Do I Need to Report Gifts From a Foreign Person?

Receiving a gift from someone in another country is not a taxable event for the U.S. recipient. This means you do not owe U.S. income tax or a specific gift tax on the value of the property you receive. However, this does not mean no action is required.

The concern for a U.S. person is not taxation, but a set of reporting requirements from the Internal Revenue Service (IRS). Failing to comply with these rules can lead to substantial penalties, even when no tax is due on the gift itself.

Defining a Foreign Gift

To understand the reporting rules, one must first understand what constitutes a “gift” and who is a “foreign person.” For tax purposes, a gift is a transfer of property from one person to another for which the recipient does not provide full and adequate consideration in return. This means you received something of value without paying the giver its full market price.

The factor in these reporting rules is the status of the giver. A “foreign person” is not a U.S. citizen and not a U.S. resident. This can be a nonresident alien individual, which is someone who is not a U.S. citizen and does not meet the IRS’s green card or substantial presence tests for residency. The term also encompasses foreign entities, such as a foreign corporation, a foreign partnership, or a foreign estate or trust.

Reporting Thresholds

The requirement to report a foreign gift is triggered when its value exceeds specific dollar amounts within a tax year. These thresholds differ based on the type of foreign donor. The purpose of these rules is to provide the IRS with information about large transfers of wealth into the U.S. from foreign sources.

For gifts received from a nonresident alien individual or a foreign estate, the reporting requirement is triggered if the total value of all gifts from that person or estate exceeds $100,000. You must aggregate all gifts received from the foreign person and any related parties to determine if you have crossed this threshold. For example, if you receive $60,000 from a foreign parent and $50,000 from a foreign grandparent in the same year, you have exceeded the $100,000 threshold.

A separate and much lower threshold applies to gifts from foreign corporations or foreign partnerships. For the 2024 tax year, you must report these transfers if the aggregate amount from all such entities exceeds $19,570. This figure is adjusted annually for inflation. The IRS uses the term “purported gifts” in this context because it may scrutinize these transactions to ensure they are not disguised payments for services or other forms of taxable income.

Information and Form Completion

When reporting is required, the information is submitted to the IRS on Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. You will complete Part IV of this form. Before you begin, it is necessary to gather several key pieces of information to ensure accurate completion.

You must collect specific details about the gift and the donor. This includes the full name and address of the foreign person or entity that gave you the gift, the date of the transfer, and a detailed description of the property received. You will also need to determine the Fair Market Value (FMV) of the gift on the date of the transfer.

Determining the FMV is a direct process for cash or publicly traded securities but requires more effort for other types of property. For assets like real estate or shares in a privately held company, you may need to obtain a qualified appraisal to substantiate the value you report. If you received gifts from a nonresident alien or foreign estate exceeding the $100,000 threshold, you must separately identify each gift that is valued at more than $5,000.

Filing Procedures and Deadlines

The procedure for submitting Form 3520 is distinct from your annual income tax return. The due date for Form 3520 is aligned with the deadline for your individual income tax return, Form 1040, which for most individuals is April 15th of the year following the receipt of the gift. If you file an extension for your income tax return, the deadline for filing Form 3520 is also automatically extended to October 15th. This extension is automatic and does not require a separate request for Form 3520.

A key aspect of the filing process is that Form 3520 must be mailed separately from your Form 1040. Do not include it in the same envelope as your income tax return. The form must be sent to a specific IRS service center designated for these international information returns, with the address provided in the form’s instructions. It is advisable to retain proof of mailing, such as a certified mail receipt, as evidence of timely filing.

Penalties for Non-Compliance

The consequences for failing to file Form 3520 on time, or for filing an incomplete or inaccurate form, are significant. The penalty is calculated as 5% of the gross value of the foreign gift for each month that the failure to report continues. This penalty accumulates over time but is capped at a maximum of 25% of the total value of the gift. For instance, on an unreported foreign gift of $200,000, the penalty would be $10,000 for each month the Form 3520 is late, up to a maximum penalty of $50,000. This penalty structure demonstrates how quickly the financial consequences can escalate.

In addition to this specific penalty, the IRS has the authority to determine the tax consequences of the unreported amount. For example, if the IRS examines the transaction and recharacterizes a purported gift from a foreign corporation as unreported taxable income, you could also be liable for back taxes, interest, and other accuracy-related penalties on top of the penalty for failing to file Form 3520.