Is there a Foreign Gift Tax in the US?
Form 3520 & Foreign Gift Tax: When it comes to gifts from foreign persons, it is important to distinguish between the tax and reporting rules. The Form 3520 is used to report the value of a gift received from a foreign person. More specifically, when a U.S. person receives a gift from a foreign person (or multiple transactions from the same person, in the same tax year aka “aggregate value”), The U.S. person reports the value of the annual gift when it exceeds the threshold requirement for reporting.
As to the taxation of foreign gifts, the general rule is that gifts from foreign persons are not taxed.
A key exception is when a foreign person (Non-Resident Alien or “NRA”) gifts U.S. real estate.
Form 3520 is not an Income Tax Form
There is no specific gift tax on receiving a gift from a foreign person.
In other words, if a U.S. person receives a gift from a foreign person, that specific transaction is not taxable.
Instead, the U.S. person must report the gift (when the threshold is met) on IRS form 3520.
Why isn’t the Gift Taxable?
The reason why the gift is not taxable to the U.S. person, is because the gift is not income.
The reason the gift is not taxable to the foreign person giving the gift, is because non-resident alien (NRA) is not required to comply with IRS gift tax rules (absent gifts of USRPI).
Nevertheless, the IRS wants to know about the foreign gifts received by the U.S. Person when the threshold for reporting is met.
*If the gift generates income (such as rental income, interest, dividends and/or capital gains) then the income generated from the gift is taxable, and that income would be included on the U.S. person’s tax return.
Unreported Foreign Gift?
When a person meets the threshold for filing a gift but fails to do so, they may be subject to fines and penalties.
If a person receives a CP15 Notice, they are under strict time requirements to reply — and time is of the essence to lodge a timely response.
Meet our international Tax Law Team
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure, including help clients with late reporting of Forms 3520 and 3520-A.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Interested in Learning More about our Firm?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.