Is there a Foreign Gift Tax in the US?
Form 3520 & Foreign Gift Tax: The Form 3520 is a reporting form, not a tax form per se. While the IRS offshore taxation and reporting rules may overlap — they are not identical. When it comes to gifts from foreign persons and Form 3520, the form is not used to disclose taxes. Rather, the form is used by U.S. Persons who receive gifts from foreign persons (or multiple transactions from the same person, in the same tax year aka “aggregate value”), and must report the value of the annual gift when it exceeds the threshold requirement for reporting.
Form 3520 is not an Income Tax Form
There is no specific gift tax on receiving a gift from a foreign person.
In other words, if a U.S. person receives a gift from a foreign person, that specific transaction is not taxable.
Instead, the U.S. person must report the gift (when the threshold is met) on IRS form 3520.
Why isn’t the Gift Taxable?
The reason why the gift is not taxable to the U.S. person, is because the gift is not income.
The reason the gift is not taxable to the foreign person giving the gift, is because non-resident alien (NRA) is not required to comply with IRS gift tax rules (absent gifts of USRPI).
Nevertheless, the IRS wants to know about the foreign gifts received by the U.S. Person when the threshold for reporting is met.
*If the gift generates income (such as rental income, interest, dividends and/or capital gains) 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 a person receives a CP15 Notice, they are under strict time requirements to reply — and time is of the essence to lodge a timely response.
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