Gifts from India Non-Resident are Disclosed on Form 3520

Gifts from India Non-Resident are Disclosed on Form 3520

Gifts from India Non-Resident Disclosure on Form 3520

One of the most (unnecessarily) complicated aspects of international tax compliance and reporting is when a US person receives a gift from a foreign person — such as from India. While under most circumstances, receiving a gift from a foreign person in India is not taxable in the United States — the gift is still reportable if the threshold requirements for reporting are met. The threshold filing requirements vary based on whether the gift is from a foreign individual in India, an Indian entity –– or a foreign trust distribution. The requirements for reporting the foreign gifts derive from Internal Revenue Code section 6039F, resulting in the US Taxpayer having to file a Form 3520. The reason why reporting foreign gifts is so important is because the failure to report the foreign gift timely can result in a 25% penalty on the value of the gift. For example, if an Indian parent (non-resident alien) gifted their US person child $800,000 to purchase a new home — $200,000 of that gift can be subject to penalties. Let’s go to the basics of how and when to report gifts from India to the US government on form 3520.

Gifts from India Non-Resident Example 1 from Foreign Individual

Michelle is a Lawful Permanent Resident (aka “Green Card Holder” who resides in the United States. She recently graduated medical school and her foreign national, non-resident parents gifted her $300,000 as help for a down payment on a home since it was hard for her to obtain credit as a new graduate. Since the gift is from a foreign person US person – despite that it is really just a gift from her parents – Michelle is required to report the gift on Form 3520.

Gifts from India Non-Resident Example 2 from Foreign Entity

Jessica is a US citizen but her parents still reside in India and are non-resident aliens. Jessica’s parent’s friends own a business in India, and they heard that Jessica just moved to Los Angeles and they want to give her a gift. They decided to gift her $50,000 from their Indian business. Since this is a gift from a foreign entity to a US person, Jessica is required to report this gift on Form 3520. The threshold requirements for gifts received from a foreign entity are much lower than an individual – and hovers around $17,000 USD.

Gifts from India Non-Resident Example 3 from Foreign Inheritance

Alan is a US Resident whose Grandma recently passed away in India. She was a foreign, non-resident alien who left Alan $550,000 as an inheritance. Since the inheritance is a type of gift from a foreign person for reporting purposes, Alan must report the inheritance on Form 3520.

Gifts from India Non-Resident  Example 4 from Foreign Trust Distribution

Kevin’s foreign, non-resident grandma in India has a foreign trust in which Kevin is one of the discretionary beneficiaries. Kevin receives a trust distribution in the amount of $3000. Forgetting for a moment all the complexities involving foreign grantor trusts versus non-grantor trusts; DNI versus UNI, etc. – from a baseline perspective, Kevin must report before trust distribution he received because there is no minimum threshold requirement for reporting the receipt of a trust distribution.

Related Party Rules for Indian Gifts

It is important to note, that related party rules apply to Form 3520 – Family members due to US person to get the value of those gifts may be aggregated to determine whether or not the threshold requirement is met.

DIIRSP Revised in November 2020

In prior years, the Delinquent International Information Return Submission Procedures could automatically avoid penalties in any situation in which a taxpayer had undisclosed international tax and reporting forms — but no unreported income. Since November 2020, the program changed and the penalty abatement is no longer guaranteed. It is important to work with an experienced Board-Certified Tax Team specializing exclusively in international tax compliance matters.

Form 3520 Amnesty

We have a separate detailed article on the different IRS International Disclosure options for Form 3520, FBAR, FATCA and other reporting requirements that may have been missed.

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