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What are the Rules for Receiving Gifts from a Foreign Person, Estate or Corporation?

June 27, 2023

Are you a U.S. Citizen, Green Card Holder, or tax Resident coming to America? Worried about your filing requirements if your family or friends send you money or gifts? Worry no more!

*Editor's Note: This blog has been updated as of June 2023 for accuracy and comprehensiveness.

Gifting and reporting requirements from gifts or bequests from foreign persons, estates or companies can be confusing, but hopefully the following information can give you the peace of mind you need to be comfortable accepting gifts from overseas!

Who is a U.S. Person?

Naturally, a U.S. person can be a citizen, a green card holder, or an individual who has met the substantial presence test. Surprisingly, if you are born outside of the United States, but one or both of your parents are U.S. citizens, you may be deemed a U.S. person.

Filing Requirements

Not all gifts and bequests must be reported, however, gifts from foreign persons, foreign estates or corporations exceeding $100,000 in value in aggregate must be reported on Form 3520 for the respective taxable year. Each gift received in excess of $5,000 must be separately reported, with a corresponding date.

What can be Gifted?

Gifts often vary in size and shape. Whether a gift of stock is given, a car, or a gift of cash, it is important to keep in mind the fair market value of the gift. If the amount exceeds $100,000, it must be reported.

Filing Deadlines and Procedures

Form 3520 must be separately filed from Form 1040; however, the filing dates are the same. They must be filed by April 15 if you reside in the United States and by June 15th if you live overseas. If an extension of time to file is requested, the due date is pushed back by six months to October 15.

A nuance, and often cumbersome aspect of filing a Form 3520, is that there are no possibilities to file electronically. The IRS has made some technological improvement towards advancing their capabilities by allowing electronic signature for the 2021 tax year, but it must still be paper filed.

Penalties and How to Avoid Them

The penalties for failure to file, late, or incomplete Form 3520 are some of the steepest and most punitive penalties in the books because of the sheer size of gifts received. Currently, they are five percent of the value of the gift or bequest for each month the form is not reported, and they are not to exceed 25 percent of the entire gift value.

This may seem very black and white, but the best way to avoid penalties is to file Form 3520 in an accurate and timely manner. The form is informational only. In today’s current situation with the pandemic, labor shortage, and mail delays, we recommend to send any paper filed returns via certified mail to have a tracking number.

KLR’s vast knowledge of international taxation, along with our expertise in gift, and estate tax planning can guide you and your family into the right direction and ensure you live a hassle-free life knowing that your reporting requirements are in good hands! Give us a call today.

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