Foreign Gift Tax

Is there a Foreign Gift Tax in the US?

Form 3520 for Foreign Gift Tax: The Form 3520 is a reporting form, not a tax form. While the taxation and reporting rules may intersect and overlap on occasion, they are not identical. The Form 3520 is not used to identify any tax related issues per se. Rather, the form is used by U.S. Persons who receive a gift from a foreign person (or multiple transactions from the same person in the same tax year), and the aggregate value of the annual gift exceeds the threshold requirement.

Form 3520 is not an Income Tax Form

There is no specific “foreign gift tax.”

In other words, if a U.S. person receives a gift from a foreign person, that transaction is not taxable.

Rather, the U.S. person must report the gift (when the threshold is met) on form 3520.

That is because the foreign, non-resident is not required to comply with IRS rules, and/or file the 709 gift tax return similar to their U.S. counterpart who gives a gift that exceeds the annual exclusion amount. Still, the IRS wants to know about the foreign gifts you receive.

Why isn’t the Gift Taxable?

The reason why the gift is not taxable, is because the gift is not income.

A typical income tax return, such as a 1040, is used to reporting income.

Since a gift is not income, there is no income tax required. But, if the gift generates income, then the income generated from the gift is taxable, and would be included on the filer’s U.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 the person receives a CP15 Notice, they are under strict time requirements to reply.

Foreign Gift, Trust, and Inheritance Tax Specialist 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.

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