U.S. Gifts or Inheritances Received by U.S. Citizens or Resident Aliens
If all of the comments submitted to my article on annual exclusion gifts versus lifetime gifts are any indication, there are a lot of people out there who have a lot of questions about the U.S. gift tax laws. If you are a U.S. citizen or resident alien and you receive a gift or inheritance from another U.S. citizen or resident alien, then the U.S. gift tax and inheritance tax laws will apply to your situation. Refer to the following articles which should give you a good overview of these laws:
Overview of U.S. Gift Taxes
- What is the Gift Tax and Who Pays It?
- What Gifts Are Subject to the Gift Tax?
- How is the Gift Tax Calculated?
- What is an Annual Exclusion Gift?
- What is the Lifetime Exemption From Gift Taxes?
- When is a Gift Tax Return Required to Be Filed?
- Best Gift Tax Advice Ever
Overview of U.S. Inheritance and Estate Taxes
- What is the Federal Estate Tax?
- When is a Federal Estate Tax Return Required to Be Filed?
- What's the Difference Between an Estate Tax and an Inheritance Tax?
- State Estate Tax and Exemption Chart
- State Inheritance Tax Chart
Foreign Gifts or Inheritances Received by U.S. Citizens or Resident Aliens
But what if you are a U.S. citizen or resident alien and you receive a gift or inheritance from someone who is not a U.S. citizen or resident alien? Or how about a gift or inheritance received from a foreign estate, corporation or partnership? Are there any special rules governing gifts and inheritances received from foreign individuals, estates, corporations or partnerships?
You bet. Below you will find the applicable rules and reporting requirements with regard to foreign gifts and bequests received by U.S. citizens and resident aliens.
- The information below pertains to gifts and inheritances received from foreign individuals, estates, corporations and partnership. It does not address gifts and bequests received from foreign trusts, which is beyond the scope of this article.
- In addition, this article does not address the gift and inheritance tax laws of the country where the foreign person or entity making the gift or bequest resides. The foreign person or entity must consult with tax experts in their country to address gift and inheritance laws on their end of the gift or inheritance.
IRS Reporting Requirements for Foreign Gifts or Inheritances Received by U.S. Citizens or Resident Aliens
In order to determine if your foreign gift or bequest must be reported to the IRS, ask yourself the following questions:
- Is it foreign income or a foreign gift or bequest? The first step in determining if you need to report your foreign gift or bequest to the IRS is decide if the cash or property received is income or can be characterized as a gift. Income, of course, would be reported as income on your personal income tax return. Amounts paid for qualified tuition or medical bills on behalf of a U.S. person are not considered gifts or income (refer to What Gifts Are Not Subject to the Gift Tax? for more information on this topic). If the money or property received from the foreign person or entity can be rightfully characterized as a gift or bequest, then proceed to #2 to learn about the IRS reporting thresholds.
- What is the value of the foreign gift or bequest? If during the course of the year:
(a) The value of the gifts and bequests received from a nonresident alien individual or foreign estate, which must also include gifts or bequests received from foreign persons related to the nonresident alien individual or foreign estate, exceeds $100,000, or
(b) The value of the gifts received from foreign corporations or foreign partnerships, which must also include gifts received from foreign persons related to the foreign corporations or partnerships, exceeds $14,723 in 2012 or $15,102 in 2013 (this value is adjusted annually for inflation), thenYou must file IRS Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.
- When is IRS Form 3520 Due? Use IRS Form 3520 to report foreign gifts or bequests you received during the course of any given year at the same time you file your personal income tax return. In other words, IRS Form 3520 is due on the same date as your annual income tax return, including extensions. For example, $120,000 in foreign gifts and bequests received during 2012 need to be reported on IRS Form 3520 on or before April 15, 2013, provided that you have not timely requested an extension to file your 2012 personal income tax return.
- Are there any penalties for not timely filing IRS Form 3520? You may be subject to a penalty equal to 5%, but not to exceed 25%, of the amount of the foreign gift or bequest for each month for which failure to report continues. You may also be subject to a penalty if you file IRS Form 3520 but it is incomplete or inaccurate.
- Where can you find more information about IRS Form 3520? For more information about IRS Form 3520, refer to the following documents posted on the IRS website: Gifts from Foreign Person; current IRS Form 3520; and current Instructions for IRS Form 3520.