See H.R.
Rep. No. 110–431 (2007). The Report
states that the Committee believed that
the Code should not be used to
discourage individuals from
relinquishing citizenship or terminating
residency. At the same time, however,
the Report states that the Code should
not reward individuals who leave the
United States. The Report concludes
that an individual’s decision to
relinquish citizenship or terminate longterm residency should not affect the
total amount of taxes imposed (that is,
it should be ‘‘tax neutral’’). The Report
further states that, where U.S. estate or
gift taxes are avoided with respect to a
transfer of property to a U.S. person by
reason of the expatriation of the donor,
it is appropriate for the recipient to be
subject to a tax similar to the donor’s
avoided transfer taxes.
With the enactment of sections 877A
and 2801, sections 877 and 2107 apply
only to individuals who relinquished
United States citizenship or ceased to be
lawful permanent residents prior to June
17, 2008. Section 2501 generally
continues to apply to any individual,
resident or nonresident, including
individuals who expatriate, whether or
not on or after June 17, 2008. Section
2501(a)(3) and (a)(5), however, provides
special rules for expatriates subject to
section 877(b), which are not applicable
to individuals who expatriate on or after
June 17, 2008.
Section 2801 imposes a tax (section
2801 tax) on covered gifts and covered
bequests received by a citizen or
resident of the United States (U.S.
citizen or resident) from a covered
expatriate. The section 2801 tax applies
with regard to any property transferred
to a U.S. citizen or resident which
qualifies as a covered gift or covered
bequest under section 2801, regardless
of whether the property transferred was
acquired by the donor or decedent
covered expatriate before or after
expatriation.
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The value of a covered gift or covered
bequest is its fair market value at the
time the gift or bequest is received by
the U.S. citizen or resident. A U.S.
citizen or resident receiving a covered
gift or covered bequest (U.S. recipient)
is liable for payment of the section 2801
tax imposed under this chapter. A
domestic trust that receives a covered
gift or covered bequest is treated as a
U.S. citizen and therefore is liable for
payment of the section 2801 tax. A
foreign trust may elect to be treated as
a domestic trust (an electing foreign
trust) for this purpose; absent this
election, the trust’s U.S. citizen or
resident beneficiaries will be taxed as
distributions are made from the trust (a
non-electing foreign trust).
On July 20, 2009, the Treasury
Department and the IRS issued
Announcement 2009–57, 2009–29 I.R.B.
158. Announcement 2009–57 put
taxpayers on notice that any covered gift
or covered bequest received on or after
June 17, 2008, is subject to the
imposition of the section 2801 tax.
Announcement 2009–57 states that the
IRS intends to issue guidance under
section 2801 and that the due date for
reporting, filing, and payment of the tax
imposed under section 2801 will be
included in the guidance. The
announcement further provides that the
guidance the IRS intends to issue will
provide a reasonable period of time
between the date of issuance of the
guidance and the date prescribed for the
filing of the return and the payment of
the tax.
On October 15, 2009, the Treasury
Department and the IRS released Notice
2009–85, 2009–45 I.R.B. 598. Notice
2009–85 generally provides guidance for
individuals who are subject to section
877A (added to the Code together with
section 2801). With respect to gifts and
bequests, section 9 of Notice 2009–85
provides that gifts or bequests from a
covered expatriate on or after June 17,
2008, are subject to a transfer tax under
new section 2801. Section 9 of Notice
2009–85 further provides that
satisfaction of the reporting and tax
obligations under section 2801 for
covered gifts or covered bequests
received on or after June 17, 2008, is
deferred pending the issuance of
separate guidance by the IRS.
Explanation of Provisions
The proposed regulations amend title
26 of the Code of Federal Regulations by
adding part 28 (Imposition of Tax on
Gifts and Bequests from Covered
Expatriates) under new section 2801 of
the Code. The proposed regulations are
divided into seven sections.
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Section 28.2801–1 of the proposed
regulations sets forth the general rules of
liability for the tax imposed by section
2801(a). Section 2801 imposes a tax on
United States citizens or residents who
receive, directly or indirectly, covered
gifts or covered bequests (including
distributions from foreign trusts
attributable to covered gifts and covered
bequests) from a covered expatriate. For
purposes of section 2801, domestic
trusts and foreign trusts electing to be
treated as domestic trusts are treated in
the same manner as U.S. citizens.
Definitions
Section 28.2801–2 of the proposed
regulations defines terms for purposes
of new chapter 15. The proposed
regulations define the term ‘‘citizen or
resident of the United States’’ as an
individual who is a citizen or resident
of the United States under the estate and
gift tax rules of chapter 11 and chapter
12, respectively, in subtitle B of the
Code. Accordingly, whether an
individual is a ‘‘resident’’ is based on
domicile in the United States,
notwithstanding that section 877A
adopts the income tax definition of that
term. The Treasury Department and the
IRS believe that, because section 2801
imposes a tax subject to subtitle B, the
tax definition of resident under subtitle
B generally should apply for purposes of
section 2801. See §§ 20.0–1(b)(1) and
25.2501–1(b).
The proposed regulations generally
define the term ‘‘covered gift’’ by
reference to the definition of gift for
purposes of chapter 12 of subtitle B. The
proposed regulations define the term
‘‘covered bequest’’ as any property
acquired directly or indirectly because
of the death of a covered expatriate.
Such property generally is property that
would have been includible in the gross
estate of the covered expatriate under
chapter 11 of subtitle B, had the covered
expatriate been a U.S. citizen or resident
at the time of death.
Section 2801 defines ‘‘covered
expatriate’’ by reference to the section
877A(g)(1) definition of that term.
Section 877A(g)(1) generally provides
that an individual who expatriates on or
after June 17, 2008, is a covered
expatriate if, on the expatriation date,
(1) the individual’s average annual net
income tax liability is greater than
$124,000 (indexed for inflation) for the
previous five taxable years, (2) the
individual’s net worth is at least
$2,000,000 (not indexed), or (3) the
individual fails to certify under penalty
of perjury that he or she has complied
with all U.S. tax obligations for the five
preceding taxable years. See section
877A(g)(1); Notice 2009–85, 2009–45
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54449
I.R.B. 598. The proposed regulations
provide that, if an expatriate meets the
definition of a covered expatriate, the
expatriate is considered a covered
expatriate for purposes of section 2801
at all times after the expatriation date,
except during any period beginning
after the expatriation date during which
such individual is subject to United
States estate or gift tax as a U.S. citizen
or resident.
Additionally, the proposed
regulations define for purposes of
section 2801 the terms ‘‘domestic trust,’’
‘‘foreign trust,’’ ‘‘electing foreign trust,’’
‘‘U.S. recipient,’’ ‘‘power of
appointment,’’ and ‘‘indirect acquisition
of property.’’
Rules and Exceptions Applicable to
Covered Gifts and Covered Bequests
Section 28.2801–3 addresses the rules
in section 2801(e) and includes rules
and several exceptions applicable to the
definitions of covered gift and covered
bequest. Exceptions include taxable gifts
reported on a covered expatriate’s
timely filed gift tax return, and property
included in the covered expatriate’s
gross estate and reported on such
expatriate’s timely filed estate tax
return, provided that the gift or estate
tax due is timely paid. Qualified
disclaimers of property made by a
covered expatriate are excepted from the
definitions of a covered gift and covered
bequest. In addition, charitable
donations that would qualify for the
estate or gift tax charitable deduction
are excepted from the terms ‘‘covered
gift’’ and ‘‘covered bequest.’’
Section 28.2801–3(c)(4) provides that
a gift or bequest to a covered expatriate’s
U.S. citizen spouse is excepted from the
terms ‘‘covered gift’’ and ‘‘covered
bequest’’ if the gift or bequest, if given
by a U.S. citizen or resident, would
qualify for the gift or estate tax marital
deduction. In the case of a gift or
bequest in trust, this means that, to the
extent the gift or bequest to the trust (or
to a separate share of the trust) would
qualify for the estate or gift tax marital
deduction, the gift or bequest is not a
covered gift or covered bequest. A gift
or bequest of a partial or terminable
interest in property that a covered
expatriate makes to his or her spouse is
excepted from the definitions of a
covered gift and covered bequest only to
the extent that such gift or bequest is
qualified terminable interest property
(QTIP), as defined in section 2523(f) or
section 2056(b)(7), and a valid QTIP
election is made. To the extent a
covered gift or covered bequest is made
to a non-electing foreign trust (or to a
separate share of such a trust), a
distribution from the trust (or from the
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separate share of the trust) to the U.S.
citizen spouse of the covered expatriate
who funded the trust (whether in whole
or in part) will not qualify for the
exception. Note that gifts and bequests
made by a covered expatriate to his or
her noncitizen spouse are subject to an
annual limit under section 2523(i).
Furthermore, a bequest from a covered
expatriate to his or her noncitizen
surviving spouse who is a U.S. resident
is not a covered bequest to the extent
the bequest is made to a qualified
domestic trust (QDOT) that satisfies the
requirements of section 2056A and the
corresponding regulations, and for
which a valid QDOT election is made.
Section 28.2801–3(d) provides rules
to implement section 2801(e)(4)
regarding covered gifts and covered
bequests made in trust, including
transfers of property in trust that are
subject to a general power of
appointment granted by the covered
expatriate. In identifying the recipient of
such covered gifts and covered bequests
made in trust, the proposed regulations
do not adopt the gift tax rule of treating
the trust beneficiary or holder of an
immediate right to withdraw the
property as the recipient of that
property. Instead, for purposes of
section 2801, the proposed regulations
treat transfers in trust that constitute
covered gifts and covered bequests as
transfers to the trust, to be taxed under
the rules in section 2801(e)(4).
Specifically, the proposed regulations
provide that, if a covered expatriate
makes a transfer in trust and such
transfer is a covered gift or covered
bequest, the transfer is treated as a
covered gift or covered bequest to the
trust, without regard to the beneficial
interests in the trust or whether any
person has a general power of
appointment or a power of withdrawal
over trust property. Under section
2801(e)(4), the transfer to the trust will
be taxed either to the trust receiving the
covered gift or covered bequest, in the
case of a domestic trust or electing
foreign trust, or to the U.S. beneficiaries
or distributees of a non-electing foreign
trust as trust distributions are made.
Section 28.2801–3(e) provides two
rules addressing covered gifts and
covered bequests arising from powers of
appointment. First, consistent with the
rules in chapters 11 and 12, the
proposed regulations confirm that the
exercise, release, or lapse of a covered
expatriate’s general power of
appointment for the benefit of a U.S.
citizen or resident is a covered gift or
covered bequest. Second, the proposed
regulations provide that a covered
expatriate’s grant of a general power of
appointment over property not held in
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trust is a covered gift or covered bequest
to the powerholder as soon as both the
power is exercisable and the transfer of
the property subject to the power is
irrevocable. See also § 28.2801–
4(d)(5)(ii). The preceding sentence
applies only for purposes of section
2801, and should not be interpreted as
having any impact on the determination
of whether the grant of a general power
of appointment over property not in
trust is a completed gift for Federal gift
tax purposes, which is a question to be
resolved under chapter 12 without
regard to this provision.
Liability for Section 2801 Tax
Section 28.2801–4 provides specific
rules regarding who is liable for the
payment of the section 2801 tax.
Generally, the U.S. citizen or resident
who receives the covered gift or covered
bequest is liable. Similarly, the
proposed regulations provide rules
explaining that a domestic trust that
receives a covered gift or covered
bequest is treated as a U.S. citizen and
thus is liable for payment of the section
2801 tax imposed under this section. An
electing foreign trust also is treated as a
U.S. citizen. See §§ 28.2801–2(b) and
28.2801–5(d). However, a non-electing
foreign trust is not liable for the section
2801 tax. Instead, a U.S. citizen or
resident who receives a distribution
from a non-electing foreign trust is
liable for the section 2801 tax on the
receipt of that distribution to the extent
the distribution is attributable to
covered gifts or covered bequests to that
trust. Under section 2801(e)(4)(B)(ii),
that U.S. citizen or resident may be
entitled to a limited deduction under
section 164 against income tax for the
section 2801 tax paid on the
distribution. The deduction is limited to
the extent that the section 2801 tax is
imposed on that portion of the
distribution that is reported in the gross
income of the U.S. citizen or resident.
Section 28.2801–4(a)(3)(ii) of the
proposed regulations describes how to
compute that deduction.
Section 28.2801–4(a)(2)(ii) of the
proposed regulations provides that, in
the case of a domestic trust or an
electing foreign trust, the trust’s
payment of the section 2801 tax for
which the trust is liable does not result
in a taxable distribution under section
2621 of the Code to any beneficiary of
the trust for generation-skipping transfer
(GST) tax purposes. This provision is
consistent with the GST tax
consequences of a trust’s payment of
tax, which differ depending upon
whether the trust or the trust beneficiary
is liable for the tax being paid.
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Section 28.2801–4(a)(2)(iv) provides a
special rule for certain non-electing
foreign trusts that become domestic
trusts (migrated foreign trusts). A
migrated foreign trust will be treated
solely for purposes of section 2801 as a
domestic trust for the entire year during
which the change from foreign trust to
domestic trust occurred. The trust must
file a timely Form 708 for the year in
which the trust becomes a domestic
trust and must report and pay the
section 2801 tax on all covered gifts and
covered bequests received by the trust
during the year it becomes a domestic
trust as well as on the portion of the
trust’s value attributable to any covered
gifts and covered bequests received by
the trust prior to the year in which it
becomes a domestic trust determined as
of December 31 of the year prior to the
year it becomes a domestic trust.
Charitable Remainder Trusts
Section 28.2801–4(a)(2)(iii) of the
proposed regulations provides rules for
charitable remainder trusts (CRTs), as
defined in section 664, contributions to
which are made by covered expatriates
for the benefit of one or more charitable
organizations described in section
170(c) and a U.S. citizen or resident
other than such a charitable
organization (non-charitable U.S. citizen
or resident). Section 2801(e)(3) indicates
that the value of the charitable
organization’s remainder interest in a
CRT is excluded from the definition of
a covered gift or covered bequest. The
value of the interest of the noncharitable U.S. citizen or resident in
such contributions to the CRT is a
covered gift or covered bequest, unless
otherwise excluded.
Under section 664, a CRT must be a
domestic trust. Accordingly, when a
covered expatriate contributes a covered
gift or covered bequest to a CRT, the
CRT is liable for the payment of the
section 2801 tax attributable to the value
of the non-charitable U.S. person’s
interest in the trust. Section 664(d)(1)(B)
and (d)(2)(B) and § 1.664–3(a)(4) of the
Income Tax Regulations provide that no
amount other than the annuity or
unitrust amount may be paid ‘‘to or for
the use of any person other than an
organization described under section
170(c).’’ This rule has been applied in
Revenue Ruling 82–128 (1982–2 CB 71)
to disqualify a trust as a CRT if the trust
could be required to pay estate taxes by
reason of the applicable state
apportionment statute. Thus, if the
CRT’s liability for payment of section
2801 tax attributable to the noncharitable recipient’s interest in the CRT
were to be deemed comparable to the
CRT’s liability for payment of estate tax,
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the CRT would not qualify as a CRT
under section 664.
A CRT’s liability for payment of the
section 2801 tax is distinguishable from
a CRT’s liability for payment of estate
tax because the section 2801 tax is
imposed expressly on the CRT under a
federal tax statute, section 2801(e)(4)(A).
In addition, the section 2801 tax is
imposed on the CRT as a primary
obligation of the CRT, rather than an
obligation imposed on the CRT for the
payment of a liability belonging to or
attributable to another taxpayer.
Accordingly, a CRT’s payment of the
section 2801 tax on the portion of each
transfer to the CRT that is a covered gift
or covered bequest is not a distribution
to or for the use of any person within
the meaning of section 664(d)(1)(B) and
(d)(2)(B), and the CRT’s liability for
such a payment will not cause the trust
to be disqualified as a CRT defined in
section 664. The proposed regulations
confirm that the charitable remainder
interest’s share of each transfer to the
CRT is not a covered gift or covered
bequest and provide the method for
computing the net covered gifts and
covered bequests that are taxable to the
CRT under section 2801.
Computation of Section 2801 Tax
Section 28.2801–4 of the proposed
regulations also provides guidance on
how to compute the section 2801 tax.
Generally, the section 2801 tax is
determined by reducing the total
amount of covered gifts and covered
bequests received during the calendar
year by the section 2801(c) amount,
which is the dollar amount of the perdonee exclusion in effect under section
2503(b) for that calendar year ($14,000
in 2015), and then multiplying the net
amount by the highest estate or gift tax
rate in effect during that calendar year.
The reference to section 2503(b) in
section 2801 is included solely to
provide a dollar amount by which to
decrease the U.S. recipient’s aggregate
covered gifts and covered bequests
received during that calendar year to
determine the amount subject to the
section 2801 tax; section 2801 does not
incorporate the substantive rule of
section 2503(b) that applies to donors of
gifts under chapter 12. The resulting tax
then is reduced by any estate or gift tax
paid to a foreign country with regard to
those transfers. See § 28.2801–4(e).
Value of a Covered Gift or Covered
Bequest
The value of a covered gift or covered
bequest is the fair market value of the
property on the date of its receipt by the
U.S. citizen or resident. Section
28.2801–4(c) provides that the value of
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a covered gift is determined by applying
the federal gift tax valuation principles
under section 2512 and chapter 14 and
the corresponding regulations.
Similarly, the value of a covered bequest
is determined by applying the federal
estate tax valuation principles under
section 2031 and chapter 14 and the
corresponding regulations, but without
regard to sections 2032 and 2032A.
Date of Receipt
The proposed regulations identify the
date of the receipt of a covered gift or
covered bequest by a U.S. citizen or
resident. See § 28.2801–4(d). In general,
a covered gift is received on the same
date it is given for purposes of chapter
12. In general, a covered bequest is
received on the date the property is
distributed from the estate or the
covered expatriate’s revocable trust.
However, in the case of property that
passes by operation of law or
beneficiary designation upon the
covered expatriate’s death, the date of
receipt is the date of death. The
proposed regulations provide more
detail with regard to the determination
of the date of receipt of covered gifts
and covered bequests received from a
non-electing foreign trust, those
received pursuant to powers of
appointment, and those received
indirectly.
Foreign Trusts
Section 28.2801–5 of the proposed
regulations provides guidance on the
treatment of foreign trusts under section
2801. If a covered gift or covered
bequest is made to a foreign trust, the
section 2801 tax applies to any
distribution from that trust, whether of
income or corpus, to a recipient that is
a U.S. citizen or resident, unless the
foreign trust elects to be treated as a
domestic trust for purposes of section
2801. The proposed regulations define
the term ‘‘distribution’’ broadly to
include any direct, indirect, or
constructive transfer from a foreign
trust, including each disbursement from
such a trust pursuant to the exercise,
release, or lapse of a power of
appointment.
Distributions From Foreign Trusts
The section 2801 tax applies only to
the portion of a distribution from a nonelecting foreign trust that is attributable
to covered gifts and covered bequests
contributed to the foreign trust. Section
28.2801–5(c) of the proposed
regulations provides that the amount of
the distribution attributable to covered
gifts and covered bequests is determined
by multiplying the total distribution by
a ratio, as in effect at the time of the
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distribution, that is redetermined after
each contribution to the trust. The
proposed regulations explain how to
compute that ratio and provide that
each distribution from the foreign trust
is considered to be made proportionally
from the covered and non-covered
portions of the trust, without any tracing
with regard to particular assets. One
effect of this rule is that the portion of
a distribution from a foreign trust that
is attributable to covered gifts and
covered bequests contributed to the
foreign trust includes the ratable portion
of any appreciation and income that has
accrued on the foreign trust’s assets
since the contribution of the covered
gifts and covered bequests to the foreign
trust.
Election by Foreign Trust To Be Treated
as Domestic Trust
Section 2801(e)(4)(B)(iii) provides
that, solely for purposes of section 2801,
a foreign trust may elect to be treated as
a domestic trust. Consequently, the
section 2801 tax is imposed on the
electing foreign trust when it receives
covered gifts and covered bequests,
rather than on the U.S. trust
beneficiaries when distributions are
made from the trust. The election may
be made for a calendar year whether or
not the foreign trust received a covered
gift or covered bequest during that
calendar year. Section 28.2801–5(d)(3)
of the proposed regulations provides
guidance on the time and manner of
making the election. In order for an
election to be valid, the trustee of the
foreign trust must satisfy several
requirements. The trustee must make
the election on a timely filed Form 708
and, if tax is due, timely pay the section
2801 tax (as computed under § 28.2801–
5(d)(3)(iii)) by the due date of the Form
708 for that year and include a
computation of how the applicable ratio
and tax liability were calculated.
Further, the trustee must designate and
authorize a U.S. agent for purposes of
section 2801, and must agree to file
annually a Form 708 either to certify
that no covered gifts or covered bequests
were received by the foreign trust
during the calendar year, or to report
and, if tax is due, pay the section 2801
tax on covered gifts and covered
bequests received by the foreign trust
during the calendar year. The trustee
also must report the portion of the trust
attributable to covered gifts and covered
bequests and all distributions
attributable to covered gifts and covered
bequests made to U.S. recipients in
years prior to the year of the election.
Finally, the trustee must notify the
permissible U.S. distributees of the trust
that the trustee is making the election to
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be treated as a domestic trust for
purposes of section 2801.
Under § 28.2801–5(d)(3)(iii), an
electing foreign trust that received
covered gifts or covered bequests in
prior calendar years when the election
to be treated as a domestic trust was not
in effect also must pay the section 2801
tax liability for all prior calendar years
at the time the election is made on Form
708. Such liability is based on the fair
market value of the trust attributable to
covered gifts and covered bequests as of
the last day of the calendar year
immediately preceding the year for
which the election is made, using the
ratio calculated and then in effect under
§ 28.2801–5(c). If the trustee is unable to
determine the portion of the trust
attributable to covered gifts and covered
bequests, then the fair market value of
the entire trust as of the last day of the
calendar year immediately preceding
the year for which the election is made
is subject to the section 2801 tax.
A valid election to be treated as a
domestic trust is effective as of the
beginning of the calendar year for which
the Form 708 is filed. The effect of a
valid election is that, as of such effective
date of the election and until the
election is terminated, U.S. citizens and
residents receiving a distribution from
that foreign trust will not be subject to
section 2801 tax on that distribution.
Instead, the electing foreign trust, like a
domestic trust, must report and pay the
section 2801 tax on each covered gift
and covered bequest as it is received.
The election, however, will not change
the section 2801 tax liability of the U.S.
recipients with regard to distributions
made from the trust prior to the effective
date of the election. The election has no
impact outside of section 2801 on the
taxation or reporting of trust
distributions to U.S. persons.
Dispute as to Amount of Section 2801
Tax Owed by Electing Foreign Trust
If the IRS asserts that additional
section 2801 tax is due from the electing
foreign trust because, for example, the
trust undervalued the covered gift or
covered bequest or failed to report all
covered gifts and covered bequests, then
the IRS will notify the trustee of the
foreign trust and the U.S. agent of the
additional tax due on the asserted
additional value or additional covered
gifts or covered bequests, including any
penalties and interest, and request
payment by the due date identified in
the IRS letter. If the trustee of the
electing foreign trust and the IRS are
unable to come to an agreement and the
trustee fails to timely pay the additional
tax and other asserted amounts, then the
election is deemed to be an ‘‘imperfect
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election.’’ This means that the election
terminates as of the first day of the
calendar year for which the IRS asserts
that the additional section 2801 tax is
due. In this event, the covered gifts and
covered bequests for which the return
was timely filed, but only to the extent
of the value on which the section 2801
tax was timely paid, are no longer
considered to be covered gifts or
covered bequests for purposes of
determining the ratio under § 28.2801–
5(c)(1), and distributions relating to
such amounts will not be taxable to a
U.S. citizen or resident who receives a
trust distribution. However, with regard
to the asserted additional value or
additional covered gifts or covered
bequests on which the trust did not
timely pay the section 2801 tax asserted
by the IRS, the foreign trust is not an
electing foreign trust and thus is not the
taxpayer responsible for the payment of
that additional section 2801 tax. Instead,
as of the effective date of the
termination of the trust’s election, the
usual rule of section 2801(e)(4)(B)
applies with regard to the taxation of
distributions from foreign trusts.
Specifically, the U.S. citizens or
residents who receive any trust
distributions on or after the effective
date of the terminated election should
take into consideration the additional
value or additional covered gifts or
covered bequests asserted by the IRS in
determining the ratio under § 28.2801–
5(c)(1) to be applied to such
distributions. If the U.S. recipient does
not take the additional value or
additional covered gifts or covered
bequests asserted by the IRS into
consideration in computing that ratio,
and the IRS challenges the computation
of that ratio during its review of the U.S.
recipient’s Form 708 reporting the
distribution, the IRS’s assertion of the
additional value or additional covered
gifts or covered bequests then will
become an issue to be resolved as part
of the usual examination process for the
U.S. recipient’s Form 708. See
§ 28.2801–5(e), Example 4.
Termination of Status as Electing
Foreign Trust
An electing foreign trust’s failure to
file the Form 708 on an annual basis or
to timely pay its section 2801 tax
terminates that foreign trust’s election to
be treated as a domestic trust as of the
first day of the calendar year for which
the certification is not timely made or
for which its section 2801 tax is not
timely paid. But see § 28.2801–5(d)(6) in
the case of a dispute as to the amount
of section 2801 tax owed by an electing
foreign trust. In the event of the
termination of the election, the trustee
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should notify the permissible U.S.
distributees of the effective date of the
termination and that each U.S. recipient
of a distribution made from the foreign
trust on or after that date is subject to
the section 2801 tax to the extent the
distribution is attributable to covered
gifts or covered bequests. After an
election is terminated, a foreign trust is
not prohibited from making a new
election to be treated as a domestic trust
by complying with all applicable
requirements.
Other Provisions
Section 28.2801–6(a) addresses how
the basis rules under sections 1014,
1015(a), and 1022 impact the
determination of the U.S. recipient’s
basis in the covered gift or covered
bequest. Unlike section 1015(d), which
generally allows gift tax paid on the gift
to be added to the donee’s basis, section
2801 does not provide a similar basis
adjustment for the payment of the
section 2801 tax.
Section 28.2801–6(b) clarifies the
applicability of the GST tax to certain
section 2801 transfers and crossreferences the GST rules.
Section 28.2801–6(c) discusses the
interaction of section 2801 and the
information reporting provisions of
sections 6039F and 6048(c). Generally,
pursuant to section 6039F and Notice
97–34, 1997–1 CB 422, a U.S. person
(other than an organization described in
section 501(c) and exempt from tax
under section 501(a)) who receives a gift
or bequest (including a covered gift or
covered bequest) from a foreign person
(other than through a foreign trust) must
report such gift or bequest on Part IV of
Form 3520, ‘‘Annual Return to Report
Transactions with Foreign Trusts and
Receipt of Certain Foreign Gifts,’’ if the
total value of such gifts and bequests
exceeds a certain threshold. A U.S.
citizen or resident, as defined under
§ 28.2801–2(b) and thus including a
domestic trust as defined in § 28.2801–
2(c), but not including a foreign trust
that elects to be treated as a domestic
trust, is included within the definition
of a U.S. person for purposes of section
6039F.
Under section 6039F(c)(1)(A), if a U.S.
person fails to furnish all of the
information regarding the gift or bequest
in accordance with the requirements of
Form 3520, and any related guidance,
within the time prescribed (in the case
of a U.S. citizen or resident, the time for
filing the Form 1040, including
extensions), then, absent reasonable
cause, a monthly penalty of 5 percent of
the amount of the gift or bequest (not to
exceed 25 percent) may be imposed
until such information is furnished. In
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addition, the tax consequences of the
receipt of such gift or bequest may be
determined by the Secretary. Taxpayers
should be aware that the information
reported on Part IV of Form 3520,
whether or not timely filed, may be
considered in determining whether a
U.S. citizen or resident received a
covered gift or covered bequest.
Pursuant to section 6048(c) and
Notice 97–34, a U.S. person must report
any distributions received from a
foreign trust on Part III of Form 3520.
Under section 6677(a), a penalty of the
greater of $10,000 or 35 percent of the
gross value of the distribution may be
imposed on a U.S. person who fails to
timely report the distribution. A U.S.
citizen or resident, as defined in
§ 28.2801–2(b), but not including a
foreign trust that elects to be treated as
a domestic trust, generally would be
required to report such a distribution
under section 6048(c).
Further, if adequate records are not
provided to determine the treatment of
such a distribution, to the extent
provided in Notice 97–34, as modified
by the instructions to Form 3520 and
any subsequent guidance, such
distribution may be treated as an
accumulation distribution includible in
the gross income of the distributee.
Taxpayers similarly should be aware
that information reported on Part III of
Form 3520 may be used to determine if
a U.S. citizen or resident received a trust
distribution attributable to a covered gift
or covered bequest.
Finally, § 28.2801–6(d) addresses the
section 6662 accuracy-related penalties
on underpayments of tax, the section
6651 failure to file and pay penalties,
and the section 6695A penalty on
substantial and gross valuation
misstatements attributable to incorrect
appraisals. The Treasury Department
and the IRS recognize that taxpayers
have had to defer their tax reporting and
payment obligations with respect to
covered gifts and covered bequests
received after the effective date of
section 2801 (as described in Notice
2009–85). Thus, there may be
circumstances under which a taxpayer
who received a covered gift or covered
bequest in a year prior to the issuance
of final regulations may have difficulty
in complying with the deferred filing
and payment requirements with respect
to those receipts. A taxpayer who
establishes that such failure in this
regard is due to reasonable cause and
not to willful neglect will not be subject
to the section 6651 penalties for failure
to file or pay. The determination of
whether an exception to the other
penalties applies will be made on a
case-by-case basis.
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Section 28.2801–7 provides guidance
on the responsibility of a U.S. recipient,
as defined in § 28.2801–2(e), to
determine if tax under section 2801 is
due. The Treasury Department and the
IRS realize that, because the tax
imposed by this section is imposed on
the U.S. citizen or resident receiving a
covered gift or covered bequest, rather
than on the donor or decedent covered
expatriate making the gift or bequest,
U.S. taxpayers may have difficulty
determining whether they are liable for
any tax under section 2801.
Nevertheless, the same standard of due
diligence that applies to any other
taxpayer to determine whether the
taxpayer has a tax liability or a filing
requirement also applies to U.S. citizens
and residents under this section.
Accordingly, it is the responsibility of
each U.S. citizen or resident receiving a
gift or bequest, whether directly or
indirectly, from an expatriate (as
defined in section 877A(g)(2)) to
determine its tax obligations under
section 2801. Thus, the burden is on
that U.S. citizen or resident to
determine whether the expatriate was a
covered expatriate (as defined in section
877A(g)(1)) and, if so, whether the gift
or bequest was a covered gift or covered
bequest.
The Treasury Department and the IRS
understand that a U.S. citizen or
resident receiving a gift or bequest from
an expatriate may be unable to obtain
directly from the expatriate, the
expatriate’s attorney, the expatriate’s
executor, or other reliable sources the
information necessary to make the
above determinations. If the IRS
receives a request from a U.S. citizen or
resident who received a gift from an
expatriate who has consented to the
disclosure of certain return information
to that donee, a gift from an expatriate
who is deceased at the time of the
request, or a bequest from an expatriate,
the IRS may in certain circumstances
disclose to such U.S. citizen or resident
the return or return information of the
donor or decedent expatriate that may
assist the U.S. citizen or resident in
determining whether the donor or
decedent was a covered expatriate and
whether the transfer was a covered gift
or covered bequest. See section 6103.
The types of information and
requirements and procedures for
requesting such information will be set
forth in guidance published in the
Internal Revenue Bulletin.
Although the IRS, if authorized, may
disclose returns and return information
upon request, the IRS will not make the
determinations as to whether an
expatriate from whom a gift or bequest
was received was a covered expatriate
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54453
or whether the gift or bequest was a
covered gift or covered bequest.
Furthermore, the U.S. citizen or resident
receiving a gift or bequest from an
expatriate may not rely on any
information provided by the IRS that the
U.S. citizen or resident knows or has
reason to know is incorrect. These
determinations are the responsibility of
the U.S. citizen or resident.
The proposed regulations provide
that, if a living expatriate donor does
not authorize the IRS to release to a U.S.
citizen or resident the donor’s relevant
return or return information, there is a
rebuttable presumption that the
expatriate donor is a covered expatriate
and that each gift from that expatriate to
a U.S. citizen or resident is a covered
gift. A taxpayer who reasonably
concludes that a gift or bequest is not
subject to section 2801 and intends to
rebut the presumption may choose to
file a protective return to start the
period for assessment of any section
2801 tax. See §§ 28.2801–7(b)(2),
28.6011–1(b).
Administrative Regulations
The proposed regulations also include
administrative regulations that address
filing and payment due dates, returns,
extension requests, and recordkeeping
requirements with respect to the section
2801 tax. See §§ 28.6001–1, 28.6011–1,
28.6060–1, 28.6071–1, 28.6081–1,
28.6091–1, 28.6101–1, 28.6107–1,
28.6109–1, 28.6151–1, 28.6694–1,
28.6694–2, 28.6694–3, 28.6694–4,
28.6695–1, 28.6696–1, 28.7701–1.
Section 28.6011–1(a) provides the
return requirements to report the receipt
of covered gifts and covered bequests
from covered expatriates using Form
708.
The Treasury Department and IRS
will permit the filing of a protective
Form 708, unaccompanied by any
payment of tax under section 2801, in
limited circumstances when a U.S.
citizen or resident receives a gift or
bequest from an expatriate and
reasonably concludes, after exercising
due diligence, that the gift or bequest is
not a covered gift or covered bequest
from a covered expatriate. The mere
absence of information confirming that
the expatriate is a covered expatriate or
that the gift or bequest is a covered gift
or covered bequest is not a sufficient
basis for a protective return. Section
28.6011–1(b)(i) provides that filing a
protective Form 708, together with the
required attachments, will start the
period for the assessment of any section
2801 tax.
The IRS intends to issue Form 708
once these regulations are published as
final regulations in the Federal Register.
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The IRS will provide the due date for
filing Form 708 and for payment of the
section 2801 tax liability in the final
regulations. Consistent with
Announcement 2009–57, U.S. recipients
will be given a reasonable period of time
after the date the final regulations are
published in the Federal Register to file
the Form 708 and to pay the section
2801 tax on covered gifts and covered
bequests received on or after June 17,
2008, and before the date of publication
of the final regulations in the Federal
Register. Interest will not accrue on the
section 2801 tax liability for any taxable
years until the due date for payment, as
specified in the final regulations, has
passed.
Effect on Other Documents
The following publication will be
obsolete when regulations finalizing
these proposed regulations are
published in the Federal Register:
Announcement 2009–57, 2009–29
I.R.B. 158.
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Special Analyses
Certain IRS regulations, including this
one, are exempt from the requirements
of Executive Order 12866, as
supplemented and reaffirmed by
Executive Order 13563. Therefore, a
regulatory impact assessment is not
required. It has been determined that
section 553(b) of the Administrative
Procedure Act (5 U.S.C. chapter 5) does
not apply to these regulations. Pursuant
to the Regulatory Flexibility Act (5
U.S.C. chapter 6), it is hereby certified
that this regulation will not have a
significant economic impact on a
substantial number of small entities.
This certification is based on the fact
that this regulation does not affect small
entities because it applies to individuals
and certain trusts. Accordingly, a
regulatory flexibility analysis is not
required. Pursuant to section 7805(f) of
the Code, these proposed regulations
have been submitted to the Chief
Counsel for Advocacy of the Small
Business Administration for comment
on their impact on small businesses.
Statement of Availability for
Documents Published in the Internal
Revenue Bulletin
For copies of recently issued revenue
procedures, revenue rulings, notices,
and other guidance published in the
Internal Revenue Bulletin or Cumulative
Bulletin, please visit the IRS Web site at
http://www.irs.gov.
Drafting Information
The principal authors of these
regulations are Karlene Lesho and Leslie
Finlow, Office of the Associate Chief
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14:39 Sep 09, 2015
Jkt 235001
Counsel (Passthroughs and Special
Industries). However, other personnel
from the Treasury Department and the
IRS participated in their development.
Comments and Public Hearing
Before these proposed regulations are
adopted as final regulations,
consideration will be given to any
comments that are submitted timely to
the IRS as prescribed in this preamble
under the ADDRESSES heading. The
Treasury Department and the IRS
request comments on all aspects of the
proposed regulations. In particular,
comments are requested with respect to
the following issues:
1. How to calculate the amount of a
distribution from a foreign trust that is
attributable to a covered gift or covered
bequest if the U.S. recipient does not
have adequate books and records or
information available to make such a
determination.
2. How to minimize the burden
associated with a foreign trust making
an election to be treated as a domestic
trust while adequately securing the
government’s interest in collecting the
tax from the foreign trust.
3. How contributions to or
distributions from a non-electing foreign
trust to a U.S. citizen spouse could
qualify for the marital exception in
section 2801(e)(3), taking into account
the rules applicable to domestic trusts
and foreign trusts in section 2801(e)(4).
All comments will be available at
www.regulations.gov or upon request.
A public hearing has been scheduled
for January 6, 2016, at 10 a.m. in the IRS
Auditorium Internal Revenue Building,
1111 Constitution Avenue NW.,
Washington, DC. Due to building
security procedures, visitors must enter
at the Constitution Avenue entrance. In
addition, all visitors must present photo
identification to enter the building.
Because of access restrictions, visitors
will not be admitted beyond the
immediate entrance area more than 30
minutes before the hearing starts. For
more information about having your
name placed on the building access list
to attend the hearing, see the FOR
FURTHER INFORMATION CONTACT section of
this preamble.
The rules of 26 CFR 601.601(a)(3)
apply to the hearing. Persons who wish
to present oral comments at the hearing
must submit electronic or written
comments and an outline of the topics
to be discussed and the time to be
devoted to each topic (a signed original
and eight (8) copies) by December 9,
2015. A period of 10 minutes will be
allotted to each person for making
comments. Copies of the agenda will be
available free of charge at the meeting.
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List of Subjects in 26 CFR Part 28
Expatriation taxes, Reporting and
recordkeeping requirements.
Proposed Amendments to the
Regulations
Accordingly, 26 CFR chapter 1 is
proposed to be amended by adding part
28 to subchapter B to read as follows:
PART 28—IMPOSITION OF TAX ON
GIFTS AND BEQUESTS FROM
COVERED EXPATRIATES
Sec.
28.2801–0 Table of contents.
28.2801–1 Tax on certain gifts and bequests
from covered expatriates.
28.2801–2 Definitions.
28.2801–3 Rules and exceptions applicable
to covered gifts and covered bequests.
28.2801–4 Liability for and payment of tax
on covered gifts and covered bequests;
computation of tax.
28.2801–5 Foreign trusts.
28.2801–6 Special rules and crossreferences.
28.2801–7 Determining responsibility
under section 2801.
28.6001–1 Records required to be kept.
28.6011–1 Returns.
28.6060–1 Reporting requirements for tax
return preparers.
28.6071–1 Time for filing returns.
28.6081–1 Automatic extension of time for
filing returns reporting gifts and bequests
from covered expatriates.
28.6091–1 Place for filing returns.
28.6101–1 Period covered by returns.
28.6107–1 Tax return preparer must furnish
copy of return or claim for refund to
taxpayer and must retain a copy or
record.
28.6109–1 Tax return preparers furnishing
identifying numbers for returns or claims
for refund.
28.6151–1 Time and place for paying tax
shown on returns.
28.6694–1 Section 6694 penalties
applicable to return preparer.
28.6694–2 Penalties for understatement due
to an unreasonable position.
28.6694–3 Penalty for understatement due
to willful, reckless, or intentional
conduct.
28.6694–4 Extension of period of collection
when tax return preparer pays 15 percent
of a penalty for understatement of
taxpayer’s liability and certain other
procedural matters.
28.6695–1 Other assessable penalties with
respect to the preparation of tax returns
for other persons.
28.6696–1 Claims for credit or refund by tax
return preparers and appraisers.
28.7701–1 Tax return preparer.
Authority: 26 U.S.C. 7805.
Section 28.6001–1 also issued under 26
U.S.C. 6001(a).
Section 28.6011(a)–1 also issued under 26
U.S.C. 6011(a).
Section 28.6060–1 also issued under 26
U.S.C. 6060(a).
Section 28.6071(a)–1 also issued under 26
U.S.C. 6071(a).
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Section 28.6081–1 also issued under 26
U.S.C. 6081(a).
Section 28.6091–1 also issued under 26
U.S.C. 6091.
Section 28.6101–1 also issued under 26
U.S.C. 6101.
Section 28.6107–1 also issued under 26
U.S.C. 6107(c).
Section 28.6109–1 also issued under 26
U.S.C. 6109(a).
Section 28.6151–1 also issued under 26
U.S.C. 6151.
Section 28.6695–1 also issued under 26
U.S.C. 6695(b).
Section 28.6696–1 also issued under 26
U.S.C. 6696(c).
§ 28.2801–0
Table of contents.
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This section lists the captions in
§§ 28.2801–1 through 28.2801–7.
§ 28.2801–1 Tax on certain gifts and
bequests from covered expatriates.
(a) In general.
(b) Effective/applicability date.
§ 28.2801–2 Definitions.
(a) Overview.
(b) Citizen or resident of the United States.
(c) Domestic trust.
(d) Foreign trust.
(1) In general.
(2) Electing foreign trust
(e) U.S. recipient.
(f) Covered bequest.
(g) Covered gift.
(h) Expatriate and covered expatriate.
(i) Indirect acquisition of property.
(j) Power of appointment.
(k) Effective/applicability date.
§ 28.2801–3 Rules and exceptions
applicable to covered gifts and covered
bequests.
(a) Covered gift.
(b) Covered bequest.
(c) Exceptions to covered gift and covered
bequest.
(1) Reported taxable gifts.
(2) Property reported as subject to estate
tax.
(3) Transfers to charity.
(4) Transfers to spouse.
(5) Qualified disclaimers.
(d) Covered gifts and covered bequests
made in trust.
(e) Powers of appointment.
(1) Covered expatriate as holder of power.
(2) Covered expatriate as grantor of power.
(f) Examples.
(g) Effective/applicability date.
§ 28.2801–4 Liability for and payment of tax
on covered gifts and covered bequests;
computation of tax.
(a) Liability for tax.
(1) U.S. citizen or resident.
(2) Domestic trust.
(i) In general.
(ii) Generation-skipping transfer tax.
(iii) Charitable remainder trust.
(iv) Migrated foreign trust.
(3) Foreign trust.
(i) In general.
(ii) Income tax deduction.
(b) Computation of tax.
(1) In general.
(2) Net covered gifts and covered bequests.
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(c) Value of covered gift or covered
bequest.
(d) Date of receipt.
(1) In general.
(2) Covered gift.
(3) Covered bequest.
(4) Foreign trusts.
(5) Powers of appointment.
(i) Covered expatriate as holder of power.
(ii) Covered expatriate as grantor of power.
(6) Indirect receipts.
(e) Reduction of tax for foreign estate or gift
tax paid.
(f) Examples.
(g) Effective/applicability date.
§ 28.2801–5 Foreign trusts.
(a) In general.
(b) Distribution defined.
(c) Amount of distribution attributable to
covered gift or covered bequest.
(1) Section 2801 ratio.
(i) In general.
(ii) Computation.
(2) Effect of reported transfer and tax
payment.
(3) Inadequate information to calculate
section 2801 ratio.
(d) Foreign trust treated as domestic trust.
(1) Election required.
(2) Effect of election.
(3) Time and manner of making the
election.
(i) When to make the election.
(ii) Requirements for a valid election.
(iii) Section 2801 tax payable with the
election.
(iv) Designation of U.S. agent.
(A) In general.
(B) Role of designated agent.
(C) Effect of appointment of agent.
(4) Annual certification or filing
requirement.
(5) Duration of status as electing foreign
trust.
(i) In general.
(ii) Termination.
(iii) Subsequent elections.
(6) Dispute as to amount of section 2801
tax owed by electing foreign trust.
(i) Procedure.
(ii) Effect of timely paying the additional
section 2801 tax amount.
(iii) Effect of failing to timely pay the
additional section 2801 tax amount
(imperfect election).
(A) In general.
(B) Notice to permissible beneficiaries.
(C) Reasonable cause.
(D) Interim period.
(7) No overpayment caused solely by virtue
of defect in election.
(e) Examples.
(f) Effective/applicability date.
§ 28.2801–6 Special rules and crossreferences.
(a) Determination of basis.
(b) Generation-skipping transfer tax.
(c) Information returns.
(1) Gifts and bequests.
(2) Foreign trust distributions.
(3) Penalties and use of information.
(d) Application of penalties.
(1) Accuracy-related penalties on
underpayments.
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(2) Penalty for substantial and gross
valuation misstatements attributable to
incorrect appraisals.
(3) Penalty for failure to file a return and
to pay tax.
(e) Effective/applicability date.
§ 28.2801–7 Determining responsibility
under section 2801.
(a) Responsibility of recipients of gifts and
bequests from expatriates.
(b) Disclosure of return and return
information.
(1) In general.
(2) Rebuttable presumption.
(c) Effective/applicability date.
§ 28.2801–1 Tax on certain gifts and
bequests from covered expatriates.
(a) In general. Section 2801 of the
Internal Revenue Code (Code) imposes a
tax (section 2801 tax) on covered gifts
and covered bequests, including
distributions from foreign trusts
attributable to covered gifts or covered
bequests, received by a United States
citizen or resident (U.S. citizen or
resident) from a covered expatriate
during a calendar year. Domestic trusts,
as well as foreign trusts electing to be
treated as domestic trusts for purposes
of section 2801, are subject to tax under
section 2801 in the same manner as if
the trusts were U.S. citizens. See section
2801(e)(4)(A)(i) and (e)(4)(B)(iii).
Accordingly, the section 2801 tax is
paid by the U.S. citizen or resident,
domestic trust, or foreign trust electing
to be treated as a domestic trust for
purposes of section 2801 that receives
the covered gift or covered bequest. For
purposes of this part 28, references to a
U.S. citizen or U.S. citizens are
considered to include a domestic trust
and a foreign trust electing to be treated
as a domestic trust for purposes of
section 2801.
(b) Effective/applicability date. This
section applies on and after the date of
publication of a Treasury decision
adopting these rules as final regulations
in the Federal Register. Once these
regulations have been published as final
regulations in the Federal Register,
taxpayers may rely upon the final rules
of this part for the period beginning
June 17, 2008, and ending on the date
preceding the date these regulations are
published as final regulations in the
Federal Register.
§ 28.2801–2
Definitions.
(a) Overview. This section provides
definitions of terms applicable solely for
purposes of section 2801 and the
corresponding regulations.
(b) Citizen or resident of the United
States. A citizen or resident of the
United States (U.S. citizen or resident)
is an individual who is a citizen or
resident of the United States under the
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rules applicable for purposes of chapter
11 or 12 of the Code, as the case may
be, at the time of receipt of the covered
gift or covered bequest. Furthermore, for
purposes of this part 28, references to
U.S. citizens also include domestic
trusts, as well as foreign trusts electing
to be treated as a domestic trust under
§ 28.2801–5(d). See § 28.2801–1(a)(1).
(c) Domestic trust. The term domestic
trust means a trust defined in section
7701(a)(30)(E). For purposes of this part
28, references to a domestic trust
include a foreign trust that elects under
§ 28.2801–5(d) to be treated as a
domestic trust solely for purposes of
section 2801.
(d) Foreign trust—(1) In general. The
term foreign trust means a trust defined
in section 7701(a)(31).
(2) Electing foreign trust. The term
electing foreign trust is a foreign trust
that has in effect a valid election to be
treated as a domestic trust solely for
purposes of section 2801. See
§ 28.2801–5(d).
(e) U.S. recipient. The term U.S.
recipient means a citizen or resident of
the United States, a domestic trust, and
an electing foreign trust that receives a
covered gift or covered bequest, whether
directly or indirectly, during the
calendar year. The term U.S. recipient
includes U.S. citizens or residents
receiving a distribution from a foreign
trust not electing to be treated as a
domestic trust for purposes of section
2801 if the distributions are attributable
(in whole or in part) to one or more
covered gifts or covered bequests
received by the foreign trust. This term
also includes the U.S. citizen or resident
shareholders, partners, members, or
other interest-holders, as the case may
be (if any), of a domestic entity that
receives a covered gift or covered
bequest.
(f) Covered bequest. The term covered
bequest means any property acquired
directly or indirectly by reason of the
death of a covered expatriate, regardless
of its situs and of whether such property
was acquired by the covered expatriate
before or after expatriation from the
United States. The term also includes
distributions made by reason of the
death of a covered expatriate from a
foreign trust that has not elected under
§ 28.2801–5(d) to be treated as a
domestic trust for purposes of section
2801 to the extent the distributions are
attributable to covered gifts or covered
bequests made to the foreign trust. See
§ 28.2801–3 for additional rules and
exceptions applicable to the term
covered bequest.
(g) Covered gift. The term covered gift
means any property acquired by gift
directly or indirectly from an individual
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who is a covered expatriate at the time
the property is received by a U.S. citizen
or resident, regardless of its situs and of
whether such property was acquired by
the covered expatriate before or after
expatriation from the United States. The
term also includes distributions made,
other than by reason of the death of a
covered expatriate, from a foreign trust
that has not elected under § 28.2801–
5(d) to be treated as a domestic trust for
purposes of section 2801 to the extent
the distributions are attributable to
covered gifts or covered bequests made
to the foreign trust. See § 28.2801–3 for
additional rules and exceptions
applicable to the term covered gift.
(h) Expatriate and covered expatriate.
The term expatriate has the same
meaning for purposes of section 2801 as
that term has in section 877A(g)(2). The
term covered expatriate has the same
meaning for purposes of section 2801 as
that term has in section 877A(g)(1). The
determination of whether an individual
is a covered expatriate is made as of the
expatriation date as defined in section
877A(g)(3), and if an expatriate meets
the definition of a covered expatriate,
the expatriate is considered a covered
expatriate for purposes of section 2801
at all times after the expatriation date.
However, an expatriate (as defined in
section 877A(g)(2)) is not treated as a
covered expatriate for purposes of
section 2801 during any period
beginning after the expatriation date
during which such individual is subject
to United States estate or gift tax
(chapter 11 or chapter 12 of subtitle B)
as a U.S. citizen or resident. See section
877A(g)(1)(C). An individual’s status as
a covered expatriate will be determined
as of the date of the most recent
expatriation, if there has been more than
one.
(i) Indirect acquisition of property. An
indirect acquisition of property, as
referred to in the definitions of a
covered gift and covered bequest,
includes—
(1) Property acquired as a result of a
transfer that is a covered gift or covered
bequest to a corporation or other entity
other than a trust or estate, to the extent
of the respective ownership interest of
the recipient U.S. citizen or resident in
the corporation or other entity;
(2) Property acquired by or on behalf
of a U.S. citizen or resident, either from
a covered expatriate or from a foreign
trust that received a covered gift or
covered bequest, through one or more
other foreign trusts, other entities, or a
person not subject to the section 2801
tax;
(3) Property paid by a covered
expatriate, or distributed from a foreign
trust that received a covered gift or
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covered bequest, in satisfaction of a debt
or liability of a U.S. citizen or resident,
regardless of the payee of that payment
or distribution;
(4) Property acquired by or on behalf
of a U.S. citizen or resident pursuant to
a non-covered expatriate’s power of
appointment granted by a covered
expatriate over property not in trust,
unless the property previously was
subjected to section 2801 tax upon the
grant of the power or the covered
expatriate had no more than a nongeneral power of appointment over that
property; and
(5) Property acquired by or on behalf
of a U.S. citizen or resident in other
transfers not made directly by the
covered expatriate to the U.S. citizen or
resident.
(j) Power of appointment. The term
power of appointment refers to both a
general and non-general power of
appointment. A general power of
appointment is as defined in sections
2041(b) and 2514(c) of the Code and a
non-general power of appointment is
any power of appointment that is not a
general power of appointment.
(k) Effective/applicability date. This
section applies on and after the date of
publication of a Treasury decision
adopting these rules as final regulations
in the Federal Register. Once these
regulations have been published as final
regulations in the Federal Register,
taxpayers may rely upon the final rules
of this part for the period beginning
June 17, 2008, and ending on the date
preceding the date these regulations are
published as final regulations in the
Federal Register.
§ 28.2801–3 Rules and exceptions
applicable to covered gifts and covered
bequests.
(a) Covered gift. Subject to the
provisions of paragraphs (c), (d), and (e)
of this section, the term gift as used in
the definition of covered gift in
§ 28.2801–2(g) has the same meaning as
in chapter 12 of subtitle B, but without
regard to the exceptions in section
2501(a)(2), (a)(4), and (a)(5), the perdonee exclusion under section 2503(b)
for certain transfers of a present interest,
the exclusion under section 2503(e) for
certain educational or medical
expenses, and the waiver of certain
pension rights under section 2503(f).
(b) Covered bequest. Subject to the
provisions of paragraphs (c), (d), and (e)
of this section, property acquired ‘‘by
reason of the death of a covered
expatriate’’ as described in the
definition of covered bequest in
§ 28.2801–2(f) includes any property
that would have been includible in the
gross estate of the covered expatriate
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under chapter 11 of subtitle B if the
covered expatriate had been a U.S.
citizen at the time of death. Therefore,
in addition to the items described in
§ 28.2801–2(f), the term covered bequest
includes, without limitation, property or
an interest in property acquired by
reason of a covered expatriate’s death—
(1) By bequest, devise, trust provision,
beneficiary designation or other
contractual arrangement, or by
operation of law;
(2) That was transferred by the
covered expatriate during life, either
before or after expatriation, and which
would have been includible in the
covered expatriate’s gross estate under
section 2036, section 2037, or section
2038 had the covered expatriate been a
U.S. citizen at the time of death;
(3) That was received for the benefit
of a covered expatriate from such
covered expatriate’s spouse, or
predeceased spouse, for which a valid
qualified terminable interest property
(QTIP) election was made on such
spouse’s, or predeceased spouse’s, Form
709, ‘‘U.S. Gift (and GenerationSkipping Transfer) Tax Return,’’ Form
706, ‘‘United States Estate (and
Generation-Skipping Transfer) Tax
Return,’’ or Form 706–NA, ‘‘United
States Estate (and Generation-Skipping
Transfer) Tax Return, Estate of
Nonresident Not a Citizen of the United
States,’’ which would have been
included in the covered expatriate’s
gross estate under section 2044 if the
covered expatriate was a U.S. citizen at
the time of death; or
(4) That otherwise passed from the
covered expatriate by reason of death,
such as—
(i) Property held by the covered
expatriate and another person as joint
tenants with right of survivorship or as
tenants by the entirety, but only to the
extent such property would have been
included in the covered expatriate’s
gross estate under section 2040 if the
covered expatriate had been a U.S.
citizen at the time of death;
(ii) Any annuity or other payment that
would have been includible in the
covered expatriate’s gross estate if the
covered expatriate had been a U.S.
citizen at the time of death;
(iii) Property subject to a general
power of appointment held by the
covered expatriate at death; or
(iv) 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.
(c) Exceptions to covered gift and
covered bequest. The following transfers
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from a covered expatriate are exceptions
to the definition of covered gift and
covered bequest.
(1) Reported taxable gifts. A transfer
of property that is a taxable gift under
section 2503(a) and is reported on the
donor’s timely filed Form 709 is not a
covered gift, provided that the donor
also timely pays the gift tax, if any,
shown as due on that return. A transfer
excluded from the definition of a
taxable gift, such as a transfer of a
present interest not in excess of the
annual exclusion amount under section
2503(b), is not excluded from the
definition of a covered gift under this
paragraph (c)(1) even if reported on the
donor’s Form 709.
(2) Property reported as subject to
estate tax. Property that is included in
the gross estate of the covered expatriate
and is reported on a timely filed Form
706 or Form 706–NA is not a covered
bequest, provided that the estate also
timely pays the estate tax, if any, shown
as due on that return. For this purpose,
estate tax imposed on distributions from
or on the remainder of a qualified
domestic trust (QDOT) are deemed to be
reported on a timely filed Form 706, if
the tax due thereon was timely paid.
Thus, if the covered expatriate’s gross
estate is not of sufficient value to
require the filing of a Form 706–NA, for
example, and no Form 706–NA is timely
filed, the property passing from that
covered expatriate is not excluded from
the definition of a covered bequest
under the rule of this paragraph (c)(2).
Further, this exclusion does not apply to
the property not on such a form,
whether or not subject to United States
estate tax (that is, non U.S.-situs
property that passes to U.S. citizens or
residents).
(3) Transfers to charity. A gift to a
donee described in section 2522(b) or a
bequest to a beneficiary described in
section 2055(a) is not a covered gift or
covered bequest to the extent a
charitable deduction under section 2522
or section 2055 would have been
allowed if the covered expatriate had
been a U.S. citizen or resident at the
time of the transfer.
(4) Transfers to spouse. A transfer
from a covered expatriate to the covered
expatriate’s spouse is not a covered gift
or covered bequest to the extent a
marital deduction under section 2523 or
section 2056 would have been allowed
if the covered expatriate had been a U.S.
citizen or resident at the time of the
transfer. To the extent that a gift or
bequest to a trust (or to a separate share
of the trust) would qualify for the
marital deduction, the gift or bequest is
not a covered gift or covered bequest.
For purposes of this paragraph (c)(4), a
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marital deduction is deemed not to be
allowed for qualified terminable interest
property (QTIP) or for property in a
qualified domestic trust (QDOT) unless
a valid QTIP and/or QDOT election is
made. The term covered bequest also
does not include assets in a QDOT
funded for the benefit of a covered
expatriate by the covered expatriate’s
predeceased spouse, but only if a valid
election was made on the predeceased
spouse’s Form 706 or Form 706–NA to
treat the trust as a QDOT.
(5) Qualified disclaimers. A transfer
pursuant to a covered expatriate’s
qualified disclaimer, as defined in
section 2518(b), is not a covered gift or
covered bequest from that covered
expatriate.
(d) Covered gifts and covered bequests
made in trust. For purposes of section
2801, when a covered expatriate
transfers property to a trust in a transfer
that is a covered gift or covered bequest
as determined under this section, the
transfer of property is treated as a
covered gift or covered bequest to the
trust, without regard to the beneficial
interests in the trust or whether any
person has a general power of
appointment or a power of withdrawal
over trust property. Accordingly, the
rules in section 2801(e)(4) and
§ 28.2801–4(a) apply to determine
liability for payment of the section 2801
tax. The U.S. recipient of a covered gift
or a covered bequest to a domestic trust
or an electing foreign trust is the
domestic or electing foreign trust, and
the U.S. recipient of a covered gift or a
covered bequest to a non-electing
foreign trust is any U.S. citizen or
resident receiving a distribution from
the non-electing foreign trust. See
§ 28.2801–2(e) for the definition of a
U.S. recipient.
(e) Powers of appointment—(1)
Covered expatriate as holder of power.
The exercise or release of a general
power of appointment held by a covered
expatriate over property, whether or not
in trust (even if that covered expatriate
was a U.S. citizen or resident when the
general power of appointment was
granted), for the benefit of a U.S. citizen
or resident is a covered gift or covered
bequest. The lapse of a general power of
appointment is treated as a release to
the extent provided in sections
2041(b)(2) and 2514(e). Furthermore, the
exercise of a power of appointment by
a covered expatriate that creates another
power of appointment as described in
section 2041(a)(3) or section 2514(d) for
the benefit of a U.S. citizen or resident
is a covered gift or a covered bequest.
(2) Covered expatriate as grantor of
power. The grant by a covered expatriate
to an individual who is a U.S. citizen or
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resident of a general power of
appointment over property not
transferred in trust by the covered
expatriate is a covered gift or covered
bequest to the powerholder. For the rule
applying to the grant by a covered
expatriate of a general power of
appointment over property in trust, see
paragraph (d) of this section.
(f) Examples. The provisions of this
section are illustrated by the following
examples:
Example 1. Transfer to spouse. In Year 1,
CE, a covered expatriate domiciled in
Country F, a foreign country with which the
United States does not have a gift tax treaty,
gives $300,000 cash to his wife, W, a U.S.
resident and citizen of Country F. Under
paragraph (c)(4) of this section, the $100,000
exemption for a noncitizen spouse, as
indexed for inflation in Year 1, is excluded
from the definition of a covered gift under
section 2801 because only that amount of the
transfer would have qualified for the gift tax
marital deduction if CE had been a U.S.
citizen at the time of the gift. See sections
2801(e)(3) and 2523(i). The remaining
amount ($300,000 less the $100,000
exemption for a noncitizen spouse as
indexed for inflation), however, is a covered
gift from CE to W. W must timely file Form
708, ‘‘U.S. Return of Gifts or Bequests from
Covered Expatriates,’’ and timely pay the tax.
See §§ 28.6011–1(a), 28.6071–1(a), and
28.6151–1(a). W also must report the transfer
on Form 3520, ‘‘Annual Return to Report
Transactions with Foreign Trusts and Receipt
of Certain Foreign Gifts,’’ and any other
required form. See § 28.2801–6(c)(1).
Example 2. Reporting property as subject
to estate tax. (i) CE, a covered expatriate
domiciled in Country F, a foreign country
with which the United States does not have
an estate tax treaty, owns a condominium in
the United States with son, S, a U.S. citizen.
CE and S each contributed their actuarial
share of the purchase price when purchasing
the condominium and own it as joint tenants
with rights of survivorship. On December 14,
Year 1, CE dies. At the time of CE’s death,
the fair market value of CE’s share of the
condominium, $250,000, is included in CE’s
gross estate under sections 2040 and 2103.
(ii) On September 14 of the following
calendar year, Year 2, the executor of CE’s
estate timely files a Form 4768, ‘‘Application
for Extension of Time to File a Return and/
or Pay U.S. Estate (and Generation-Skipping
Transfer) Taxes,’’ requesting a 6-month
extension of time to file Form 706–NA, and
a 1-year extension of time to pay the estate
tax. The IRS grants both extensions but CE’s
executor fails to file the Form 706–NA until
after March 14 of the calendar year
immediately following Year 2.
(iii) S learns that the executor of CE’s estate
did not timely file Form 706–NA. Because CE
is a covered expatriate, S received a covered
bequest as defined under § 28.2801–2(f) and
paragraph (b) of this section. S must timely
file Form 708 and pay the section 2801 tax.
See §§ 28.6011–1(a), 28.6071–1(a), and
28.6151–1(a). S also must file Form 3520 to
report a large gift or bequest from a foreign
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person, and any other required form. See
§ 28.2801–6(c)(1).
Example 3. Covered gift in trust with grant
of general power of appointment over trust
property. (i) On October 20, Year 1, CE, a
covered expatriate domiciled in Country F, a
foreign country with which the United States
does not have a gift tax treaty, transfers
$500,000 in cash from an account in Country
F to an irrevocable foreign trust created on
that same date. Under section 2511(a), no gift
tax is imposed on the transfer and thus, CE
is not required to file a U.S. gift tax return.
Under the terms of the foreign trust, A, CE’s
child and a U.S. resident, and Q, A’s child
and a U.S. citizen, may receive discretionary
distributions of income and principal during
life. At A’s death, the assets remaining in the
foreign trust will be distributed to B, CE’s
other U.S. resident child, or if B is not living
at the time of A’s death, then to CE’s thenliving issue, per stirpes. The terms of the
foreign trust also allow A to appoint trust
principal and/or income to A, A’s estate, A’s
creditors, the creditors of A’s estate, or A’s
issue at any time. On March 5, Year 2, A
exercises this power to appoint and causes
the trustee to distribute $100,000 to Q.
(ii) On October 20, Year 1, the irrevocable
foreign trust receives a covered gift for
purposes of section 2801, but no section 2801
tax is imposed at that time. On March 5, Year
2, when Q receives $100,000 from the
irrevocable foreign trust pursuant to the
exercise of A’s power of appointment, Q has
received a distribution attributable to a
covered gift and section 2801 tax is imposed
on Q as of the date of the distribution. See
§ 28.2801–4(d). Q must timely file Form 708
to report the covered gift from a foreign
person (specifically, from CE). See section
6039F(a) and §§ 28.6011–1(a), 28.6071–1(a),
and 28.6151–1(a). Under section 2501, A
makes a taxable gift to Q of $100,000 when
A exercises the general power of
appointment for Q’s benefit. See section
2514(b). Accordingly, A must report A’s
$100,000 gift to Q on a timely filed Form 709.
See section 6019. Because A is considered
the transferor of the $100,000 for gift and
GST tax purposes, the distribution to Q is not
a generation-skipping transfer under chapter
13. See § 26.2652–1(a)(1). Furthermore,
because the $100,000 is being distributed
from a foreign trust, Q must report the gift
on a Form 3520 as a distribution from a
foreign trust. See § 28.2801–6(c)(2).
Example 4. Lapse of power of appointment
held by covered expatriate. (i) A, a U.S.
citizen, creates an irrevocable domestic trust
for the benefit of A’s issue, CE, and CE’s
children. CE is a covered expatriate, but CE’s
children are U.S. citizens. CE has the right to
withdraw $5,000 in each year in which A
makes a contribution to the trust, but the
withdrawal right lapses 30 days after the date
of the contribution. In Year 1, A funds the
trust, but CE fails to exercise CE’s right to
withdraw $5,000 within 30 days of the
contribution. The $5,000 lapse is not
considered to be a release of the power, so
it is neither a gift for U.S. gift tax purposes,
nor a covered gift for purposes of section
2801 under paragraph (e)(1) of this section.
(g) Effective/applicability date. This
section applies on and after the date of
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publication of a Treasury decision
adopting these rules as final regulations
in the Federal Register. Once these
regulations have been published as final
regulations in the Federal Register,
taxpayers may rely upon the final rules
of this part for the period beginning
June 17, 2008, and ending on the date
preceding the date these regulations are
published as final regulations in the
Federal Register.
§ 28.2801–4 Liability for and payment of
tax on covered gifts and covered bequests;
computation of tax.
(a) Liability for tax—(1) U.S. citizen or
resident. A U.S. citizen or resident who
receives a covered gift or covered
bequest is liable for payment of the
section 2801 tax.
(2) Domestic trust—(i) In general. A
domestic 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. See section
2801(e)(4)(A)(i) and § 28.2801–2(b).
(ii) Generation-skipping transfer tax.
A trust’s payment of the section 2801
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 section 2801
tax.
(iii) Charitable remainder trust. A
domestic trust qualifying as a charitable
remainder trust (as that term is defined
in § 1.664–1(a)(1)(iii)(a)) is subject to
section 2801 when it receives a covered
gift or covered bequest. Section
2801(e)(3) excepts from the definition of
covered gift and covered bequest
property with respect to which a
deduction under section 2522 or section
2055, respectively, would have been
allowed if the covered expatriate had
been a U.S. citizen or resident at the
time of the transfer. See § 28.2801–
3(c)(3). As a result, the charitable
remainder interest’s share of each
transfer to the charitable remainder trust
is not a covered gift or covered bequest.
To compute the amount of covered gifts
and covered bequests taxable to the
charitable remainder trust for a calendar
year, the charitable remainder trust will
(A) calculate, in accordance with the
regulations under section 664 and as of
the date of the trust’s receipt of the
contribution, the value of the remainder
interest in each contribution received in
such calendar year that would have
been a covered gift or covered bequest
without regard to section 2801(e)(3), (B)
subtract the remainder interest in each
such contribution from the amount of
that contribution to compute the
annuity or unitrust (income) interest in
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that contribution, and (C) add the total
of such income interests, each of which
is the portion of the contribution that
constitutes a covered gift or covered
bequest to the trust. The charitable
remainder trust then computes its
section 2801 tax in accordance with
paragraph (b) of this section.
(iv) Migrated foreign trust. A foreign
trust (other than one electing to be
treated as a domestic trust under
§ 28.2801–5(d)) that has previously
received a covered gift or covered
bequest and that subsequently becomes
a domestic trust as defined under
section 7701(a)(30)(E) (migrated foreign
trust), must file a timely Form 708,
‘‘U.S. Return of Gifts or Bequests from
Covered Expatriates,’’ for the taxable
year in which the trust becomes a
domestic trust. The section 2801 tax, if
any, must be paid by the due date of
that Form 708. On that Form 708, the
section 2801 tax is calculated in the
same manner as if such trust was
making an election under § 28.2801–
5(d) to be treated as a domestic trust
solely for purposes of the section 2801
tax. Accordingly, the trustee must report
and pay the section 2801 tax 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
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 solely for
purposes of section 2801 as a domestic
trust for the entire 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.
(3) Foreign trust—(i) In general. A
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
§ 28.2801–5(d). Absent such an election,
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 to
the extent that the distribution is
attributable to a covered gift or covered
bequest made to the foreign trust. See
§ 28.2801–5(b) and (c) regarding
distributions from foreign trusts.
(ii) Income tax deduction. The U.S.
recipient of a distribution from a foreign
trust is allowed a deduction against
income tax under section 164 in the
calendar year in which the section 2801
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tax is paid or accrued. The amount of
the deduction is equal to the portion of
the section 2801 tax attributable to such
distribution, but only to the extent that
portion of the distribution is included in
the U.S. recipient’s gross income. The
amount of the deduction allowed under
section 164 is calculated as follows:
(A) First, the U.S. recipient must
determine the total amount of
distribution(s) from the foreign trust
treated as covered gifts and covered
bequests received by that U.S. recipient
during the calendar year to which the
section 2801 tax payment relates.
(B) Second, of the amount determined
in paragraph (a)(3)(ii)(A) of this section,
the U.S. recipient must determine the
amount that also is includable in the
U.S. recipient’s gross income for that
calendar year. For purposes of this
paragraph (a)(3)(ii)(B), distributions
from foreign trusts includable in the
U.S. recipient’s gross income are
deemed first to consist of the portion of
those distributions, if any, that are
attributable to covered gifts and covered
bequests.
(C) Finally, the U.S. recipient must
determine the portion of the section
2801 tax paid for that calendar year that
is attributable to the amount determined
in paragraph (a)(3)(ii)(B) of this section,
the covered gifts and covered bequests
received from the foreign trust that are
also included in the U.S. recipient’s
gross income. This amount is the
allowable deduction. Thus, for a
calendar year taxpayer, the deduction is
determined by multiplying the section
2801 tax paid during the calendar year
by the ratio of the amount determined
in paragraph (a)(3)(ii)(B) of this section
to the total covered gifts and covered
bequests received by the U.S. recipient
during the calendar year to which that
tax payment relates (that is, 2801 tax
liability × [foreign trust distributions
attributable to covered gifts and covered
bequests that are also included in gross
income/total covered gifts or covered
bequests received]).
(b) Computation of tax—(1) In
general. The section 2801 tax is
computed by multiplying the net
covered gifts and covered bequests (as
defined in paragraph (b)(2) of this
section) received by a U.S. recipient
during the calendar year by the greater
of—
(i) The highest rate of estate tax under
section 2001(c) in effect for that
calendar year; or
(ii) The highest rate of gift tax under
section 2502(a) in effect for that
calendar year. See paragraph (f) of this
section, Example 1.
(2) Net covered gifts and covered
bequests. The net covered gifts and
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54459
covered bequests received by a U.S.
recipient during the calendar year is the
total value of all covered gifts and
covered bequests received by that U.S.
recipient during the calendar year, less
the section 2801(c) amount, which is the
dollar amount of the per-donee
exclusion in effect under section
2503(b) for that calendar year.
(c) Value of covered gift or covered
bequest. The value of a covered gift or
covered bequest is the fair market value
of the property as of the date of its
receipt by the U.S. recipient. See
paragraph (d) of this section regarding
the determination of the date of receipt.
As in the case of chapters 11 and 12, the
fair market value of a covered gift or
covered bequest is the price at which
such property would change hands
between a willing buyer and a willing
seller, neither being under any
compulsion to buy or to sell and both
having reasonable knowledge of
relevant facts. The fair market value of
a covered gift is determined in
accordance with the federal gift tax
valuation principles of section 2512 and
chapter 14 and the corresponding
regulations. The fair market value of a
covered bequest is determined by
applying the federal estate tax valuation
principles of section 2031 and chapter
14 and the corresponding regulations,
but without regard to sections 2032 and
2032A.
(d) Date of receipt—(1) In general. The
section 2801 tax is imposed upon the
receipt of a covered gift or covered
bequest by a U.S. recipient.
(2) Covered gift. The date of receipt of
a covered gift is the same as the date of
the gift for purposes of chapter 12 as if
the covered expatriate had been a U.S.
citizen at the time of the transfer. Thus,
for a gift of stock, if the covered
expatriate delivers a properly endorsed
stock certificate to the U.S. recipient,
the date of delivery is the date of receipt
for purposes of this section.
Alternatively, if the covered expatriate
delivers the stock certificate to the
issuing corporation or its transfer agent
in order to transfer title to the U.S.
recipient, the date of receipt is the date
the stock is transferred on the books of
the corporation. For a transfer of assets
by a covered expatriate to a domestic
revocable trust, the trust receives the
transfer on the date the covered
expatriate relinquishes the right to
revoke the trust. If, before the donor’s
relinquishment of the right to revoke the
trust, the revocable trust distributes
property to a U.S. citizen or resident not
in discharge of a support or other
obligation of the donor, then the U.S.
recipient receives a covered gift on the
date of that distribution. For an asset
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subject to a claim of right of another
involving a bona fide dispute, the date
of receipt is the date on which such
claim is extinguished.
(3) Covered bequest. The date of
receipt of 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 of receipt
is the date of death for property passing
on the death of the covered expatriate
by operation of law, or by beneficiary
designation or other contractual
agreement. Notwithstanding the
previous sentences, for an asset subject
to a claim of right of another involving
a bona fide dispute, the date of receipt
is the date on which such claim is
extinguished.
(4) Foreign trusts. The date of receipt
by a U.S. citizen or resident of property
from a foreign trust that has not elected
to be treated as a domestic trust under
§ 28.2801–5(d) is the date of its
distribution from the foreign trust.
(5) Powers of appointment—(i)
Covered expatriate as holder of power.
In the case of the exercise, release, or
lapse of a power of appointment held by
a covered expatriate that is a covered
gift pursuant to § 28.2801–3(e)(1), the
date of receipt is the date of the
exercise, release, or lapse of the power.
In the case of the exercise, release, or
lapse of a power of appointment held by
a covered expatriate that is a covered
bequest pursuant to § 28.2801–3(e)(1),
the date of receipt is (A) the date the
property subject to the power is
distributed from the decedent’s estate or
revocable trust when the power of
appointment is over property in such
estate or trust, or (B) the date of the
covered expatriate’s death when the
power of appointment is over property
passing on the covered expatriate’s
death by operation of law, by
beneficiary designation, or by other
contractual agreement.
(ii) Covered expatriate as grantor of
power. The date of receipt of property
subject to a general power of
appointment granted by a covered
expatriate to a U.S. citizen or resident
over property not transferred in trust
that constitutes a covered gift or covered
bequest pursuant to § 28.2801–3(e)(2) is
the first date on which both the power
is exercisable by the U.S. citizen or
resident and the property subject to the
general power has been irrevocably
transferred by the covered expatriate.
The date of receipt of property subject
to a general power of appointment over
property in a domestic trust or an
electing foreign trust is determined in
accordance with paragraphs (d)(2) and
(d)(3) of this section, and over property
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in a non-electing foreign trust is
determined in accordance with
paragraph (d)(4) of this section. See
§ 28.2801–3(d) for the rule applying to
covered gifts and covered bequests
made in trust.
(6) Indirect receipts. The date of
receipt by a U.S. citizen or resident of
a covered gift or covered bequest
received indirectly from a covered
expatriate is the date of its receipt, as
determined under paragraph (d)(2) or
(d)(3) of this section, by the U.S. citizen
or resident who is the first recipient of
that property from the covered
expatriate to be subject to section 2801
with regard to that property. For
example, the date of receipt of property
(i) subject to a non-general power of
appointment over property not held in
trust given by a covered expatriate to a
foreign person (other than another
covered expatriate) is the date that
property is received by the U.S. citizen
or resident in whose favor the power
was exercised, and (ii) received through
one or more entities not subject to
section 2801 is the date of its receipt by
the U.S. citizen or resident from a
conduit entity.
(e) Reduction of tax for foreign estate
or gift tax paid. The section 2801 tax is
reduced by the amount of any gift or
estate tax paid to a foreign country with
respect to the covered gift or covered
bequest. For this purpose, the term
foreign country includes possessions
and political subdivisions of foreign
states. However, no reduction is
allowable for interest and penalties paid
in connection with those foreign taxes.
To claim the reduction of section 2801
tax, the U.S. recipient must attach to the
Form 708 a copy of the foreign estate or
gift tax return and a copy of the receipt
or cancelled check for payment of the
foreign estate or gift tax. The U.S.
recipient also must report, on an
attachment to the Form 708:
(1) The amount of foreign estate or gift
tax paid with respect to each covered
gift or covered bequest and the amount
and date of each payment thereof;
(2) A description and the value of the
property with respect to which such
taxes were imposed;
(3) Whether any refund of part or all
of the foreign estate or gift tax has been
or will be claimed or allowed, and the
amount; and
(4) All other information necessary for
the verification and computation of the
amount of the reduction of section 2801
tax.
(f) Examples. The provisions of this
section are illustrated by the following
examples.
Example 1. Computation of tax. In Year 1,
A, a U.S. citizen, receives a $50,000 covered
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gift from B and an $80,000 covered bequest
from C. Both B and C are covered expatriates.
In Year 1, the highest estate and gift tax rate
is 40 percent and the section 2801(c) amount
is $14,000. A’s section 2801 tax for Year 1 is
computed by multiplying A’s net covered
gifts and covered bequests by 40 percent. A’s
net covered gifts and covered bequests for
Year 1 are $116,000, which is determined by
reducing A’s total covered gifts and covered
bequests received during Year 1, $130,000
($50,000 + $80,000), by the section 2801(c)
amount of $14,000. A’s section 2801 tax
liability is then reduced by any foreign estate
or gift tax paid under paragraph (e) of this
section. Assuming A, B, and C paid no
foreign estate or gift tax on the transfers, A’s
section 2801 tax liability for Year 1 is
$46,400 ($116,000 × 0.4).
Example 2. Deduction of section 2801 tax
for income tax purposes. In Year 1, B
receives a covered bequest of $25,000. Also
in Year 1, B receives an aggregate $500,000
of distributions from a non-electing foreign
trust of which $100,000 was attributable to a
covered gift. In Year 1, the highest estate and
gift tax rate is 40 percent and the section
2801(c) amount is $14,000. Based on
information provided by the trustee of the
foreign trust, B includes $50,000 of the
aggregate distributions from the foreign trust
in B’s gross income for Year 1. Under
paragraph (a)(3)(ii) of this section, B (a cash
basis taxpayer) is entitled to an income tax
deduction under section 164 for the calendar
year in which the section 2801 tax is paid.
In Year 2, B timely reports the distributions
from the foreign trust and pays $44,400 in
section 2801 tax (($125,000¥$14,000) × 0.4).
In Year 2, B is entitled to an income tax
deduction because B paid the section 2801
tax in Year 2 on the Year 1 covered gift and
covered bequest. B’s Year 2 income tax
deduction is computed as follows:
(i) $100,000 of B’s total covered gifts and
covered bequests of $125,000 received in
Year 1 consisted of the portion of the
distributions from the foreign trust
attributable to covered gifts and covered
bequests received by the trust. See paragraph
(a)(3)(ii)(A) of this section.
(ii) $50,000 of the $500,000 of trust
distributions were includable in B’s gross
income for Year 1. This amount is deemed
to consist first of distributions subject to the
section 2801 tax ($100,000). Thus, the entire
amount included in B’s gross income
($50,000) also is subject to the section 2801
tax, and is used in the numerator to
determine the income tax deduction
available to B. See paragraph (a)(3)(ii)(B) of
this section.
(iii) The portion of B’s section 2801 tax
liability attributable to distributions from a
foreign trust is $17,760 ($44,400 × ($50,000/
$125,000)). Therefore, B’s deduction under
section 164 is $17,760. See paragraph
(a)(3)(ii)(C) of this section.
Example 3. Date of receipt; bona fide
claim. On October 10, Year 1, CE, a covered
expatriate, died testate as a resident of
Country F, a foreign country with which the
United States does not have an estate tax
treaty. CE designated his son, S, as the
beneficiary of CE’s retirement account. S is
a U.S. citizen. CE’s wife, W, who is a citizen
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(g) Effective/applicability date. This
section applies on and after the date of
publication of a Treasury decision
adopting these rules as final regulations
in the Federal Register. Once these
regulations have been published as final
regulations in the Federal Register,
taxpayers may rely upon the final rules
of this part for the period beginning
June 17, 2008, and ending on the date
preceding the date these regulations are
published as final regulations in the
Federal Register.
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§ 28.2801–5
Foreign trusts.
(a) In general. The section 2801 tax is
imposed on a U.S. recipient who
receives distributions, whether of
income or principal, from a foreign trust
to the extent the distributions are
attributable to one or more covered gifts
or covered bequests made to that foreign
trust. See paragraph (d) of this section
regarding a foreign trust’s election to be
treated as a domestic trust for purposes
of section 2801.
(b) Distribution defined. For purposes
of determining whether a U.S. recipient
has received a distribution from a
foreign trust, the term distribution
means any direct, indirect, or
constructive transfer from a foreign
trust. This determination is made
without regard to whether any portion
of the trust is treated as owned by the
U.S. recipient or any other person under
subpart E of part I, subchapter J, chapter
1 of the Code (pertaining to grantors and
others treated as substantial owners)
and without regard to whether the U.S.
recipient of the transfer is designated as
a beneficiary by the terms of the trust.
For purposes of section 2801, the term
distribution also includes each
disbursement from a foreign trust
pursuant to the exercise, release, or
lapse of a power of appointment,
whether or not a general power. In
addition to the reporting requirements
under this section, see section 6048(c)
regarding the information reporting
requirement for U.S. persons receiving a
distribution or deemed distribution
from a foreign trust during the year.
(c) Amount of distribution attributable
to covered gift or covered bequest—(1)
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Section 2801 ratio—(i) In general. A
foreign trust may have received covered
gifts and covered bequests as well as
contributions that were not covered gifts
or covered bequests. Under such
circumstances, the fair market value of
the foreign trust at any time consists in
part of a portion of the trust attributable
to the covered gifts and covered
bequests it has received (covered
portion) and in part of a portion of the
trust attributable to other contributions
(non-covered portion). The covered
portion of the trust includes the ratable
portion of appreciation and income that
has accrued on the foreign trust’s assets
from the date of the contribution of the
covered gifts and covered bequests to
the foreign trust. For purposes of section
2801, the amount of each distribution
from the foreign trust, whether made
from the income or principal of the
trust, that is considered attributable to
the foreign trust’s covered gifts and
covered bequests is determined on a
proportional basis, by reference to the
section 2801 ratio (as described in
paragraph (c)(1)(ii) of this section), and
not by the identification or tracing of
particular trust assets. Specifically, this
portion of each distribution is
determined by multiplying the
distributed amount by the percentage of
the trust that consists of its covered
portion immediately prior to that
distribution (section 2801 ratio). Thus,
for example, the section 2801 ratio of a
foreign trust whose assets are comprised
exclusively of covered gifts or covered
bequests and the income and
appreciation thereon, would be 1 and
the full amount of each distribution
from that foreign trust to a U.S. citizen
or resident would be subject to section
2801.
(ii) Computation. The section 2801
ratio, which must be redetermined after
each contribution to the foreign trust, is
computed by using the following
fraction:
Where,
X = The value of the trust attributable to
covered gifts and covered bequests, if
any, immediately before the contribution
(pre-contribution value); this value is
determined by multiplying the fair
market value of the trust assets
immediately prior to the contribution by
the section 2801 ratio in effect
immediately prior to the current
contribution. This amount will be zero
for all years prior to the year in which
the foreign trust receives its first covered
gift or covered bequest;
Y = The portion, if any, of the fair market
value of the current contribution that
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constitutes a covered gift or covered
bequest; and
Z = The fair market value of the trust
immediately after the current
contribution. See paragraph (e) of this
section, Example 1, for an illustration of
this computation.
(2) Effect of reported transfer and tax
payment. Once a section 2801 tax has
been timely paid on property that
thereafter remains in a foreign trust, that
property is no longer considered to be,
or to be attributable to, a covered gift or
covered bequest to the foreign trust for
purposes of the computation described
in paragraph (c)(1)(ii) of this section. For
purposes of the prior sentence, a section
2801 tax is deemed to have been timely
paid on amounts for which no section
2801 tax was due as long as those
amounts were reported as a covered gift
or covered bequest on a timely filed
Form 708, ‘‘U.S. Return of Gifts or
Bequests from Covered Expatriates.’’
(3) Inadequate information to
calculate section 2801 ratio. If the
trustee of the foreign trust does not have
sufficient books and records to calculate
the section 2801 ratio, or if the U.S.
recipient is unable to obtain the
necessary information with regard to the
foreign trust, the U.S. recipient must
proceed upon the assumption that the
entire distribution for purposes of
section 2801 is attributable to a covered
gift or covered bequest.
(d) Foreign trust treated as domestic
trust—(1) Election required. To be
considered an electing foreign trust, so
that the foreign trust is treated as a
domestic trust solely for purposes of the
section 2801 tax, a valid election is
required.
(2) Effect of election. (i) A valid
election subjects the electing foreign
trust to the section 2801 tax on (A) all
covered gifts and covered bequests
received by the foreign trust during that
calendar year, (B) the portion of the
trust attributable to covered gifts and
covered bequests received by the trust
in prior years, as determined in
paragraph (d)(3)(iii) of this section, and
(C) all covered gifts and covered
bequests received by the foreign trust
during calendar years subsequent to the
first year in which the election is
effective, unless and until the election is
terminated. To the extent that covered
gifts and covered bequests are subject to
the section 2801 tax under the prior
sentence, those trust receipts are no
longer treated as a covered gift or
covered bequest for purposes of
determining the portion of the trust
attributable to covered gifts and covered
bequests. Therefore, upon making a
valid election, the foreign trust’s section
2801 ratio described in paragraph
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EP10SE15.000
and resident of Country F, elects to take her
elective share of CE’s estate under local law.
S contests whether the retirement account is
property subject to the elective share. S and
W agree to settle their respective claims by
dividing CE’s assets equally between them.
On December 15 of Year 2, Country F’s court
enters an order accepting the terms of the
settlement agreement and dismissing the
case. Under paragraph (d)(3) of this section,
S received a covered bequest of one-half of
CE’s retirement account on December 15,
Year 2, when W’s claim of right was
extinguished.
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(c)(1)(ii) of this section will be zero until
the effective date of any termination of
the election and the subsequent receipt
of any covered gift or covered bequest,
and a distribution made from the foreign
trust while this election is in effect is
not taxable under section 2801 to the
recipient trust beneficiary.
(ii) This election has no effect on any
distribution from the foreign trust that
was made to a U.S. recipient in a
calendar year prior to the calendar year
for which the election is made. Thus,
even after a valid election is made, a
distribution to a U.S. recipient in a
calendar year prior to the calendar year
for which the election is made that was
attributable to one or more covered gifts
or covered bequests continues to be a
distribution attributable to one or more
covered gifts or covered bequests and
the section 2801 ratio in place at the
time of the distribution continues to
apply to that distribution. Furthermore,
an election under this section does not
relieve the U.S. recipient from the
information reporting requirements of
section 6048(c).
(3) Time and manner of making the
election—(i) When to make the election.
The election is made on a timely filed
Form 708 for the calendar year for
which the foreign trust seeks to subject
itself to the section 2801 tax as
described in paragraph (d)(2)(i) of this
section. The election may be made for
a calendar year whether or not the
foreign trust received a covered gift or
covered bequest during that calendar
year. See § 28.6071–1.
(ii) Requirements for a valid election.
To make a valid election to be treated
as a domestic trust for purposes of
section 2801, the electing foreign trust
must timely file a Form 708 and must,
on such form—
(A) Make the election, timely pay the
section 2801 tax, if any, as determined
under paragraph (d)(3)(iii) of this
section, and include a computation
illustrating how the trustee of the
electing foreign trust calculated both the
section 2801 ratio described in
paragraph (c)(1)(ii) of this section and
the section 2801 tax;
(B) Designate and authorize a U.S.
agent as provided in paragraph (d)(3)(iv)
of this section;
(C) Agree to file Form 708 annually;
(D) List the amount and year of all
prior distributions attributable to
covered gifts and covered bequests
made to a U.S. recipient and provide the
name, address, and taxpayer
identification number of each U.S.
recipient; and
(E) Notify each permissible distributee
that the trustee is making the election
under this paragraph (d) and provide to
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14:39 Sep 09, 2015
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the IRS a list of the name, address, and
taxpayer identification number of each
permissible distributee. For this
purpose, a permissible distributee is any
U.S. citizen or resident who:
(1) Currently may or must receive
distributions from the trust, whether of
income or principal;
(2) May withdraw income or principal
from the trust, regardless of whether the
right arises or lapses upon the
occurrence of a future event; or
(3) Would have been described in
paragraph (d)(3)(ii)(E)(1) of this section
if either the interests of all persons
described in (d)(3)(ii)(E)(1) or (E)(2) had
just terminated or the trust had just
terminated.
(iii) Section 2801 tax payable with the
election. To make a valid election to be
treated as a domestic trust for purposes
of section 2801, the electing foreign
trust must timely pay the section 2801
tax on all covered gifts and covered
bequests received by the electing foreign
trust in the calendar year for which the
Form 708 is being filed. In some cases,
an electing foreign trust may have
received covered gifts or covered
bequests in prior calendar years during
which no such election was in effect. In
those cases, the trustee must also, at the
same time, report and pay the tax on the
fair market value, determined as of the
last day of the calendar year
immediately preceding the year for
which the Form 708 is being filed, of the
portion of the trust attributable to
covered gifts and covered bequests
received by such trust in prior calendar
years (except as provided in paragraph
(d)(6)(iii) of this section with regard to
an imperfect election). That portion is
determined by multiplying the fair
market value of the trust, as of the
December 31 immediately preceding the
year for which the election is made, by
the section 2801 ratio in effect on that
date, as calculated under paragraph
(c)(1)(ii) of this section. If the trustee
does not have sufficient books and
records to determine what amount of
the corpus and undistributed income is
attributable to undistributed prior
covered gifts and covered bequests, then
that amount is deemed to be the entire
fair market value of the trust as of that
December 31. See paragraph (c)(3) of
this section.
(iv) Designation of U.S. agent—(A) In
general. The trustee of an electing
foreign trust must designate and
authorize a U.S. person, as defined in
section 7701(a)(30), to act as an agent for
the trust solely for purposes of section
2801. By designating a U.S. agent, the
trustee of the foreign trust agrees to
provide the agent with all information
necessary to comply with any
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Fmt 4702
Sfmt 4702
information request or summons issued
by the Secretary. Such information may
include, without limitation, copies of
the books and records of the trust,
financial statements, and appraisals of
trust property.
(B) Role of designated agent. Acting as
an agent for the trust for purposes of
section 2801 includes serving as the
electing foreign trust’s agent for
purposes of section 7602 (‘‘Examination
of books and witnesses’’), section 7603
(‘‘Service of summons’’), and section
7604 (‘‘Enforcement of summons’’) with
respect to—
(1) Any request by the Secretary to
examine records or produce testimony
related to the proper identification or
treatment of covered gifts or covered
bequests contributed to the electing
foreign trust and distributions
attributable to such contributions; and
(2) Any summons by the Secretary for
records or testimony related to the
proper identification or treatment of
covered gifts or covered bequests
contributed to the electing foreign trust
and distributions attributable to such
contributions.
(C) Effect of appointment of U.S.
agent. An electing foreign trust that
appoints such an agent is not
considered to have an office or a
permanent establishment in the United
States, or to be engaged in a trade or
business in the United States, solely
because of the agent’s activities as an
agent pursuant to this section.
(4) Annual certification or filing
requirement. The trustee of an electing
foreign trust must file a timely Form 708
annually either to report and pay the
section 2801 tax on all covered gifts and
covered bequests received by the trust
during the calendar year, or to certify
that the electing foreign trust did not
receive any covered gifts or covered
bequests during the calendar year.
(5) Duration of status as electing
foreign trust—(i) In general. A valid
election (one that meets all of the
requirements of paragraph (d)(3) of this
section) is effective as of January 1 of
the calendar year for which the Form
708 on which the election is made is
filed. The election, once made, applies
for all calendar years until the election
is terminated as described in paragraph
(d)(5)(ii) of this section.
(ii) Termination. An election to be
treated as a domestic trust for purposes
of section 2801 is terminated either by
the failure of the foreign trust to make
the annual filing, together with any
payment of the section 2801 tax, as
required by paragraph (d)(4) of this
section, or by the failure of the foreign
trust to timely pay any additional
amount of section 2801 tax (in
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accordance with the requirements of
paragraph (d)(6)(ii) of this section) with
respect to recalculations described in
paragraph (d)(6) of this section (a failure
that results in an imperfect election). A
termination, if any, is effective as of the
beginning of the calendar year for which
the trustee fails to make the annual
filing required by paragraph (d)(4) of
this section or for which the trustee fails
to pay any of the amounts described in
this paragraph (d)(5)(ii). In the case of a
terminated election, the trustee should
notify promptly each permissible
distributee, as defined in paragraph
(d)(3)(ii)(E) of this section, that the
foreign trust’s election was terminated
as of January 1 of the applicable year
(with the actual year of the termination
being set forth in the notice), and that
each U.S. recipient of a distribution
made from the foreign trust on and after
that date is subject to the section 2801
tax on the portion of each such
distribution that is attributable to
covered gifts and covered bequests. See
paragraph (d)(6)(iii)(B) of this section for
an additional notification requirement
in the case of an imperfect election.
(iii) Subsequent elections. If a foreign
trust’s election is terminated under
paragraph (d)(5)(ii) of this section, the
foreign trust is not prohibited from
making another election in a future year,
subject to the requirements of paragraph
(d)(3) of this section.
(6) Dispute as to amount of section
2801 tax owed by electing foreign
trust—(i) Procedure. If the
Commissioner disputes the value of a
covered gift or covered bequest, or
otherwise challenges the computation of
the section 2801 tax, that is reported on
the electing foreign trust’s timely filed
Form 708 for any calendar year, the
Commissioner will issue a letter (but not
a notice of deficiency as defined in
section 6212) to the trustee of the
electing foreign trust and the appointed
U.S. agent that details the disputed
information and the proper amount of
section 2801 tax as recalculated. The
foreign trust must pay the additional
amount of section 2801 tax including
interest and penalties, if any, in
accordance with the requirements of
paragraph (d)(6)(ii) of this section, on or
before the due date specified in the
letter to maintain its election.
(ii) Effect of timely paying the
additional section 2801 tax amount. If
the trustee of the foreign trust timely
pays the additional amount(s) specified
in the Commissioner’s letter, or such
other amount as agreed to by the
Commissioner, and enters into a closing
agreement with the IRS as described in
section 7121, then the foreign trust’s
election to be treated as a domestic trust
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14:39 Sep 09, 2015
Jkt 235001
under paragraph (d) of this section
remains in effect. In addition, in the
absence of fraud, malfeasance, or
misrepresentation of a material fact, that
payment, in conjunction with the
closing agreement, will be deemed to
render any determination of value to
which the closing agreement applies as
final and binding on both the IRS and
the foreign trust. Thus, subsequently,
the IRS will not be able to challenge the
section 2801 tax due from either the
foreign trust or any of its beneficiaries
who are U.S. citizens or residents for the
year for which that Form 708 was filed
by the foreign trust, except with respect
to any covered gifts or covered bequests
not reported on that return, and neither
the foreign trust nor any of its
beneficiaries will be able to file a claim
for refund with respect to section 2801
tax paid by the foreign trust on the
covered gifts and covered bequests
reported on that Form 708.
(iii) Effect of failing to timely pay the
additional section 2801 tax amount
(imperfect election)—(A) In general. If
the foreign trust fails to timely pay the
additional amount of section 2801 tax
with interest and penalties, if any,
claimed to be due by the IRS in
accordance with the requirements of
paragraph (d)(6)(ii) of this section, then
the foreign trust’s valid election is
terminated and becomes an imperfect
election. The foreign trust’s election is
terminated, and is converted into an
imperfect election, retroactively as of
the first day of the calendar year for
which was filed the Form 708 with
respect to which the additional amount
of section 2801 tax is claimed to be due
by the IRS. Thus, the value the foreign
trust has reported on the Form 708 and
on which the trust has paid the section
2801 tax is no longer considered to be
attributable to covered gifts or covered
bequests when computing the section
2801 ratio described in paragraph
(c)(1)(ii) of this section applicable to
distributions made by the foreign trust
to U.S. recipients during the calendar
year for which the Form 708 was filed
and thereafter. The U.S. recipients of
distributions from the foreign trust,
however, should take into consideration
the additional value determined by the
IRS, on which the foreign trust did not
timely pay the section 2801 tax, when
computing the section 2801 ratio to be
applied to a distribution from the trust.
See paragraph (c) of this section. Any
disagreement with regard to that
additional value will be an issue to be
resolved as part of the review of that
U.S. recipient’s own Form 708 reporting
a distribution.
(B) Notice to permissible
beneficiaries. If the trustee of the foreign
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54463
trust fails to remit the additional
payment of the section 2801 tax
including all interest and penalties, if
any, in accordance with the
requirements of paragraph (d)(6)(ii) of
this section, by the due date stated in
the IRS letter, the trustee should notify
promptly each permissible distributee,
as defined in paragraph (d)(3)(ii)(E) of
this section, of the amount of additional
value on which the foreign trust did not
timely pay the section 2801 tax as
determined by the IRS and that:
(1) The foreign trust’s election was
terminated as of January 1 of the
applicable year (with the actual year of
the termination being set forth in the
notice); and
(2) Each U.S. recipient of a
distribution made from the foreign trust
on and after that termination date is
subject to the section 2801 tax on the
portion of each such distribution
attributable to covered gifts and covered
bequests.
(C) Reasonable cause. If a U.S.
recipient received a distribution from
such trust on or after January 1 of the
year for which the election was
terminated and the election became an
imperfect election, provided the U.S.
recipient files a Form 708 and pays the
section 2801 tax within a reasonable
period of time after being notified by the
trustee of the foreign trust or otherwise
becoming aware that a valid election
was not in effect when the distribution
was made, the U.S. recipient’s failure to
timely file and pay are due to reasonable
cause and not willful neglect for
purposes of section 6651. For this
purpose, a reasonable period of time is
not more than six months after the U.S.
recipient is notified by the trustee or the
U.S. recipient otherwise becomes aware
that a valid election is not in effect.
(D) Interim period. If a foreign trust’s
valid election is terminated and
becomes an imperfect election, there is
a period of time (interim period) after
the effective date of the termination of
the election during which both the
foreign trust and its U.S. beneficiaries
are likely to continue to comply with
section 2801 as it applies to an electing
foreign trust with a valid election in
place. The interim period begins on the
effective date of the termination of the
foreign trust’s election that resulted in
an imperfect election as described in
paragraph (d)(6)(iii)(A) of this section,
and ends on December 31 of the
calendar year immediately preceding
the calendar year in which the
additional section 2801 tax claimed by
the IRS is due. As under the rule in
paragraph (d)(6)(iii)(A) of this section
regarding imperfect elections, the
covered gifts and covered bequests
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received by the foreign trust during this
interim period, which the foreign trust
has reported on its timely filed Form
708 and on which the foreign trust has
timely paid the section 2801 tax, are no
longer considered to be covered gifts
and covered bequests for purposes of
computing the section 2801 ratio
described in paragraph (c)(1)(ii) of this
section as it applies to distributions
made by non-electing foreign trusts to
their U.S. beneficiaries. In addition,
each distribution made by the foreign
trust to a U.S. citizen or resident during
this interim period must be reported on
that U.S. recipient’s Form 708 by
applying the section 2801 ratio to that
distribution. Once the interim period
has ended, the foreign trust has no
election in place and the rules of section
2801(e)(4)(B)(i) will apply until the
foreign trust subsequently (if ever)
makes another valid election to be
treated as a domestic trust for purposes
of section 2801.
(7) No overpayment caused solely by
virtue of defect in election. Any
remittance of section 2801 tax made by
a foreign trust electing to be treated as
a domestic trust does not become an
overpayment solely by virtue of a defect
in the election. Instead, if at some
subsequent time the IRS determines that
the election was not in fact a valid
election, then the election shall be
considered valid only with respect to
the covered gifts or covered bequests on
which the section 2801 tax was timely
paid by the foreign trust and each
covered gift and covered bequest on
which the section 2801 tax has been
timely paid is no longer treated as a
covered gift or covered bequest for
purposes of determining the portion of
the foreign trust attributable to covered
gifts and covered bequests. See
paragraphs (d)(2)(i) and (d)(6)(iii) of this
section.
(e) Examples. The provisions of this
section are illustrated by the following
examples.
Example 1. Computation of section 2801
ratio. A and B each contribute $100,000 to a
foreign trust. A (but not B) is a covered
expatriate and A’s contribution is a covered
gift. The section 2801 ratio immediately after
these two contributions is 0.50, computed as
follows: The pre-contribution value of the
trust ($0) times the pre-contribution section
2801 ratio (-0-), plus the current covered gift
($100,000), divided by the post-contribution
fair market value of the trust ($200,000). See
§ 28.2801–5(c). Therefore, 50 percent of each
distribution from the trust is subject to the
section 2801 tax until the next contribution
is made to the trust. If the trustee distributes
$40,000 to C, a U.S. citizen, before the trust
receives any other contributions, then
$20,000 ($40,000 × 0.5) is a covered gift to
C.
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Example 2. Computation of section 2801
ratio when multiple contributions are made
to foreign trust. (i) In 2005, A, a U.S. citizen,
established and funded an irrevocable foreign
trust with $200,000 and reported the transfer
as a completed gift. On January 1 of each of
the following three years (2006 through
2008), A contributed an additional $100,000
to the foreign trust. A reported A’s
contributions to the foreign trust as
completed gifts on timely filed Forms 709,
for calendar years 2005 through 2008. On
August 8, 2008, a date after the effective date
of section 2801 (June 17, 2008), A expatriated
and became a covered expatriate. On January
1 of a year after 2008 (Year X), A makes an
additional $100,000 contribution to the trust.
The aggregate $600,000 contributed to the
trust by A, both before and after expatriation,
are the only contributions to the trust. Each
year, the trustee of the foreign trust provides
beneficiary B, a U.S. citizen, with an
accounting of the trust showing each receipt
and disbursement of the trust during that
year, including the date and amount of each
contribution by A.
(ii) The fair market value of the trust was
$610,000 immediately prior to A’s
contribution to the trust on January 1, Year
X. Therefore, upon the Year X contribution
of A’s first and only covered gift, the portion
of the trust attributable to covered gifts and
covered bequests (covered portion) changed
from zero to 0.14 ([(section 2801 ratio of 0 ×
$610,000 fair market value pre-contribution)
plus the $100,000 covered gift]/$710,000 fair
market value post-contribution). See
paragraph (c) of this section.
(iii) In February of Year X, B received a
distribution of $225,000 from the foreign
trust. Although A contributed a total of
$600,000 to the foreign trust, A contributed
only $100,000 while A was a covered
expatriate. Under paragraph (c) of this
section, the portion of the $225,000
distribution from the foreign trust
attributable to a covered gift is $31,500
($225,000 × 0.14 (section 2801 ratio)) because
the distribution is made proportionally from
the covered and non-covered portions of the
trust. See paragraph (c)(1) of this section.
Accordingly, B received a covered gift of
$31,500.
(iv) Pursuant to the terms of the foreign
trust, the trust made a terminating
distribution on August 5, Year X, when B
turned 35, and B received the balance of the
appreciated trust, $505,000. The portion of
this distribution attributable to covered gifts
and covered bequests is $70,700 ($505,000 ×
0.14). Therefore, B has received covered gifts
from the foreign trust during Year X in the
total amount of $102,200 ($31,500 +
$70,700).
Example 3. Termination of foreign trust
election. The trustee of a foreign trust that
received a covered gift makes a valid election
to be treated as a domestic trust under
§ 28.2801–5(d) for Year 1. However, the
trustee fails to file timely the Form 708 for
the next year, Year 2. The foreign trust
election is terminated as of January 1, Year
2, under paragraph (d)(5)(ii) of this section.
Thus, any distributions made to U.S.
recipients during Year 1 have a section 2801
ratio of zero and are not subject to the section
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Sfmt 4702
2801 tax. However, any such distributions
made during Year 2 are subject to the section
2801 tax to the extent the distributions are
attributable to a covered gift or covered
bequest received by the trust during Year 2.
Unless the trustee makes a new election as
described in paragraph (d)(5)(iii) of this
section, beginning in Year 2, the foreign
trust’s section 2801 ratio must be recomputed
each time the foreign trust receives a
contribution.
Example 4. Imperfect election by foreign
trust. (i) In Year 1, CE, a covered expatriate,
gives a 20 percent limited partnership
interest in a closely held business to a foreign
trust created for the benefit of CE’s child, A,
who is a U.S. citizen. The limited partnership
interest is a covered gift. The trustee of the
foreign trust makes a valid election to have
the trust treated as a domestic trust for
purposes of section 2801, trustee timely files
a Form 708, and timely pays the section 2801
tax on the reported fair market value of the
covered gift ($500,000). Later in Year 1, the
trust makes a $100,000 distribution to A.
(ii) In Year 2, CE contributes $200,000 in
cash to the foreign trust. The cash is a
covered gift. The trustee of the foreign trust
timely files a Form 708 reporting the transfer
and pays the section 2801 tax. The trust does
not make a distribution to any beneficiary
during Year 2. Late in Year 3, the IRS
disputes the reported value of the
partnership interest transferred in Year 1 and
determines that the proper valuation on the
date of the gift was $800,000. In Year 3, the
IRS issues a letter to the trustee of the foreign
trust detailing its finding of the increased
valuation and of the resulting additional
section 2801 tax including accrued interest,
if any, due on or before a later date in Year
3 specified in the letter. The foreign trust
fails to pay the additional section 2801 tax
liability on or before that due date.
(iii) Under paragraph (d)(6)(iii) of this
section, the foreign trust’s election for Year
1 is an imperfect election; although it timely
filed its return reporting the transfer and paid
the tax, it failed to timely pay the additional
section 2801 tax when the IRS notified the
trust of an additional amount of section 2801
tax claimed to be due. Accordingly, the
foreign trust’s election is deemed to have
terminated as of January 1 of Year 1. In
computing the foreign trust’s section 2801
ratio upon the receipt of the covered gift in
Year 1, the $500,000 of value on which the
section 2801 tax was timely paid is no longer
deemed to be a covered gift. See paragraph
(d)(6)(iii) of this section. When the trustee
advises A of the letter from the IRS, A must
file a late Form 708 reporting the portion of
the Year 1 distribution attributable to covered
gifts and covered bequests. Although A may
owe section 2801 tax and interest, A will not
owe any penalties under section 6651 as long
as A files the Form 708 and pays the tax
within a reasonable period of time after A
receives notice of the termination of the
election from the trustee of the foreign trust
or otherwise becomes aware of the
termination of the election. See paragraph
(d)(6)(iii)(C) of this section.
(iv) When A files the Form 708, the IRS
will verify whether A treated the $300,000
undervaluation claimed by the IRS as a
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covered gift in computing the section 2801
ratio. As with any other item reported on that
return, A has the burden to prove the value
of the covered gift to the foreign trust, and
the IRS may challenge that value. If A treats
the $300,000 as a covered gift to the trust,
under paragraph (c)(1)(ii) of this section, the
section 2801 ratio after the Year 1
contribution is 0.375 ($0 + ($300,000)/
$800,000)). Thus, 37.5 percent of all
distributions made to A from the foreign trust
during Year 1 are subject to the section 2801
tax.
(v) The foreign trust’s timely filing of the
Form 708 for Year 2 and the timely payment
of the section 2801 tax shown on that return
is not a valid election under paragraph
(d)(5)(iii) of this section because the trust did
not timely pay the section 2801 tax on all
covered gifts and covered bequests in prior
years as required in paragraph (d)(3) of this
section; that is, the tax on the additional
$300,000 of value of the Year 1 transfer.
However, under paragraph (d)(6)(iii)(D) of
this section, because the foreign trust timely
filed and paid the section 2801 tax on the
Year 2 covered gift of $200,000, and the
additional unpaid tax was not due until Year
3, the $200,000 amount is no longer
considered a covered gift for purposes of
computing the section 2801 ratio.
Example 5. Subsequent election after
termination of foreign trust election. The
facts are the same as in Example 4. In Year
3, the foreign trust does not receive a covered
gift or covered bequest. However, the trustee
decides that making another election to be
treated as a domestic trust would be in the
best interests of the trust’s beneficiaries.
Accordingly, by the due date for the Form
708 for Year 3, the trustee timely files the
return and pays the section 2801 tax on the
portion of the trust attributable to covered
gifts and covered bequests. See paragraph
(d)(5)(iii) of this section. The trustee
calculates the portion of the trust attributable
to covered gifts and covered bequests
received by the trust in prior calendar years
by multiplying the fair market value of the
trust on December 31, Year 2, by the section
2801 ratio in effect on that date. See
paragraph (d)(3)(iii) of this section. The
foreign trust is an electing foreign trust in
Year 3.
(f) Effective/applicability date. This
section applies on and after the date of
publication of a Treasury decision
adopting these rules as final regulations
in the Federal Register. Once these
regulations have been published as final
regulations in the Federal Register,
taxpayers may rely upon the final rules
of this part for the period beginning
June 17, 2008, and ending on the date
preceding the date these regulations are
published as final regulations in the
Federal Register.
§ 28.2801–6
references.
Special rules and cross-
(a) Determination of basis. For
purposes of determining the U.S.
recipient’s basis in property received as
a covered gift or covered bequest, see
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sections 1015 and 1014, respectively.
However, section 1015(d) does not
apply to increase the basis in a covered
gift to reflect the tax paid under this
section. For purposes of determining a
U.S. recipient’s basis in property
received as a covered bequest from a
decedent who died during 2010 and
whose executor elected under section
301(c) of the Tax Relief, Unemployment
Insurance Reauthorization, and Job
Creation Act of 2010 not to have the
estate tax provisions apply, see section
1022.
(b) Generation-skipping transfer tax.
Transfers made by a nonresident not a
citizen of the United States (NRA
transferor) are subject to generationskipping transfer (GST) tax only to the
extent those transfers are subject to
federal estate or gift tax as defined in
§ 26.2652–1(a)(2). In applying this rule,
taxable distributions from a trust and
taxable terminations are subject to the
GST tax only to the extent the NRA
transferor’s contributions to the trust
were subject to federal estate or gift tax
as defined in § 26.2652–1(a)(2). See
§ 26.2663–2. A transfer is subject to
federal estate or gift tax, regardless of
whether a federal estate or gift tax return
reporting the transfer is timely filed and
regardless of whether chapter 15 applies
because of a covered expatriate’s failure
to timely file and pay the section 2801
tax, if applicable.
(c) Information returns—(1) Gifts and
bequests. Pursuant to section 6039F and
the corresponding regulations, and to
the extent provided in Notice 97–34,
1997–1 CB 422, and Form 3520, Part IV,
each U.S. person (other than an
organization described in section 501(c)
and exempt from tax under section
501(a)) who treats an amount received
from a foreign person (other than
through a foreign trust) as a gift or
bequest (including a covered gift or
covered bequest) must report such gift
or bequest on Part IV of Form 3520 if the
value of the total of such gifts and
bequests exceeds a certain threshold. A
U.S. citizen or resident, as defined in
§ 28.2801–2(b) but not including a
foreign trust that elects to be treated as
a domestic trust, is included within the
definition of a U.S. person for purposes
of section 6039F.
(2) Foreign trust distributions.
Pursuant to section 6048(c) and the
corresponding regulations, and to the
extent provided in Notice 97–34 and
Part III of Form 3520, U.S. persons must
report each distribution received during
the taxable year from a foreign trust on
Part III of Form 3520. Under section
6677(a), a penalty of the greater of
$10,000 or 35 percent of the gross value
of the distribution may be imposed on
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a U.S. person who fails to timely report
the distribution. A U.S. citizen or
resident as defined in § 28.2801–2(b),
but not including a foreign trust that
elects to be treated as a domestic trust,
generally is required to report such a
distribution under section 6048(c).
(3) Penalties and use of information.
The filing of Form 706, Form 706–NA,
Form 708, or Form 709 does not relieve
a U.S. citizen or resident who is
required to file Form 3520 from any
penalties imposed under section 6677(a)
for failure to comply with section
6048(c), or from any penalties imposed
under section 6039F(c) for failure to
comply with section 6039F(a). Pursuant
to section 6039F(c)(1)(A), the Secretary
may determine the tax consequences of
the receipt of a purported foreign gift or
bequest.
(d) Application of penalties—(1)
Accuracy-related penalties on
underpayments. The section 6662
accuracy-related penalty may be
imposed upon any underpayment of tax
attributable to—
(i) A substantial valuation
understatement under section 6662(g) of
a covered gift or covered bequest; or
(ii) A gross valuation misstatement
under section 6662(h) of a covered gift
or covered bequest.
(2) Penalty for substantial and gross
valuation misstatements attributable to
incorrect appraisals. The section 6695A
penalty for substantial and gross
valuation misstatements attributable to
incorrect appraisals may be imposed
upon any person who prepares an
appraisal of the value of a covered gift
or covered bequest.
(3) Penalty for failure to file a return
and to pay tax. See section 6651 for the
application of a penalty for the failure
to file Form 708, or the failure to pay the
section 2801 tax.
(e) Effective/applicability date. This
section applies on and after the date of
publication of a Treasury decision
adopting these rules as final regulations
in the Federal Register. Once these
regulations have been published as final
regulations in the Federal Register,
taxpayers may rely upon the final rules
of this part for the period beginning
June 17, 2008, and ending on the date
preceding the date these regulations are
published as final regulations in the
Federal Register.
§ 28.2801–7 Determining responsibility
under section 2801.
(a) Responsibility of recipients of gifts
and bequests from expatriates. It is the
responsibility of the taxpayer (in this
case, the U.S. citizen or resident
receiving a gift or bequest from an
expatriate or a distribution from a
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foreign trust funded at least in part by
an expatriate) to ascertain the taxpayer’s
obligations under section 2801, which
includes making the determination of
whether the transferor is a covered
expatriate and whether the transfer is a
covered gift or covered bequest.
(b) Disclosure of return and return
information—(1) In general. In certain
circumstances, the Internal Revenue
Service (IRS) may be permitted, upon
request of a U.S. citizen or resident in
receipt of a gift or bequest from an
expatriate, to disclose to the U.S. citizen
or resident return or return information
of the donor or decedent expatriate that
may assist the U.S. citizen or resident in
determining whether the donor or
decedent was a covered expatriate and
whether the transfer was a covered gift
or covered bequest. The U.S. citizen or
resident may not rely upon this
information, however, if the U.S. citizen
or resident knows, or has reason to
know, that the information received
from the IRS is incorrect. The
circumstances under which such
information may be disclosed to a U.S.
citizen or resident, and the procedures
for requesting such information from the
IRS, will be as provided by publication
in the Internal Revenue Bulletin (see
§ 601.601(d)(2)(ii)(b)).
(2) Rebuttable presumption. Unless a
living donor expatriate authorizes the
disclosure of his or her relevant return
or return information to the U.S. citizen
or resident receiving the gift, there is a
rebuttable presumption that the donor is
a covered expatriate and that the gift is
a covered gift. A taxpayer who
reasonably concludes that a gift or
bequest is not subject to section 2801
may file a protective Form 708 in
accordance with § 28.6011–1(b) to start
the period for the assessment of any
section 2801 tax.
(c) Effective/applicability date. This
section applies on and after the date of
publication of a Treasury decision
adopting these rules as final regulations
in the Federal Register. Once these
regulations have been published as final
regulations in the Federal Register,
taxpayers may rely upon the final rules
of this part for the period beginning
June 17, 2008, and ending on the date
preceding the date these regulations are
published as final regulations in the
Federal Register.
§ 28.6001–1
Records required to be kept.
(a) In general. Every U.S. recipient as
defined in § 28.2801–2(e) subject to
taxation under chapter 15 of the Internal
Revenue Code must keep, for the
purpose of determining the total amount
of covered gifts and covered bequests,
such permanent books of account or
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records as are necessary to establish the
amount of that person’s aggregate
covered gifts and covered bequests, and
the other information required to be
shown on Form 708, ‘‘United States
Return of Tax for Gifts and Bequests
from Covered Expatriates.’’ All
documents and vouchers used in
preparing the Form 708 must be
retained by the person required to file
the return so as to be available for
inspection whenever required.
(b) Supplemental information. In
order that the Internal Revenue Service
(IRS) may determine the correct tax, the
U.S. recipient as defined in § 28.2801–
2(e) must furnish such supplemental
information as may be deemed
necessary by the IRS. Therefore, the U.S.
recipient must furnish, upon request,
copies of all documents relating to the
covered gift or covered bequest,
appraisals of any items included in the
aggregate amount of covered gifts and
covered bequests, copies of balance
sheets and other financial statements
obtainable by that person relating to the
value of stock or other property
constituting the covered gift or covered
bequest, and any other information
obtainable by that person that may be
necessary in the determination of the
tax. See section 2801 and the
corresponding regulations. For every
policy of life insurance listed on the
return, the U.S. recipient must procure
a statement from the insurance company
on Form 712 and file it with the IRS
office where the return is filed. If
specifically requested by the
Commissioner, the insurance company
must file this statement directly with
the Commissioner.
§ 28.6011–1
Returns.
(a) Return required. The return of any
tax to which this part 28 applies must
be made on Form 708, ‘‘United States
Return of Tax for Gifts and Bequests
from Covered Expatriates,’’ according to
the instructions applicable to the form.
With respect to each covered gift and
covered bequest received during the
calendar year, the U.S. recipient as
defined in § 28.2801–2(e) must include
on Form 708 the information set forth in
§ 25.6019–4. The U.S. recipient must
file Form 708 for each calendar year in
which a covered gift or covered bequest
is received. The U.S. recipient who
receives the covered gift or covered
bequest during the calendar year is the
person required to file the return. A U.S.
recipient is not required to file such
form, however, for a calendar year in
which the total fair market value of all
covered gifts and covered bequests
received by that person during that
calendar year is less than or equal to the
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section 2801(c) amount, which is the
dollar amount of the per-donee
exclusion in effect under section
2503(b) for that calendar year.
(b) Protective return. (i) A U.S. citizen
or resident (as defined in § 28.2801–
2(b)) that receives a gift or bequest from
an expatriate and reasonably concludes
that the gift or bequest is not a covered
gift or a covered bequest from a covered
expatriate may file a protective Form
708 in order to start the period for
assessment of tax. To be a protective
Form 708, it must provide all of the
information otherwise required on Form
708, along with an affidavit, signed
under penalties of perjury, setting forth
the information on which that U.S.
citizen or resident has relied in
concluding that the donor or decedent,
as the case may be, was not a covered
expatriate, or that the transfer was not
a covered gift or a covered bequest, as
well as that person’s efforts to obtain
other information that might be relevant
to these determinations. If that U.S.
citizen or resident has obtained
information from the Internal Revenue
Service (IRS) (as described in § 28.2801–
7(b)(1)), it must attach a copy of such
information. The U.S. citizen or resident
also must attach a copy of a completed
Form 3520, Part III, for all trust
distributions, or Part IV for all gifts and
bequests, if applicable. If the return
meets the requirements of this
paragraph (b)(i), and if the IRS does not
assess a section 2801 tax liability for
that tax year within the limitations
period for assessment stated in section
6501, the IRS may not later assess a
section 2801 tax with regard to any
transfer reported on that Form 708.
(ii) A U.S. citizen or resident who
receives a gift or bequest from an
expatriate and who files a protective
Form 708 meeting the requirements of
paragraph (b)(i) of this section showing
no tax due, absent fraud or other special
factors, will not be subject to any
additions to tax for late filing under
section 6651(a)(1) or for late payment
under section 6651(a)(2), even if the gift
or bequest is determined to be a covered
gift or covered bequest from a covered
expatriate within the limitations period
for assessment stated in section 6501.
Notwithstanding the foregoing,
however, if a U.S. citizen or resident
knows, or has reason to know, that the
information provided by the IRS or any
other source is incorrect or incomplete,
that U.S. citizen or resident may not rely
on that information, and except as
provided in the preceding paragraph
(b)(i) of this section, may be subject to
all of the generally applicable
provisions governing assessment of tax,
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collection of tax, and penalties. See
sections 6501, 6502, 6651 and 6662.
(c) Effective/applicability dates. This
section applies on and after the date of
publication of a Treasury decision
adopting these rules as final regulations
in the Federal Register.
§ 28.6060–1 Reporting requirements for
tax return preparers.
(a) In general. A person that employs
one or more signing tax return preparers
to prepare a return or claim for refund
of any tax to which this part 28 applies,
other than for the person, at any time
during a return period, must satisfy the
recordkeeping and inspection
requirements in the manner stated in
§ 1.6060–1 of this chapter.
(b) Effective/applicability date. This
section applies to returns and claims for
refund filed on or after the date of
publication of a Treasury decision
adopting these rules as final regulations
in the Federal Register.
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§ 28.6071–1
Time for filing returns.
(a) In general—(1) A U.S. recipient as
defined in § 28.2801–2(e) must file Form
708, ‘‘U.S. Return of Gifts or Bequests
from Covered Expatriates,’’ on or before
the fifteenth day of the eighteenth
calendar month following the close of
the calendar year in which the covered
gift or covered bequest was received.
Notwithstanding the preceding
sentence, the due date for a Form 708
reporting a covered bequest that is not
received on the decedent’s date of death
under § 28.2801–4(d)(3) is the later of—
(i) The fifteenth day of the eighteenth
calendar month following the close of
the calendar year in which the covered
expatriate died; or
(ii) The fifteenth day of the sixth
month of the calendar year following
the close of the calendar year in which
the covered bequest was received.
(2) If a U.S. recipient receives
multiple covered gifts and covered
bequests during the same calendar year,
the rule in paragraph (a)(1) of this
section may result in different due dates
and the filing of multiple returns
reporting the different transfers received
during the same calendar year.
(b) Migrated foreign trust. The due
date for a Form 708 for the year in
which a foreign trust becomes a
domestic trust is the fifteenth day of the
sixth month of the calendar year
following the close of the calendar year
in which the foreign trust becomes a
domestic trust.
(c) Certain returns by foreign trusts—
(1) Election under § 28.2801–5(d) for
calendar year in which no covered gift
or covered bequest received. A foreign
trust making an election to be treated as
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a domestic trust for purposes of section
2801 under § 28.2801–5(d) for a
calendar year in which the foreign trust
received no covered gifts or covered
bequests must file a Form 708 on or
before the fifteenth day of the sixth
month of the calendar year following
the close of the calendar year for which
the election is made.
(2) Certification to maintain election
under § 28.2801–5(d) for calendar year
in which no covered gift or covered
bequest received. An electing foreign
trust filing a Form 708 to certify that the
electing foreign trust did not receive any
covered gifts or covered bequests during
the calendar year must file the Form 708
on or before the fifteenth day of the
sixth month of the calendar year
following the close of that calendar year.
See § 28.2801–5(d)(4).
(d) Transition period. The Form 708
reporting covered gifts or covered
bequests received on or after June 17,
2008, and before the date of publication
of a Treasury decision adopting these
rules as final regulations in the Federal
Register, will be due within a
reasonable period of time after the date
of that publication as specified in the
final regulations, but in no event before
the due date of the first return required
under the final regulations for covered
gifts or covered bequests received after
the final regulations are published.
(e) Effective/applicability dates. This
section applies to each Form 708 filed
on or after the date on which a Treasury
decision is published adopting these
rules as final regulations in the Federal
Register.
§ 28.6081–1 Automatic extension of time
for filing returns reporting gifts and
bequests from covered expatriates.
(a) In general. A U.S. recipient as
defined in § 28.2801–2(e) may request
an extension of time to file a Form 708,
‘‘U.S. Return of Gifts or Bequests from
Covered Expatriates,’’ by filing Form
7004, ‘‘Application for Automatic
Extension of Time To File Certain
Business Income Tax, Information, and
Other Returns.’’ A U.S. recipient must
include on Form 7004 an estimate of the
amount of section 2801 tax liability and
must file Form 7004 with the Internal
Revenue Service office designated in the
Form’s instructions (except as provided
in § 301.6091–1(b) of this chapter for
hand-carried documents).
(b) Automatic extension. A U.S.
recipient as defined in § 28.2801–2(e)
will be allowed an automatic six-month
extension of time beyond the date
prescribed in § 28.6071–1 to file Form
708 if Form 7004 is filed on or before
the due date for filing Form 708 in
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accordance with the procedures under
paragraph (a) of this section.
(c) No extension of time for the
payment of tax. An automatic extension
of time for filing a return granted under
paragraph (b) of this section will not
extend the time for payment of any tax
due with such return.
(d) Penalties. See section 6651
regarding penalties for failure to file the
required tax return or failure to pay the
amount shown as tax on the return.
(e) Effective/applicability dates. This
section applies to applications for an
extension of time to file Form 708 filed
on or after the date of publication of a
Treasury decision adopting these rules
as final regulations in the Federal
Register.
§ 28.6091–1
Place for filing returns.
A U.S. recipient as defined in
§ 28.2801–2(e) must file Form 708, ‘‘U.S.
Return of Gifts and Bequests from
Covered Expatriates,’’ with the Internal
Revenue Service office designated in the
instructions applicable to the Form.
§ 28.6101–1
Period covered by returns.
See § 28.6011–1 for the rules relating
to the period covered by the return.
§ 28.6107–1 Tax return preparer must
furnish copy of return or claim for refund
to taxpayer and must retain a copy or
record.
(a) In general. A person who is a
signing tax return preparer of any return
or claim for refund of any tax to which
this part 28 applies must furnish a
completed copy of the return or claim
for refund to the taxpayer and retain a
completed copy or record in the manner
stated in § 1.6107–1 of this chapter.
(b) Effective/applicability dates. This
section applies to returns and claims for
refund filed on or after the date of
publication of a Treasury decision
adopting these rules as final regulations
in the Federal Register.
§ 28.6109–1 Tax return preparers
furnishing identifying numbers for returns
or claims for refund.
(a) In general. Each tax return or claim
for refund of the tax under chapter 15
of subtitle B of the Internal Revenue
Code prepared by one or more signing
tax return preparers must include the
identifying number of the preparer
required by § 1.6695–1(b) of this chapter
to sign the return or claim for refund in
the manner stated in § 1.6109–2 of this
chapter.
(b) Effective/applicability date. This
section applies on and after the date of
publication of a Treasury decision
adopting these rules as final regulations
in the Federal Register.
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§ 28.6151–1 Time and place for paying tax
shown on returns.
The tax due under this part 28 must
be paid at the time prescribed in
§ 28.6071–1 for filing the return, and at
the place prescribed in § 28.6091–1 for
filing the return.
§ 28.6694–1 Section 6694 penalties
applicable to return preparer.
(a) In general. For general rules
regarding section 6694 penalties
applicable to preparers of returns or
claims for refund of the tax under
chapter 15 of subtitle B of the Internal
Revenue Code (Code), see § 1.6694–1 of
this chapter.
(b) Effective/applicability date. This
section applies to returns and claims for
refund filed, and advice provided, on or
after the date of publication of a
Treasury decision adopting these rules
as final regulations in the Federal
Register.
§ 28.6694–2 Penalties for understatement
due to an unreasonable position.
(a) In general. A person who is a tax
return preparer of any return or claim
for refund of any tax under chapter 15
of subtitle B of the Code is subject to
penalties under section 6694(a) in the
manner stated in § 1.6694–2 of this
chapter.
(b) Effective/applicability date. This
section applies to returns and claims for
refund filed, and advice provided, on or
after the date of publication of a
Treasury decision adopting these rules
as final regulations in the Federal
Register.
§ 28.6694–3 Penalty for understatement
due to willful, reckless, or intentional
conduct.
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(a) In general. A person who is a tax
return preparer of any return or claim
for refund of any tax under chapter 15
of subtitle B of the Code is subject to
penalties under section 6694(b) in the
manner stated in § 1.6694–3 of this
chapter.
(b) Effective/applicability date. This
section applies to returns and claims for
refund filed, and advice provided, on or
after the date of publication of a
Treasury decision adopting these rules
as final regulations in the Federal
Register.
§ 28.6694–4 Extension of period of
collection when tax return preparer pays 15
percent of a penalty for understatement of
taxpayer’s liability and certain other
procedural matters.
(a) In general. For rules relating to the
extension of the period of collection
when a tax return preparer who
prepared a return or claim for refund of
tax under chapter 15 of subtitle B of the
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Code pays 15 percent of a penalty for
understatement of taxpayer’s liability,
and for procedural matters relating to
the investigation, assessment, and
collection of the penalties under section
6694(a) and (b), the rules under
§ 1.6694–4 of this chapter apply.
(b) Effective/applicability date. This
section applies to returns and claims for
refund filed, and advice provided, on or
after the date of publication of a
Treasury decision adopting these rules
as final regulations in the Federal
Register.
§ 28.6695–1 Other assessable penalties
with respect to the preparation of tax
returns for other persons.
(a) In general. A person who is a tax
return preparer of any return or claim
for refund of any tax under chapter 15
of subtitle B of the Internal Revenue
Code (Code) is subject to penalties for
failure to furnish a copy to the taxpayer
under section 6695(a) of the Code,
failure to sign the return under section
6695(b) of the Code, failure to furnish an
identification number under section
6695(c) of the Code, failure to retain a
copy or list under section 6695(d) of the
Code, failure to file a correct
information return under section
6695(e) of the Code, and negotiation of
a check under section 6695(f) of the
Code, in the manner stated in § 1.6695–
1 of this chapter.
(b) Effective/applicability date. This
section applies to returns and claims for
refund filed on or after the date of
publication of a Treasury decision
adopting these rules as final regulations
in the Federal Register.
§ 28.6696–1 Claims for credit or refund by
tax return preparers and appraisers.
(a) In general. For rules regarding
claims for credit or refund by a tax
return preparer who prepared a return
or claim for refund for any tax under
chapter 15 of subtitle B of the Internal
Revenue Code (Code), or by an appraiser
that prepared an appraisal in connection
with such a return or claim for refund
under section 6695A of the Code, the
rules under § 1.6696–1 of this chapter
will apply.
(b) Effective/applicability date. This
section applies to returns and claims for
refund filed, appraisals, and advice
provided, on or after the date of
publication of a Treasury decision
adopting these rules as final regulations
in the Federal Register.
PO 00000
Frm 00027
Fmt 4702
Sfmt 4702
§ 28.7701–1
Tax return preparer.
For the definition of the term tax
return preparer, see § 301.7701–15 of
this chapter.
John Dalrymple,
Deputy Commissioner for Services and
Enforcement.
[FR Doc. 2015–22574 Filed 9–9–15; 8:45 am]
BILLING CODE 4830–01–P
ENVIRONMENTAL PROTECTION
AGENCY
40 CFR Part 52
[EPA–R05–OAR–2009–0805; FRL–9933–66–
Region 5]
Wisconsin; Disapproval of
Infrastructure SIP With Respect to
Oxides of Nitrogen as a Precursor to
Ozone Provisions for the 2006 PM2.5
NAAQS
Environmental Protection
Agency (EPA).
ACTION: Proposed rule.
AGENCY:
The Environmental Protection
Agency (EPA) is proposing to
disapprove an element of State
Implementation Plan (SIP) submissions
from Wisconsin regarding the
infrastructure requirements of section
110 of the Clean Air Act (CAA) for the
2006 fine particulate matter (PM2.5)
National Ambient Air Quality Standard
(NAAQS). The infrastructure
requirements are designed to ensure that
the structural components of each
state’s air quality management program
are adequate to meet the state’s
responsibilities under the CAA. This
action pertains specifically to an
infrastructure requirement for states to
correctly address oxides of nitrogen
(NOX) as a precursor to ozone in their
respective prevention of significant
deterioration (PSD) programs.
DATES: Comments must be received on
or before October 13, 2015.
ADDRESSES: Submit your comments,
identified by Docket ID No. EPA–R05–
OAR–2009–0805 by one of the following
methods:
1. www.regulations.gov: Follow the
on-line instructions for submitting
comments.
2. Email: aburano.douglas@epa.gov.
3. Fax: (312) 408–2279.
4. Mail: Douglas Aburano, Chief,
Attainment Planning and Maintenance
Section, Air Programs Branch (AR–18J),
U.S. Environmental Protection Agency,
77 West Jackson Boulevard, Chicago,
Illinois 60604.
5. Hand Delivery: Douglas Aburano,
Chief, Attainment Planning and
SUMMARY:
E:\FR\FM\10SEP1.SGM
10SEP1
| File Type | application/pdf |
| File Modified | 2023-04-29 |
| File Created | 2023-04-29 |