Form 708: The Tax on Gifts and Bequests From Covered Expatriates

Form 708 is the IRS return that implements IRC Section 2801, a tax on gifts and bequests received by US persons from covered expatriates. The form was released in January 2026, with final regulations published in the Federal Register on January 14, 2025. It applies to covered gifts and covered bequests received on or after January 1, 2025. The tax rate is 40% (matching the estate and gift tax rate), and the critical difference from the normal gift and estate tax system is that the tax falls on the recipient, not the person making the transfer. Section 2801 was enacted as part of the HEART Act in 2008 to close a gap: when a person renounces US citizenship or gives up a long-term green card and becomes a covered expatriate, they leave the US gift and estate tax system entirely. Without Section 2801, they could transfer unlimited wealth to US family members free of any US transfer tax. Form 708 closes that gap by taxing the US recipient.

What is Form 708 and why does it exist?

Form 708, officially titled “United States Return of Tax for Gifts and Bequests Received From Covered Expatriates,” is the compliance mechanism for IRC Section 2801. Section 2801 was enacted in 2008 but sat dormant for years while Treasury developed regulations. The final regulations were published on January 14, 2025, and the IRS released the form in January 2026.

The policy rationale is straightforward. When a US citizen or long-term green card holder expatriates, they exit the US worldwide tax system. As a nonresident alien, they can make gifts of non-US property to US persons with no US gift tax, and their non-US estate passes to US heirs with no US estate tax. Section 2801 imposes a substitute: a 40% tax on the US recipient of any covered gift or covered bequest that exceeds the annual exclusion amount. The tax replaces the gift and estate tax that would have applied if the expatriate had remained a US person.

For cross-border families where a parent or grandparent renounced US citizenship from Canada and later wants to transfer wealth to US-citizen children, Section 2801 is the provision that makes the transfer taxable. The renunciation removes the expatriate from the US tax system, but Section 2801 follows the money to the US recipient.

Who has to file Form 708?

Any US person (citizen or resident) who receives during a calendar year one or more covered gifts or covered bequests that exceed the annual exclusion amount ($19,000 for 2025 and 2026) from a covered expatriate. “US person” includes individuals, domestic trusts, and domestic corporations. A foreign trust that receives a covered gift or bequest is not the filer, but a US beneficiary who later receives a distribution attributable to that covered gift or bequest must file.

The filing obligation is on the recipient, not the covered expatriate. The expatriate has no Form 708 obligation and may not even know that the recipient must file. This creates a practical problem: the recipient needs to know (a) that the transferor is a covered expatriate, and (b) that the transfer exceeds the exclusion. The transferor’s covered-expatriate status depends on facts from their Form 8854 or green card exit tax filing, which the recipient may not have access to.

A covered expatriate is someone who relinquished US citizenship or terminated long-term resident status (holding a green card in 8 of the 15 years before termination) and met any one of three tests at the time of expatriation: net worth of $2 million or more, average annual net income tax liability exceeding a threshold amount ($201,000 for 2024, adjusted annually for inflation) for the five tax years before expatriation, or failure to certify on Form 8854 that all US federal tax obligations were met for those five years.

What counts as a covered gift or covered bequest?

A covered gift is any transfer by gift from a covered expatriate that would be subject to US gift tax if the expatriate were still a US citizen. A covered bequest is any transfer by reason of the death of a covered expatriate that would be subject to US estate tax if the expatriate had died as a US citizen. Both categories include direct transfers and indirect transfers through foreign trusts or other intermediaries.

Exclusions. Not every transfer from a covered expatriate triggers the tax. Transfers up to the annual exclusion amount ($19,000 per recipient for 2025-2026) are excluded. Transfers that would qualify for the marital deduction under IRC 2056 or 2523 if the covered expatriate were still a US citizen are excluded (transfers to a US-citizen spouse, or transfers to a qualifying domestic trust for a non-citizen spouse). Transfers to charities described in IRC 2055(a) or 2522(b) are excluded to the extent a charitable deduction would have been allowed. Transfers that were already reported on a timely filed US gift or estate tax return before the expatriation date are excluded (they were already within the system).

Trust distributions. If a covered expatriate transfers property to a foreign trust, and the trust later makes distributions to US beneficiaries, the distributions are treated as covered gifts or covered bequests to the extent they are attributable to the covered expatriate’s contribution. The US beneficiary must file Form 708 for the distribution year.

How is the Section 2801 tax calculated?

The tax is 40% of the taxable amount. The taxable amount is the value of the covered gift or covered bequest minus the annual exclusion ($19,000 for 2025-2026), minus any foreign gift or estate tax paid by the covered expatriate (or their estate) on the same transfer.

The foreign tax credit is significant for transfers from Canada. If a covered expatriate who lives in Canada makes a gift of appreciated property, the Canadian deemed disposition rules may trigger Canadian capital gains tax on the transfer (under ITA 69(1)(b) for gifts at less than FMV). To the extent Canadian tax was paid on the same transfer, the US recipient can reduce the Section 2801 tax by the amount of foreign tax attributable to the transfer. This credit reduces the 40% but does not eliminate the filing obligation.

If a US recipient receives multiple covered gifts or bequests in the same calendar year from the same covered expatriate, the annual exclusion applies once to the aggregate. If the transfers are from different covered expatriates, a separate exclusion applies to each.

When is Form 708 due and what are the penalties?

Form 708 is due on the 15th day of the 18th month following the close of the calendar year in which the covered gift or covered bequest was received. For transfers received during the 2025 calendar year (the first year the form applies), the due date is June 15, 2027. For transfers received during 2026, the due date is June 15, 2028.

An automatic six-month extension is available by filing Form 7004 by the original due date. The extension applies to the time to file, not the time to pay: any estimated tax is still due by the original deadline.

Penalties. Failure to file carries a penalty of 5% of the unpaid tax per month (or partial month), up to a maximum of 25%. Failure to pay carries a separate penalty of 0.5% of the unpaid tax per month, up to 25%. Both penalties can run simultaneously. Interest accrues on any unpaid balance from the original due date.

Because this is a brand-new form with a July 2027 first due date, many US recipients may not yet be aware of the obligation. Practitioners should identify clients who received gifts or inheritances from former US citizens or former long-term green card holders since January 1, 2025, and evaluate whether the transferor meets the covered-expatriate tests.

• Renouncing US citizenship from Canada: exit tax and Form 8854, the expatriation process that creates covered-expatriate status
• Giving up a green card: exit tax implications, covered-expatriate status for long-term residents
• Gift tax in Canada: are gifts taxable?, the deemed disposition on Canadian-side gifts
• Deemed disposition in Canada, the Canadian tax event that may generate a foreign tax credit against the Section 2801 tax
• US-Canada tax treaty explained, treaty provisions relevant to cross-border transfers

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.