Tax Law FAQ

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What are the IRS reporting obligations for an individual who receives a foreign gift or inheritance?

In general, a foreign gift is money or other property received by a U.S. person from a foreign person that the recipient treats as a gift or bequest and excludes from gross income. A “foreign person” is a nonresident alien individual or foreign corporation, partnership, or estate.

The individual must file Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, if, during the current tax year, the individual treats the receipt of money or other property above certain amounts as a foreign gift or bequest. Include on Form 3520:

  • Gifts or bequests valued at more than $100,000 from a nonresident alien individual or foreign estate (including foreign persons related to that nonresident alien individual or foreign estate); or
  • Gifts valued at more than $15,601 for 2015 (adjusted annually for inflation) from foreign corporations or foreign partnerships (including foreign persons related to the foreign corporations or foreign partnerships).

There are special rules applicable to gifts or bequests from covered expatriates.

See www.irs.gov (Gifts from Foreign Person).

Penalties

In the case of a failure to report foreign gifts described in section 6039F, a penalty equal to 5% of the amount of such foreign gifts applies for each month for which the failure to report continues (not to exceed a total of 25%). No penalty will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect. See section 6039F for additional information.  (See Instructions for Form 3520 (2016), Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.)

Individuals who have received, or plan to receive, foreign gifts should contact competent tax counsel, who can explain the options and come up with a defensible plan.

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