Overview of Reporting Foreign Gifts
If you are a U.S. person who received foreign gifts of money or other property, you may need to report these gifts on Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.
Form 3520 is an information return, not a tax return, because foreign gifts are not subject to income tax. It is due along with your Form 1040.
Note: A gift to a U.S. person does not include amounts paid for qualified tuition or medical payments made on behalf of the U.S. person.
Key Definitions
Before moving ahead, here are some important definitions:
- Foreign gift: 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.
- Foreign person: Nonresident alien individual or foreign corporation, partnership, or estate.
When Must You File Form 3520?
There are two instances where you must file Form 3520:
1. Large Gifts or Bequests from Nonresident Aliens or Foreign Estates
- Threshold: Gifts or bequests valued at more than $100,000
- Sources: Nonresident alien individuals or foreign estates (including foreign persons related to them)
2. Gifts from Foreign Corporations or Partnerships
- Threshold: Gifts valued at more than $13,258 (adjusted annually for inflation)
- Sources: Foreign corporations or foreign partnerships (including foreign persons related to them)
Important Aggregation Rule
You must aggregate gifts received from related parties.
Example:
If you receive $60,000 from nonresident alien A and $50,000 from nonresident alien B, and you know or have reason to know they are related, you must report the gifts because the total exceeds $100,000.
- Report them in Part IV of Form 3520.
- Treat gifts from foreign trusts as trust distributions and report them in Part III of Form 3520.
Contact Information
MANSOOR ANSARI J.D., LL.M. (TAX)
International Gifts Tax Attorney Atlanta
Frequently Asked Questions
What is considered a foreign gift for tax reporting purposes?
A foreign gift is any money or property received by a U.S. person from a foreign person that is treated as a gift or bequest and excluded from gross income. These do not include qualified tuition or medical payments made on the recipient’s behalf.
When is Form 3520 required to report foreign gifts?
You must file Form 3520 if you receive more than $100,000 from a nonresident alien or foreign estate, or more than $13,258 (adjusted annually) from a foreign corporation or partnership. These thresholds are based on total aggregated gifts from related parties.
Are foreign gifts taxable by the IRS?
No, foreign gifts are not considered taxable income. However, they must still be reported using Form 3520, which is an informational return, not a tax return.
How do I report gifts from foreign trusts?
Gifts from foreign trusts are treated as trust distributions and must be reported in Part III of Form 3520 rather than Part IV, which is used for regular foreign gifts and bequests.
What happens if I fail to file Form 3520?
Failure to file Form 3520 when required may result in significant penalties. The IRS may impose a fine equal to a percentage of the unreported gift or distribution, in addition to potential interest and further legal action.