As a general rule, foreign gifts of money or property received by a U.S. citizen from a foreign non-resident will be treated as a gift for IRS tax purposes.
IRS gift taxes only applies to the individual making the gift, not the person receiving the gift. Typically, foreign non-residents are not liable for U.S. gift taxes and do not need to report the gift(s). On the other hand, the U.S. citizen who received such gift must file an IRS Form 3520 if, during the current tax year, the money or property received was correctly treated as a gift.
The Form 3520 reporting threshold for a large cash gift received from a foreign non-resident is that a U.S. citizen must report gifts received from a foreign non-resident only if the aggregate amount of the gifts received are valued at more than $100,000 during the taxable year. Once the $100,000 threshold is met, the U.S. citizen must identify each gift that is more than $5,000 individually, and the U.S. citizen is not required to identify the foreign non-resident.
When is IRS form 3520 due?
IRS Form 3520 requires the reporting of foreign gifts a U.S. citizen received during any given year, and is due at the same time the U.S. citizen files their personal income tax return. For 2018, the deadline to file personal income tax returns and IRS Form 3520 (if needed) is Tuesday, April 17, 2018.
What are the penalties if you don’t file on time?
A U.S. citizen who fails to timely, completely, and accurately report large gifts they received from a foreign non-resident within the taxable year will be subject to penalties set forth by the IRS in the Internal Revenue Code (“IRC”) §6039F. The penalty requires the U.S. citizen to pay 5% of the amount of the foreign gift, for each month the required Form 3520 is unreported. The penalty amount may not be greater than 25% of the aggregate amount.
If the U.S. citizen taxpayer demonstrates that the failure to comply with Form 3520’s reporting requirements was due to reasonable cause and not willful neglect, the penalty will not be imposed on the U.S. citizen.
If you find yourself doubting whether you are required to file an IRS Form 3520, please contact us at (786) 837-6787 or email us firstname.lastname@example.org to set up a meeting so we can discuss how to timely report your large cash gifts from a foreign non-resident.
*Disclaimer: This blog post is not intended to be legal advice. We highly recommend speaking to an attorney if you have any legal concerns. Contacting us through our website does not establish an attorney-client relationship.*