IRS Form 708 Guide: Tax on Covered Gifts and Bequests

1. Introduction – What is Form 708?

IRS Form 708, officially titled United States Return of Tax for Gifts and Bequests Received From Covered Expatriates, is a federal tax return governed by the Internal Revenue Service (IRS). It is used to calculate, report, and pay the federal Section 2801 transfer tax on covered gifts and bequests.

Enacted under Section 2801 of the Internal Revenue Code as part of the Heroes Earnings Assistance and Relief Tax (HEART) Act, Form 708 applies when a U.S. citizen or resident receives a gift or inheritance from a covered expatriate—someone who relinquished U.S. citizenship or long-term green card status after June 16, 2008.

Unlike standard U.S. gift or estate taxes where the person giving the money (or their estate) pays the tax, Form 708 shifts tax liability directly to the U.S. recipient, assessing a flat tax rate (currently 40%) on qualifying transfers.

2. Purpose of the Form

The primary purpose of Form 708 is to prevent wealthy U.S. citizens and long-term residents from giving up their citizenship to avoid federal estate and gift taxes on wealth transferred to American heirs.

Form 708 solves a major tax enforcement loophole. Before Section 2801, high-net-worth individuals could move overseas, renounce U.S. citizenship, and then pass millions of dollars in offshore wealth to children or trusts in the United States completely free of U.S. transfer taxes. Form 708 ensures that wealth transfers originating from covered expatriates contribute to the U.S. treasury when received by American beneficiaries.

Additionally, Form 708 establishes clear recipient reporting standards. It provides a structured return for individual taxpayers and domestic trusts to report direct gifts, inheritances, and foreign trust payouts received from former U.S. citizens.

3. Who Needs to File This Form

Form 708 is completed and filed by individual U.S. taxpayers or domestic trusts that receive covered gifts or covered bequests from covered expatriates during the calendar tax year.

You must file Form 708 if you satisfy all of the following criteria:

• You Are a U.S. Recipient: You are an individual U.S. citizen, a U.S. resident alien (green card holder or resident based on domicile), a domestic trust, or an electing foreign trust.
• Transfer From a Covered Expatriate: You received property, cash, real estate, or trust distributions directly or indirectly from a covered expatriate (an individual who renounced citizenship or long-term residency and met high-net-worth, tax liability, or tax compliance failure tests on Form 8854).
• Exceeds Annual Exclusion: The total value of covered gifts or bequests received from a covered expatriate during the calendar year exceeds the annual gift tax exclusion threshold (e.g., $18,000 or $19,000 per donor per year).

4. Who Is Exempt / Not Required to File

Form 708 applies exclusively to transfers received from covered expatriates. Many international gifts and inheritances do not require this return.

You are NOT required to file Form 708 in the following situations:

• Gifts From Non-Covered Expatriates: Gifts or inheritances received from foreign citizens who were never U.S. citizens, or from expatriates who did not meet “covered expatriate” status on Form 8854 (reported on Form 3520 instead).
• Transfers Within Annual Exclusion Limits: Covered gifts received during the calendar year that fall below the annual gift tax exclusion threshold.
• Spousal Transfers: Covered gifts or bequests made directly to a surviving U.S. citizen spouse that qualify for the unlimited marital deduction.
• Charitable Transfers: Covered transfers made directly to qualified 501(c)(3) non-profit charities or government entities that qualify for charitable deductions.
• Taxes Already Paid on Form 709 or Form 706: Transfers on which U.S. gift tax (Form 709) or U.S. estate tax (Form 706) was already reported and paid timely by the donor or estate.

5. When to File

Form 708 is an annual tax return, but it operates under an extended filing timeline compared to standard income or gift tax returns.

Review the primary submission timing rules:

• Standard Filing Window: Form 708 is generally due on or before June 15 of the second calendar year following the calendar year in which the covered gift or bequest was received (providing an 18-month window after the close of the transfer year).
• Six-Month Filing Extension: Taxpayers can request an automatic 6-month extension of time to file Form 708 by submitting Form 7004 on or before the original June 15 due date.

6. Where and How to File

Form 708 is a paper-based return submitted directly to the Internal Revenue Service processing center handling specialized transfer tax returns.

Mail your completed, signed Form 708 along with full payment for any Section 2801 tax owed to the designated IRS submission center address specified in the official Form 708 instructions.

Make check or money order payments payable to the “United States Treasury”. Write your Social Security Number (SSN) or Employer Identification Number (EIN), the tax year, and “Form 708” on the memo line of your payment instrument.

7. Step-by-Step Instructions to Fill the Form

Form 708 is organized into taxpayer identification, transfer itemization schedules, and a 40% tax calculation block. Review the breakdown below.

Form 708 Section	Section Title	Required Disclosures & Calculations
Part I	General Information	Recipient name, SSN/EIN, mailing address, tax year, and filing entity type (Individual, Domestic Trust).
Part II	Covered Expatriate Details	Full legal name, SSN/ITIN (if known), foreign address, date of expatriation, and country of residence.
Part III / Schedule A	Itemization of Transfers	Description of property received, transfer date, gross Fair Market Value (FMV), and foreign death tax paid.
Part IV	Tax Computation	Subtract annual exclusions/deductions, multiply net covered transfers by 40%, and credit foreign taxes paid.
Signatures	Execution Under Perjury	Recipient signature and date certifying accuracy under penalties of perjury.

Part I & II – Recipient and Expatriate Disclosures

Enter your full legal name, Social Security Number or EIN, and physical address. In Part II, provide complete identifying details for the covered expatriate who made the transfer, including their name, former U.S. tax ID number, exact date of expatriation, and current foreign residency address.

Part III – Itemizing Covered Gifts and Bequests

Itemize every covered gift, inheritance bequest, or foreign trust distribution received during the calendar year. State the exact transfer date, describe the property (cash, real estate, corporate stock), and disclose its gross Fair Market Value in U.S. dollars on the date of receipt.

Part IV – Tax Calculation and Credits

Calculate your net Section 2801 tax liability:

• Annual Exclusion Subtraction: Subtract the allowable annual gift tax exclusion amount (per covered expatriate donor) from total covered gifts.
• 40% Tax Rate Application: Multiply the net taxable covered gift/bequest total by the maximum federal estate tax rate (currently 40%).
• Foreign Death/Gift Tax Credit: Subtract any estate, inheritance, or gift taxes actually paid to a foreign country on the exact same property transfer.

Signatures

The recipient (or authorized trustee) must sign and date Form 708 under penalties of perjury.

8. Required Documents/Information Needed Before Filling

Filing Form 708 requires verifying both property valuations and the donor’s expatriation status.

Ensure you have the following verification materials ready:

• Expatriate Status Verification: Form 8854 (Initial and Annual Expatriation Statement) details or written confirmation proving the donor is a covered expatriate.
• Transfer Verification Records: Bank wire confirmation receipts, legal deeds, probate inheritance distribution letters, or foreign trust accounting statements.
• Property Appraisals: Certified independent appraisal reports establishing Fair Market Value for real estate, private business shares, or non-cash assets on the receipt date.
• Foreign Tax Payment Receipts: Official tax returns and receipts showing foreign gift or inheritance taxes paid on the transferred property to claim foreign tax credits.

9. Common Mistakes to Avoid

Errors on Form 708 can lead to massive tax underpayment penalties. Avoid these frequent mistakes:

• Assuming the Expatriate Pays the Tax: Expecting the foreign donor or estate to pay U.S. transfer taxes. Section 2801 explicitly makes the **U.S. recipient personally liable** for reporting and paying the tax on Form 708.
• Confusing Form 708 with Form 3520: Assuming that filing Form 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts) satisfies Section 2801. Form 3520 is an informational return, whereas **Form 708 assesses and collects the actual 40% tax**.
• Failing to Verify Covered Expatriate Status: Assuming a foreign relative is a non-covered expatriate without checking whether they met Section 877A covered expatriate criteria when renouncing citizenship.
• Omitting Foreign Trust Distributions: Forgetting that distributions received from a foreign trust settled or funded by a covered expatriate are subject to Form 708 tax.
• Failing to Claim Foreign Tax Credits: Forgetting to subtract foreign inheritance or gift taxes paid on the same property to offset Form 708 tax liabilities.

10. Penalties for Non-Filing or Errors

Failing to file Form 708 or underreporting covered gifts carries severe statutory civil tax penalties.

Key penalty risks include:

• Late Filing Penalty (IRC Section 6651(a)(1)): Charged at 5% of unpaid Section 2801 tax per month, up to a maximum of 25%.
• Late Payment Penalty (IRC Section 6651(a)(2)): Charged at 0.5% of unpaid tax per month, up to a maximum of 25%, plus mandatory compounding interest.
• Accuracy-Related Penalty (IRC Section 6662): A 20% civil penalty applies to tax underpayments resulting from negligence or omitted covered gifts.
• Civil Fraud Penalty (IRC Section 6663): A 75% penalty applies if the IRS proves that covered gifts were intentionally hidden to evade Section 2801 tax.

11. Related Forms or Schedules

Form 708 operates alongside several core international tax and estate forms:

• Form 8854: Initial and Annual Expatriation Statement (filed by the expatriate upon renouncing citizenship).
• Form 3520: Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.
• Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return.
• Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return.
• Form 7004: Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.

12. Frequently Asked Questions

1. What is IRS Form 708?

IRS Form 708 is the federal tax return used by U.S. recipients to report and pay a 40% Section 2801 transfer tax on gifts or inheritances received from covered expatriates.

2. Who is considered a “covered expatriate”?

A covered expatriate is an individual who renounced U.S. citizenship or green card status after June 16, 2008, and met net worth ($2M+), average income tax liability, or tax compliance failure tests under Section 877A.

3. Who pays the tax on Form 708?

Under Section 2801, the **U.S. recipient** (individual or domestic trust) receiving the gift or bequest is personally liable for paying the 40% tax.

4. What is the tax rate on Form 708?

The tax rate under Section 2801 equals the maximum federal estate tax rate in effect for the year, which is currently 40%.

5. Is Form 708 required if I already filed Form 3520?

Yes. Form 3520 is an informational disclosure return. Form 708 is the tax return used to calculate and pay the actual 40% Section 2801 tax. Filing Form 3520 does not fulfill your Form 708 tax obligations.

6. When is Form 708 due?

Form 708 is generally due on or before June 15 of the second calendar year following the year in which the covered transfer was received (or 18 months following the transfer year).

13. Conclusion

IRS Form 708 is a critical tax return for U.S. citizens, residents, and domestic trusts receiving cross-border gifts or inheritances from former Americans. By enforcing a 40% Section 2801 transfer tax at the recipient level, it closes major expatriation tax loopholes.

If you receive money or property from someone who relinquished U.S. citizenship, verify the donor’s covered expatriate status, calculate net gifts above annual exclusion limits, claim foreign death/gift tax credits, and file Form 708 with payment by June 15.