The Weirdest Tax I Didn't Know Existed.

Taxes are complex. I am not an expert in every tax but I generally am aware of most major federal tax laws. Here’s one law that is 17 years old that I was not aware of.

In 2008 a new law was passed to make sure estate and gift taxes apply to gifts/bequests from former U.S. citizens or green card holders. A U.S. citizen or resident who receives a covered gift or bequest from a “covered expatriate” is subject to a special tax on the value of the gift.

The tax is imposed at the higher of:

(1) highest estate tax rate (which is currently 40%); or

(2) the highest gift tax rate in effect on the date of receipt (which is currently 40%), but only to the extent the gift's or bequest's value exceeds the annual exclusion amount in effect for the year ($19,000 for 2026)

A covered gift or bequest is generally any property acquired by gift directly or indirectly from an individual who is a covered expatriate at the time of the acquisition, or directly or indirectly by reason of the death of an individual who was a covered expatriate immediately before death.

This is shocking as the U.S. person inheriting an estate from a covered expatriate would pay U.S. estate taxes on a foreign estate even if all assets were foreign in nature.

Since 2008 there has been no way to report and pay this tax so no tax has ever been collected but a draft tax form has now been released to collect the taxes (and it’s retroactive to 2008 unless Congress changes the law).