Reporting
requirement for recipients of foreign gifts
International Taxes – If the value
of aggregate foreign gifts that you receive during any tax year exceeds a
threshold amount, you must report each foreign gift to the IRS. A foreign gift
is any amount you receive from a non-U.S. person which you treat as a gift or
bequest. A non-U.S. person is any person other than a citizen or resident of
the U.S. or a U.S. partnership or corporation. The term non-U.S. person also
includes a foreign estate. Foreign gifts don't include qualified tuition or
medical payments made on behalf of the recipient, or gifts which are otherwise
properly disclosed on a return under the separate requirements applicable to
amounts received from foreign trusts.
For
purposes of determining whether the receipt of a gift from a foreign person is
reportable, different reporting thresholds are applied for gifts received from
nonresident alien individuals, and foreign estates, and for gifts from foreign
partnerships, and foreign corporations. So, a U.S. person is required to report
the receipt of gifts from a nonresident alien or foreign estate only if the
total amount of gifts from that nonresident alien or foreign estate is more
than $100,000 during the tax year. Once the $100,000 threshold has been met,
the one who receives the gift must separately identify each gift which is more
than $5,000, but doesn't have to identify the donor.
A
U.S. person must report the receipt of purported gifts from foreign
corporations and foreign partnerships if the total amount of purported gifts
from all such entities during the tax year is more than $10,000, subject to
cost-of-living adjustments. (If the total amount of gifts is more than $15,358
for tax years beginning in 2014; if the total amount of gifts is more than
$15,102 for tax years beginning in 2013.) Once the threshold has been met, the
gift recipient must separately identify all purported gifts from a foreign
corporation or foreign partnership, and provide the name of the donor.
If
you fall within these reporting rules, you have to file Form 3520, Annual
Return to Report Transactions With Foreign Trusts and Receipt of Certain
Foreign Gifts. The form is due on the date that your income tax return is due,
including extensions. The form must be sent to the IRS at the address shown on
the IRS website (irs.gov).
Where
appropriate, we may be able to recommend planning approaches which may allow
you to avoid the reporting requirements. For example, if you are expecting a
gift of $120,000 from a nonresident alien individual or foreign estate, it may
be possible to arrange for the gift to be paid over two years, so that in
neither year does the gift exceed $100,000. If the split gift is the only
foreign gift you receive each year, you will avoid the reporting requirement.
Alternatively, if we can arrange for part of the gift to be made in the form of
qualified tuition or medical payments, the rest of the gift may be reduced
enough to avoid the reporting requirement.
The
penalty for not reporting a foreign gift that must be reported is 5% of the
amount of the gift for each month the failure to report continues, up to a
maximum of 25%. The penalty will be excused if reasonable cause for the failure
to report can be established.
Please
call if you would like us to assist you regarding the requirements outlined
above.
(651) 621-5777, (952) 583-9108, (612) 224-2476, (763)
269-5396
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