Recipients of gifts from covered expatriates must pay tax on gifts

Another great article from Virginia La Torre Jeker describes the reason for the taxation of gifts to U.S. citizens from “covered expatriates” as:


Gifts or Bequests from “Covered Expatriates”

Under a new law that became effective June 17, 2008, gifts or bequests from so-called “covered expatriates” may be taxable to the US person receiving that gift or bequest. A “covered expatriate” is an individual who was a former US citizen or long-term permanent resident (generally a person who held a green card for 8 of 15 tax years before surrendering the card) if the individual met certain other requirements. You can learn more about who is a “covered expatriate” in my blog post here.  A gift or bequest from such a “covered expatriate” that exceeds the annual exclusion amount (US$14,000) may be taxed to the recipient at the highest gift or estate tax rate in effect at the time of receipt. Currently, the highest Gift and Estate Tax rate is 40%. 

This special punitive tax regime is generally designed to recoup the Gift or Estate taxes the US government would have received had the individual not given up his US citizenship or green card. Since the government no longer has jurisdiction over the former US person, it must impose the tax on the US recipient of the gift or bequest.  The tax has been harshly criticized since it makes no provision, for example, for the lifetime exclusion amounts using the Unified Credit.

As Ms. La Torre Jekcer implies, this is about and only about punishment. It also strongly suggests that the U.S. government views its citizens as property.