CPA for U.S. Citizens Who Received a “Gift from a Foreign Person”
Keeping up with frequently changing tax laws could be exhausting for taxpayers. For example, a taxpayer that has recently received a gift or bequest from a foreign person may not be aware of all the tax implications of accepting that gift. However, talking to a CPA that is familiar with the tax laws surrounding gifts from a foreign person will allow you to easier comply with U.S. tax laws.
At U.S. Tax Help, we want you to know that you are in good hands. CPA Ted Kleinman has over three decades of experience and knowledge in dealing with IRS tax regulations, and he will ensure that your tax needs are addressed. To make an appointment about your foreign gift tax liability, call (541) 362-9127.
Tax Rules for Gifts from a Foreign Person to a U.S. Citizen
The Internal Revenue Service (IRS) defines a foreign gift or a bequest as any sum of money that is given by someone that is not a U.S. person and that the recipient excludes from their income. However, if a foreign person pays the recipient’s tuition or medical expenses that qualify as an exception, this will not need to be reported to the IRS. A foreign person is defined as one of the following:
- Nonresident aliens
- Foreign corporations or partnerships
- Foreign estates
- Domestic trusts that are owned by a foreign person
The tax reporting rules for a taxpayer may vary depending on the type of foreign person they received a gift or bequest from. There is also a threshold for reporting gifts and bequests. If the value of the items or money given to the recipient does not exceed the threshold, they will not be required to pay taxes for them.
Gifts from Nonresident Aliens or Foreign Estates
If you were given a gift or bequest from a nonresident alien or a foreign estate, you need to report the items or money you received if their aggregate value exceeds $100,000 during the taxable year. Furthermore, once the gifts awarded to the recipient reach over $100,000, the recipient is required to identify every gift that is worth more than $5,000.
Gifts from Foreign Corporations or Partnerships
For a gift or bequest that is awarded by a foreign corporation or partnership, the recipient must report the items when the aggregate value of all items exceeds $16,388. Note that this value is subject to change every year depending on annual inflation. Each gift from a foreign partnership or corporation must be separately identified, and the company’s name must be reported to the IRS; the IRS may then decide whether to recharacterize the gift.
There is more information that you should know about filing your tax return after receiving a gift from a foreign person. Contact our CPA for U.S. citizens who received a gift from a foreign person to assess their tax liability as a gift recipient.
How to File Tax Returns for Gifts from a Foreign Person
To report income from a gift from a foreign person, you will need to file Form 3520 as a separate document from your income tax return. A Form 3520 must be filed no later than April 15. Note that a United States citizen that resides outside the country and Puerto Rico or citizens that are in the military on duty have their deadline extended to June 15th.
If you need more time to file your Form 3520, you have the option of filing for an extension with the IRS. If the IRS agrees to the extension, you will have until October 15th to file.
Penalties for Failing to Report Gifts from a Foreign Person
When the recipient of a gift or bequest does not file their Form 3520 before the deadline elapses, they will be subject to penalties that could become severely expensive for a taxpayer. For instance, here are some of the penalties that could be imposed on a taxpayer:
- Penalty of 35% of the gross value of a gift awarded by a foreign trust
- A penalty of 5% for every month that the taxpayer does not report income from the gifts received (total penalty will not exceed 25%)
It is important to note that these are not the only penalties that could be imposed by the IRS. The assessment of penalties will continue until the taxpayer has become compliant with reporting regulations for foreign gifts.
There are some circumstances where the IRS may decide that a taxpayer does not have to pay the penalty for failing to fill out a Form 3520. If a taxpayer can show reasonable cause for missing the deadline and that their actions were not the result of willful neglect, the IRS may waive the penalty.
You should never assume that you have the ability to get your penalties dismissed. However, our CPA for U.S. citizens who received a gift from a foreign person is intricately familiar with the laws regarding foreign gifts, and we are ready to offer you our assistance.
Talk to Our CPA for U.S. Citizens Who Received a Gift from a Foreign Person
If you want to know about how accepting a foreign gift could affect the filing of your tax returns, contact a CPA for U.S. citizens who received a gift from a foreign person. Learning that you have to pay taxes from a gift is likely an unexpected piece of information for a taxpayer. Fortunately, U.S. Tax Help is here to assist you with reporting taxes for a gift. Contact us at (541) 362-9127 to schedule a consultation or use our website.