Gift From Foreign Person

Gift From Foreign Person

Gift From Foreign Person Reporting

Gift From Foreign Person: When U.S. Persons receive gifts from foreign persons, the IRS may want to know about it. Not all gifts have to be reported. Rather, if the U.S. Person receives a gift that exceeds the threshold for reporting, only then must the gift be reported. The threshold requirements for reporting vary based on whether the gift is received from a Foreign Individual or Foreign Entity. 

We will summarize how to report a Gift From Foreign Person Individual, Estate or Entity to the IRS.

Gifts from Foreign Individual or Estate

The threshold for reporting a gift from a foreign person individual is relatively high.

The gift is only reportable when the threshold is met.

As provided by the IRS:

“More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts or bequests.”

Related Parties Rule

Complicating the otherwise simple analysis are the Related Person Rules.

As provided by the IRS:

“To calculate the threshold amount ($100,000), you must aggregate gifts from different foreign nonresident aliens and foreign estates if you know (or have reason to know) that those persons are related to each other (see Related Person, earlier) or one is acting as a nominee or intermediary for the other. For example, if you receive a gift of $75,000 from nonresident alien individual A and a gift of $40,000 from nonresident alien individual B, and you know that A and B are related, you must answer “Yes” and complete columns (a) through (c) for each gift.

If you answered “Yes” to the question on line 54 and none of the gifts or bequests received exceeds $5,000, do not complete columns (a) through (c) of line 54. Instead, enter in column (b) of the first line, “No gifts or bequests exceed $5,000.”

Two important Tips to Remember:

  • It can be a single gift or series of gifts from the same person in the same year; and
  • Related parties can be used to aggregate gift amounts

Gifts from Foreign Entities

The threshold for reporting gifts from foreign entities is significantly lower. In addition, the related persons rules apply as well.

As provided by the IRS:

“If you received aggregate amounts in excess of $16,388 during the current tax year that you treated as gifts from foreign corporations or foreign partnerships (or any foreign persons that you know (or have reason to know) are related to such foreign corporations or foreign partnerships).

For example, if you, a calendar-year taxpayer during 2019, received $8,000 from foreign corporation X that you treated as a gift, and $10,000 that you received from nonresident alien A that you treated as a gift, and you know that X is wholly owned by A, you must complete columns (a) through (g) for each gift.”

Penalties for Not Reporting Foreign Gifts

The IRS routinely assesses and enforces penalties for not reporting foreign gifts.

As provided by the IRS:

Section 6039F.

In the case of a failure to timely report foreign gifts described in section 6039F, the IRS will determine the income tax consequences of the receipt of such gift, and 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.

Form 3520 Foreign Gift Reporting Specialist Team

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