A former American who meets an exit test — a covered expatriate — can leave a child only a small yearly allowance before the child owes the top estate-tax rate [1]. A citizen can leave the same child $15,480,000 before the federal estate tax applies. The Internal Revenue Service (IRS) printed both rules in one document on 5 November, when it adjusted dozens of tax figures for 2027 [2]. Neither section points to the other.

At a glance

  • The shift: 2027’s indexed figures set the yearly ceiling on gifts from a covered expatriate.
  • The number: $20,000 — the yearly allowance before the top estate-tax rate lands on the recipient [1].
  • The risk: the tax is the heir’s, who may never hear of it.

Sixteen years, then a form

Congress added Section 2801 to the tax code in 2008 so giving up citizenship could not also erase the estate tax [3]. Treasury issued its first rules for the section only in January 2025, and a filing form appeared this year [5]. A tax with no form is a tax nobody files.

The rule is narrow: Section 2801 borrows the estate tax’s top rate and applies it to what a United States citizen or resident receives from a covered expatriate [3]. The person who receives pays, not the person who gave [3]. A house, a portfolio, a share of a business: any of these becomes a bill in the heir’s hands above a small yearly allowance.

I read this as the least discussed half of the exit choice. Leaving is one event: the leaver marks assets to market — treats them as sold for gain — takes the one-time exclusion the IRS prints, files, pays, and finishes [1]. Section 2801 does not finish; it waits for the next transfer, then bills the relative. That heir was not in the room for the choice, and may not learn of it until an accountant asks where the house came from.

The relief is real, and it matters more than the rate. Property listed on the expatriate’s timely gift or estate return stays outside the charge [3]. Transfers that qualify for a marital or charitable deduction also escape, and any inheritance tax paid abroad lowers the bill. The section reaches value that escaped a transfer tax somewhere else.

Who counts as a covered expatriate

Three tests decide that status, and two of them changed for 2027.

Test 2027 threshold What changed
1. Average yearly net income tax in the five years before leaving $218,000 Up from $211,000 [7]
2. Net worth on leaving $2 million No yearly adjustment line, unlike the income figure [5]
3. Five years of clean tax filings on Form 8854 (the departure tax statement) Pass/fail A paperwork test, not a wealth test [6]

So the gate is not just wealth: a careful family with a small estate can pass all of it, while a disorganised one cannot.

The leaver’s own tax-free amount for 2027 is $940,000, up $30,000 from this year [1]. The allowance edges up by rounding, so it climbs far slower than the estate-tax tax-free amount above it.

By the numbers

  • $20,000 a year: the gifts and bequests one American may receive from a covered expatriate before the charge applies [1].
  • $192,000: the tax on a $500,000 covered bequest received in 2027, after the yearly subtraction [1].
  • 40%: the top rate the section borrows from the estate-tax table [4].

The Section 2801 return, Form 708, is due eighteen months after the year of receipt. The first returns, covering anything received in 2025, land in June 2027 [5]. Late filing and late payment carry the ordinary penalties.

A trust funded by a covered expatriate can spread the same charge across its payouts by a formula Treasury’s rules define [8].

What I’d watch: The lawyers who work this corner now ask two questions first: was the giver a covered expatriate at that moment, and did the transfer appear on a filed return. I keep landing on the calendar rather than the rate.

The gap is the bill

The distance between the two figures is deliberate. The section was written to leave a departing family roughly where it stood before it left, by collecting at the American end what the estate tax would have taken at the border [3]. The allowance is a small yearly nod to that idea. It is tied by law to the gift-tax exclusion — the yearly amount a person can give without filing a gift-tax return — so it moves whenever that does.

None of that tells you how much is actually reported. I have not seen any source that measures filings under the section. Property listed on the expatriate’s own return stays outside the charge. So the answer turns on two facts an heir often cannot prove alone: who the giver was at that moment, and what was filed [3].

The figure to carry away is not the rate. It is the pair — a citizen’s tax-free amount and a former citizen’s allowance — and the gap between them. That gap is what a family pays for a choice made once, years earlier, by someone else. The same exit instinct now shows up in Italy’s proposed 26% exit tax.

Related reading

Sources