President Donald Trump has signed into law the One Big Beautiful Bill Act (OBBBA), enacting the most sweeping set of federal tax reforms since 2017. This legislation makes many provisions of the Tax Cuts and Jobs Act (TCJA) permanent, introduces new deductions and credits, and overhauls critical international tax rules. The new law creates significant planning opportunities for individuals, families, and businesses — while also introducing new compliance risks, particularly for U.S. subsidiaries of foreign-parented companies.

Below is a comprehensive summary of the most relevant provisions. We give special attention to four areas of importance: the expanded estate tax exemption, the temporary increase in the SALT deduction cap, the restoration of immediate expensing for R&D, and the broader application of the Base Erosion and Anti-Abuse Tax (BEAT). These are followed by additional key changes applicable to both individuals and businesses.

Estate and Gift Tax Exemption Permanently Increased

The federal estate and lifetime gift tax exemption will be permanently increased to $15 million per individual and $30 million per married couple starting in 2026. The exemption will be indexed annually for inflation. This change offers long-term certainty for estate planning and provides an extended opportunity for high-net-worth families to engage in tax-efficient wealth transfer strategies, including the use of irrevocable trusts, family partnerships, and valuation discounts.

Temporary SALT Deduction Expansion and Continued Use of PTET Elections

For tax years 2025 through 2029, the deduction cap for state and local taxes (SALT) will be raised from $10,000 to $40,000, with inflation indexing. In 2030, the cap will revert to $10,000. Crucially, the final law does not limit or disallow the use of state passthrough entity tax (PTET) elections, preserving one of the most effective SALT cap workarounds available to owners of partnerships and S corporations. Taxpayers in high-tax states should revisit their current SALT strategies and evaluate the expanded benefits now available under the new cap.

Immediate Expensing of U.S. Research and Experimental (R&E) Costs Restored

One of the most significant business-friendly changes in the bill is the full reinstatement of immediate expensing for U.S.-based R&E expenditures. This change applies retroactively to tax years beginning after December 31, 2021. For small businesses with average gross receipts of $31 million or less, the change may be applied more broadly. Taxpayers may also elect to accelerate amortization of R&E costs incurred between 2022 and 2024 over a one- or two-year period. This reform eliminates the burdensome capitalization rules previously imposed and restores upfront tax savings for innovation-focused businesses. R&E expenditures incurred outside the United States must still be capitalized and amortized over 15 years.

BEAT Expanded: Now Applies to Foreign-Owned U.S. Corporations of Any Size

The Base Erosion and Anti-Abuse Tax (BEAT), a minimum tax regime originally aimed at large multinational corporations, has been significantly expanded. Previously, BEAT applied only to corporations with $500 million or more in average gross receipts. The new law eliminates that gross receipts threshold entirely. Going forward, BEAT may apply to any U.S. corporation that is more than 50% foreign-owned and that makes deductible payments to related foreign parties — such as royalties, interest, service fees, and cost-sharing allocations.

The BEAT rate increases from 10% to 10.5% for tax years beginning after 2025. The definition of modified taxable income has also been broadened, capturing more deductions and making it more difficult to plan around BEAT through ordinary business expenses. As BEAT operates as a parallel minimum tax with limited offsetting credits (R&D being the main exception), the tax can significantly increase the effective tax rate of foreign-owned U.S. subsidiaries. Companies that are majority foreign-owned should immediately assess their intercompany payment structures and model the impact of BEAT under the new law.

Permanent Individual Tax Rates and Brackets

The bill makes permanent the individual tax rates enacted in 2017, along with the inflation-indexing of bracket thresholds. This change ensures ongoing rate stability for individual taxpayers and preserves the benefits of TCJA-era marginal tax rates.

Permanent Standard Deduction with Inflation Adjustments

The increased standard deduction is now permanent, beginning at $15,750 for single filers, $23,625 for heads of household, and $31,500 for married joint filers in 2025. These figures will be adjusted annually for inflation. This change continues to simplify compliance for taxpayers who do not itemize and aligns with the law’s broader policy goal of reducing taxable income through higher base deductions.

Section 199A QBI Deduction Made Permanent with Enhancements

The 20% qualified business income (QBI) deduction under Section 199A is made permanent. The phase-in threshold for specified service trades or businesses is increased to $150,000 for joint filers and $75,000 for other taxpayers. A new minimum deduction of $400 will apply for taxpayers with at least $1,000 of QBI and material participation, even below the full threshold. This permanent extension provides clarity and continued tax relief for passthrough business owners, professionals, and sole proprietors.

Enhanced Credits for Families and Dependents

The child tax credit is increased to $2,200 per qualifying child beginning in 2025 and indexed for inflation. The refundable portion of $1,400 and the higher income phaseout thresholds ($200,000 for single and $400,000 for joint returns) are also made permanent. The dependent care tax credit is expanded from 35% to 50% of eligible expenses, with higher thresholds for phaseout. The maximum excludable benefit under employer-sponsored dependent care assistance programs is increased from $5,000 to $7,500.

Charitable Contribution Changes for Itemizers and Non-Itemizers

Non-itemizing taxpayers will now be eligible for an above-the-line charitable deduction of up to $1,000 (single) or $2,000 (joint). Itemizers are subject to a 0.5% floor on contributions (1% for corporations), reducing the total deduction by a small portion of adjusted income. These changes reward philanthropic giving across a broader segment of taxpayers.

Mortgage, Casualty, and Miscellaneous Deduction Provisions

The mortgage interest deduction on acquisition debt remains capped at $750,000, with the exclusion of home equity loan interest made permanent. The deduction for personal casualty losses is now restricted to federally or state-declared disasters. The law continues the suspension of most miscellaneous itemized deductions under Section 67(g), except for unreimbursed expenses of eligible educators.

AMT Relief and Temporary Senior Deduction

The increased alternative minimum tax (AMT) exemption amounts from the TCJA are made permanent, but the phaseout of the exemption accelerates from 25% to 50% of the excess income above threshold levels. A temporary $6,000 deduction is available for taxpayers age 65 or older from 2025 to 2028, phasing out at $75,000 of modified AGI for single filers ($150,000 for joint).

Temporary Deductions for Tip Income and Overtime Pay

From 2025 through 2028, taxpayers may deduct up to $25,000 in tip income (for those in tipped occupations) and up to $12,500 in qualified overtime pay as above-the-line deductions. These benefits phase out beginning at $150,000 of MAGI ($300,000 joint).

Education-Related Reforms and New Trump Accounts

529 plan distributions may now be used for postsecondary credentialing and additional K–12 educational expenses. The new law also creates "Trump accounts," a form of IRA for minors under age 18. Contributions are limited to $5,000 annually (indexed), and distributions are permitted starting the year the beneficiary turns 18. A one-time $1,000 credit is available for children born between 2025 and 2028 whose accounts are established under the federal pilot program.

Additional Business Incentives and Administrative Updates

Bonus depreciation is made permanent at 100% for eligible property placed in service on or after January 19, 2025. The Section 179 expensing limit is increased to $2.5 million (phased out above $4 million). The employer credit for paid family and medical leave is made permanent. The employer-provided child care credit increases to 40%, with a higher cap of $500,000 ($600,000 for small businesses).

Form 1099-K reporting thresholds are restored to $20,000 and 200 transactions. The general Form 1099 threshold increases from $600 to $2,000 starting in 2027. A 1% remittance transfer tax applies to certain physical payments. The new law also permits installment reporting over four years for qualifying farmland sales to eligible farmers.

The One Big Beautiful Bill Act delivers long-term clarity in key areas of the tax code while introducing new risks and opportunities. If you are a business owner, investor, or part of a multinational structure — or if you're planning for generational wealth transfer — now is the time to reassess your strategy in light of the new law.

미 의회는 Base Erosion and Anti-Abuse Tax (BEAT) 제도를 대폭 확장하는 입법안을 추진 중이며, 이에 따라 미국 내 외국 지배 법인들에게 추가적인 세금 부담이 발생할 가능성이 커지고 있습니다. 현행법상 BEAT는 과거 3년 평균 매출이 5억 달러 이상이고, 외국 관련자에게 지급한 비용이 총 공제액의 3% 이상인 대형 법인에만 적용되어, 많은 외국계 미국 법인들이 BEAT 적용 대상에서 제외되어 왔습니다.

그러나 이번 개정안은 기존 §59A를 폐지하고 신규 §899 조항을 도입하는 내용을 담고 있으며, 그 적용 범위는 훨씬 넓습니다. 하원안은 매출 기준과 기지식 비율 기준을 전면 폐지하고, 외국인이 50% 이상 지분을 보유한 미국 법인이라면 예외 없이 BEAT 적용 대상에 포함시키는 방향입니다. 또한, 지금까지 제외되었던 서비스 비용, 관련 외국인으로부터의 자산 구매, 그리고 미국 원천세가 부과된 로열티 지급액까지 Base Erosion Payment으로 간주하여 과세 대상에 포함시키고 있습니다. 상원안은 3% Base Erosion Payment 비율 기준을 0.5%로 낮춰 유지하면서도 유사한 과세 범위를 제안하고 있으며, BEAT 세율 또한 상향될 예정입니다.

이러한 개편안이 통과될 경우, 특히 로열티, 서비스 수수료, IP 관련 지급 등이 있는 외국계 미국 법인들은 새로운 BEAT 세부담에 직면할 수 있습니다. 본 제도의 통과 가능성이 높아지고 있는 만큼, 사전에 관련 구조와 거래 흐름을 재검토해 보시는 것을 권장드립니다.

BEAT 적용 가능성 분석이나 제도 변경에 대비한 준비가 필요하신 경우, 언제든지 문의해 주시기 바랍니다.

Congress is advancing legislation that could significantly expand the scope of the Base Erosion and Anti-Abuse Tax (BEAT), posing increased tax exposure for many foreign-owned U.S. corporations. Under current law, BEAT applies only to large corporations with at least $500 million in average annual gross receipts and a base erosion percentage of 3% or more. These thresholds have historically shielded many foreign-parented U.S. entities from BEAT liability, even where substantial intercompany payments exist.

The proposals under consideration would replace the current BEAT framework with a broader regime under a new Section 899. The House version would eliminate the gross receipts and base erosion percentage thresholds altogether, applying BEAT to any U.S. corporation that is more than 50% foreign-owned. It would also expand the definition of base erosion payments to include service payments, purchases of tangible assets from related foreign affiliates, and royalty payments—even those already subject to U.S. withholding tax. The Senate version retains a reduced base erosion percentage threshold (0.5%) but is otherwise aligned in targeting similar payments and raising the BEAT rate.

If enacted, these changes would expose a much larger segment of foreign-owned U.S. companies—particularly those with intercompany royalties, service fees, or IP-related arrangements—to the BEAT minimum tax. We encourage impacted businesses to begin assessing their structures and payment flows in anticipation of possible enactment later this year.

Please reach out to us if you would like assistance in evaluating potential BEAT exposure or preparing for compliance under the new rules.

The Senate Finance Committee released its draft of proposed tax provisions as part of the ongoing budget reconciliation process. While largely aligned with the House’s “One Big Beautiful Bill Act” (H.R. 1), the Senate version includes key differences across individual, business, and international tax provisions.

Individual Tax Provisions

• Tax Rates & Deductions: TCJA individual tax rates and standard deduction amounts made permanent. Adds inflation adjustment for lower brackets.
• SALT Cap: Retains $10,000 cap but includes anti-avoidance rules and separate treatment of passthrough entity taxes (PTETs); final SALT cap still under negotiation.
• Senior Deduction: Adds $6,000 temporary deduction (2025–2028) for taxpayers age 65+ with income phaseouts.
• Child Tax Credit: Increases nonrefundable credit to $2,200; makes $1,400 refundable portion permanent.
• QBI Deduction (Sec. 199A): Made permanent; expands phase-in thresholds but retains 20% deduction rate (House proposed 23%).
• Estate & Gift: Exemptions raised to $15M/$30M (single/joint) in 2026, indexed for inflation.
• AMT & Itemized Deductions: AMT exemption amounts extended; replaces Pease limitation with a cap on deduction benefit (35¢ per dollar for top earners).
• Other Notable Deductions:
  • No tax on qualified tips (up to $25K) and overtime (up to $12.5K/$25K) for 2025–2028.
  • Permanent changes to mortgage interest, wagering losses, casualty losses, and charitable contributions for both itemizers and non-itemizers.

Business Tax Provisions

• Bonus Depreciation: Permanent 100% first-year bonus depreciation for assets placed in service after Jan. 19, 2025.
• Sec. 179: Expensing cap increased to $2.5M (phase-out begins at $4M).
• R&D Expenses: Allows immediate expensing of U.S.-based R&D starting in 2025; retroactive relief available for prior years for small businesses.
• Interest Deduction (Sec. 163(j)): EBITDA-based limitation reinstated; adjusted taxable income excludes Subpart F, GILTI, and Sec. 78 amounts.
• Employer-Provided Child Care: Credit increased to $500K; higher rates for qualifying small businesses.
• Opportunity Zones: Program made permanent with narrowed eligibility criteria starting in 2027.

International Tax Provisions

• GILTI & FDII: Deduction percentages lowered, effective tax rate increased to 14%; FDII and GILTI renamed and restructured.
• Foreign Tax Credit: Limitations adjusted to restrict foreign deductions allocable to GILTI.

Superfund Excise Tax Repeal

While not included in either the House-passed bill (H.R. 1) nor the Senate Finance Committee’s proposal, Senator Ted Cruz (R-TX) is separately leading an effort to repeal the Superfund (chemical) excise tax imposed under the 2021 Infrastructure Investment and Jobs Act.

Cruz reintroduced the Chemical Tax Repeal Act, with strong support from industry groups such as the U.S. Chamber of Commerce, American Chemistry Council, and others. The repeal effort aims to either be included in the final reconciliation package or advance as standalone legislation.

On May 14, 2025, the House Ways and Means Committee approved a 389-page tax reform proposal that would extend key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) and introduce new tax breaks for individuals and businesses. The proposal also scales back a number of recent clean-energy tax credits. According to the Joint Committee on Taxation, the package would reduce federal revenue by $3.819 trillion over the next decade.

This bill is part of a larger budget reconciliation process, which allows Congress to fast-track certain tax and spending changes. Because of this process, the bill can pass the Senate with a simple majority instead of the usual 60 votes. However, only items that directly affect government spending or revenues can be included.

The next step is for the proposal to be merged into a broader budget bill by the House Budget Committee. If approved by the House and Senate, the final version would go to the President for signature and become law.

The following are the key highlights of the proposed legislation:

TCJA Extensions and Updates

• Income Tax Brackets: TCJA’s lower tax rates made permanent, with inflation adjustments.
• Standard Deduction: Increased deduction levels extended permanently, with added boosts through 2028.
• Child Tax Credit: Increased to $2,500 per child through 2028, then permanently set at $2,000 (adjusted for inflation).
• Business Income Deduction (Sec. 199A): Increased to 23%, expanded to new investment income types, and made permanent.
• Estate & Gift Tax: Exemption raised to $15 million, indexed for inflation.
• AMT Relief: Higher exemption amounts made permanent.
• SALT Cap Repeal: $10,000 cap eliminated; replaced with a more complex income-based limit.

New Tax Breaks for Individuals

• No Tax on Tips or Overtime: Above-the-line deductions for reported tips and qualified overtime wages.
• Senior Bonus Deduction: $4,000 deduction for taxpayers age 65+, phased out for higher incomes.
• Car Loan Interest Deduction: Available through 2028 for U.S.-assembled vehicles.
• 529 Plan Expansion: Includes K–12, homeschool, and credentialing expenses.
• Charity Deduction for Non-Itemizers: Restored up to $300 for joint filers (2025–2028).
• Adoption Credit: Up to $5,000 refundable.
• New “MAGA” Savings Accounts for Children: Tax-favored accounts for children under 8, with optional $1,000 government seed deposits.

Business Tax Incentives

• Bonus Depreciation: Restored at 100% through 2029.
• Section 179 Expensing: Cap increased to $2.5 million.
• R&D Costs: Amortization requirement suspended through 2029 for domestic research.
• Interest Deduction Rules: EBITDA-based limit reinstated.
• FDII & GILTI: Scheduled deduction reductions canceled.
• 1099 Reporting Thresholds: Raised to $2,000 and $20,000/200 transactions for certain forms.

Energy Tax Rollbacks

The bill would end or scale back many clean-energy tax credits earlier than scheduled, including:

• Electric vehicle credits
• Home energy upgrades
• Clean hydrogen and nuclear power
• Manufacturing and fuel production credits

The proposal still needs to pass the House Budget Committee, then move to a full vote in both the House and Senate. Because it’s part of the budget reconciliation process, it can become law with a simple majority vote in the Senate. If both chambers approve, it will go to the President for final signature.  If passed, this bill would permanently extend many TCJA tax cuts, introduce new deductions for working individuals and seniors, and significantly reduce clean-energy incentives.

In today’s global business landscape, many U.S. companies operate through subsidiaries in countries where local corruption and pressure from government officials remain persistent issues. A recurring question we hear from clients is whether the U.S. parent company faces legal risk when a foreign subsidiary makes a payment to local officials under coercion or threat. The answer is yes—such payments can create significant exposure under U.S. law.

The Foreign Corrupt Practices Act (FCPA), a key federal statute designed to combat international corruption, applies to U.S. companies and their foreign subsidiaries alike. The FCPA prohibits offering, promising, or giving anything of value to foreign government officials for the purpose of obtaining or retaining business or securing any improper advantage. This prohibition applies even if the payment was made under duress, and even if the U.S. parent company did not directly authorize the payment. In fact, a parent company can still be held liable if it knew, or should have known, about the conduct of its foreign affiliate.

Moreover, the FCPA includes provisions requiring public companies to maintain accurate books and records and implement internal controls. Payments made to foreign officials—if not properly recorded or inaccurately described in the company’s books—may also trigger violations of these accounting rules. This is true even if the bribe was paid by a subsidiary operating entirely outside of the United States. Mislabeling a cash payment as a routine service expense, for example, could lead to serious consequences if discovered.

Violations of the FCPA can result in both civil and criminal penalties. The U.S. Department of Justice and the Securities and Exchange Commission actively enforce the law, and companies have faced multi-million-dollar fines, reputational damage, and even criminal prosecution of individual executives. For publicly traded companies, the risk of shareholder lawsuits and regulatory scrutiny adds another layer of exposure.

To mitigate these risks, it is essential that U.S. companies adopt and enforce robust anti-corruption policies that apply globally. Local management and finance teams at foreign subsidiaries should be trained on anti-bribery laws and encouraged to escalate any suspicious or coercive demands. Companies should ensure that appropriate reporting procedures are in place and that internal audit and compliance functions are equipped to detect and respond to red flags. If questionable payments have already occurred, it is critical to consult legal counsel without delay and consider whether voluntary disclosure to authorities may be advisable.

The IRS has issued final regulations (T.D. 10027) detailing how U.S. citizens, residents, and certain trusts must report and pay taxes on gifts and bequests received from covered expatriates. These new rules take effect on January 1, 2025, requiring affected recipients to file Form 708 to report and pay any applicable tax.

Under the final regulations, a 40% tax applies to covered gifts and bequests received from covered expatriates, though a credit is available for foreign gift and estate taxes paid. A covered expatriate is defined as an individual who relinquished U.S. citizenship or residency and meets specific income, net worth, or tax compliance criteria. The regulations clarify that the tax applies only to gifts and bequests received on or after January 1, 2025, despite previous uncertainty regarding retroactive enforcement.

Sec. 877A(g)(1) defines a covered expatriate as an individual who expatriates on or after June 17, 2008, and on the expatriation date: (1) has an average annual net income tax liability for the previous five tax years greater than $124,000 (indexed for inflation); (2) has a net worth of at least $2 million; and (3) fails to certify they complied with all U.S. tax obligations for the previous five tax years.

U.S. recipients, including individuals and domestic trusts, bear the responsibility of determining whether a donor is a covered expatriate and whether the transfer qualifies as a covered gift or bequest. If the transferor’s status is unclear, recipients may need to take proactive steps to confirm their tax obligations. Certain transfers, such as those made to spouses or charities, as well as qualified disclaimers, may be excluded from the tax.

Given the complexities of these new regulations, recipients of foreign gifts or bequests should review their potential exposure, coordinate with tax advisors to gather the necessary information, and prepare for Form 708 filing requirements.

For further guidance, consult a tax professional or visit the IRS website.

The U.S. Treasury and IRS recently released updated regulations that reshape how income from digital content and cloud transactions is classified and sourced for tax purposes. These regulations aim to provide clarity and modernize rules to reflect the current digital economy.

The 2025 Final Regulations expand existing tax rules for computer software to cover a wider range of digital content, including books, movies, and music in digital formats. They introduce a simplified approach for classifying transactions by using a "predominant character" rule, which evaluates the primary nature of the transaction rather than breaking it into multiple categories. Additionally, the sourcing of income from sales of digital content transferred electronically has shifted. Instead of determining the source based on where ownership of the content transfers, it is now based on the purchaser's billing address.

In parallel, the 2025 Proposed Regulations focus on how income from cloud transactions is sourced. All cloud transactions are now treated as the provision of services, eliminating the prior distinction between leases and services. To determine the U.S. versus foreign income from these transactions, a new formula-based approach has been proposed. This formula accounts for the role of intangible property, the location of personnel, and the use of tangible property, such as servers and equipment. These components collectively help allocate income geographically.

These changes have significant implications across industries due to the widespread use of digital and cloud-based services. Businesses involved in areas like streaming, digital publishing, or Software-as-a-Service must assess how these regulations influence their tax obligations, both in the U.S. and globally.

The factor-based sourcing approach introduced in the proposed regulations is particularly noteworthy. It evaluates income allocation by analyzing costs related to research and development, employee contributions, and tangible assets like servers. This methodology ensures that tax obligations reflect where the value-driving activities occur.

These regulatory updates highlight the importance of aligning tax strategies with the evolving digital economy. Businesses in industries such as streaming, digital publishing, cloud computing, and Software-as-a-Service should thoroughly analyze the potential impact of these changes on their tax obligations. By understanding how the predominant character rule and the new sourcing methodologies apply to their operations, businesses can proactively manage compliance and optimize tax outcomes. For further details and to review the full text of the 2025 Final and Proposed Regulations, https://www.govinfo.gov/content/pkg/FR-2025-01-14/pdf/2024-31372.pdf & https://www.govinfo.gov/content/pkg/FR-2025-01-14/pdf/2024-31373.pdf

The IRS issued proposed regulations (REG-118988-22) providing comprehensive guidance on Section 162(m)(3)(C), as amended by the American Rescue Plan Act of 2021 (ARPA), P.L. 117-2. These regulations expand the annual deduction limitation on employee remuneration exceeding $1 million, incorporating additional categories of employees into the scope of covered individuals.  Key provisions contained in the proposed regulations include:

Expanded Definition of Covered Employee

Effective for tax years beginning after December 31, 2026, Section 162(m)(3)(C) broadens the definition of "covered employee.”  A covered employee is defined as employee of the taxpayer who meets one of the following criteria:

• Principal Executive Officer (PEO) or Principal Financial Officer (PFO) at any time during the taxable year, or acted in such a capacity, they are considered a covered employee. This includes interim or acting executives who serve in these roles temporarily.

• Any employee whose total compensation for the taxable year ranks among the three highest compensated officers, excluding the PEO and PFO. The total compensation is determined under the rules requiring disclosure to shareholders as per the Securities Exchange Act.

• If an individual was a covered employee in any preceding taxable year starting after December 31, 2026, they remain a covered employee indefinitely, even if they no longer meet the PEO, PFO, or top-three compensation criteria.

Definition of Employee and Compensation

"Employee" is defined under Section 3401(c), encompassing common law employees and corporate officers.  "Compensation" includes amounts that would be deductible but for the Section 162(m) limitation.

Affiliated Group Provisions

The proposed rules detail methods for identifying the five highest-compensated employees within publicly held corporations that are part of an affiliated group.  Compensation paid across the group is aggregated to ensure consistent application of the deduction limitation.

Application of Third-Party Arrangements

Employees providing services through third-party arrangements, such as professional employer organizations, will be treated as employees of the publicly held corporation for Section 162(m) purposes.

Effective Date and Comments

The regulations are proposed to apply to compensation deductible for tax years starting after the later of December 31, 2026, or the publication date of the final regulations in the Federal Register.  Public comments are encouraged and must be submitted by March 17, 2025.

Publicly held corporations must prepare for the expanded scope of covered employees under Section 162(m). Evaluating compensation strategies and ensuring compliance across affiliated groups will be critical as these regulations take effect.  Organizations are encouraged to review the proposed regulations and submit feedback through the Federal eRulemaking Portal.

Link to the proposed regulations 2025-00728.pdf

The IRS has finalized regulations (T.D. 10027) outlining tax obligations under Section 2801 of the Internal Revenue Code, which applies to U.S. citizens, residents, and certain trusts that receive gifts or bequests from "covered expatriates." Released on January 10, 2025, these regulations provide comprehensive guidance on calculating, reporting, and paying the tax using Form 708, the United States Return of Tax for Gifts and Bequests Received from Covered Expatriates. These regulations build upon the proposed rules issued in 2015 and implement provisions of the Heroes Earnings Assistance and Relief Tax Act of 2008 (P.L. 110-245).

Section 2801 imposes a tax at the highest estate or gift tax rate, currently 40%, on gifts and bequests from covered expatriates that exceed the inflation-adjusted annual exclusion, which is $18,000 for 2024. A covered gift includes property acquired directly or indirectly from a covered expatriate, while a covered bequest encompasses property acquired upon the death of a covered expatriate that would have been includible in their gross estate if they were a U.S. citizen or resident at the time of death. The term "covered expatriate" applies to individuals who expatriated on or after June 17, 2008, and, as of the expatriation date, meet at least one of the following criteria: an average annual net income tax liability exceeding $124,000 (indexed for inflation), a net worth of $2 million or more, or failure to certify compliance with all U.S. tax obligations for the previous five years.

Under these rules, U.S. recipients must report covered gifts and bequests on Form 708 for the calendar year in which they are received. The tax liability is determined by reducing the value of the transfers by the applicable annual exclusion and applying credits for any foreign gift or estate taxes paid.

The regulations include provisions that take effect on January 1, 2025, with others becoming applicable on January 14, 2025, upon publication in the Federal Register. Taxpayers affected by these rules should consult with a tax professional to fully understand their obligations under Section 2801 and ensure timely compliance. Here is a link to the actual regulations 2025-00284.pdf