Gift Tax From Foreign Parents: Reporting Requirements

Receiving a significant monetary gift from parents living abroad brings specific obligations with the Internal Revenue Service (IRS). For a U.S. person, this involves navigating rules that are less about taxation and more about disclosure. The primary concern for the recipient is not a tax bill on the gift, but a strict mandate to report the transaction. This framework is designed to monitor large sums of money entering the U.S. from foreign sources, and failing to report can lead to substantial penalties.

U.S. Tax Implications for the Recipient

A common question for those receiving assets from foreign parents is whether they owe U.S. taxes on the gift. The answer is no, as the U.S. gift tax system is structured to impose tax on the donor rather than the recipient. When the donor is a nonresident alien, they are typically outside the jurisdiction of U.S. gift tax laws for most gifts.

The receipt of a foreign gift does not count as taxable income for the U.S. recipient. Therefore, you would not report the value of the gift as income on your annual Form 1040 tax return, as the funds are considered a transfer of capital, not earnings.

An exception involves gifts of U.S.-situs assets, which are assets physically located within the United States, such as real estate. If a foreign parent gifts U.S.-based property, the parent may have a U.S. gift tax obligation. Even in this scenario, the tax liability remains with the foreign donor.

Reporting Thresholds for Foreign Gifts

The requirement to report a gift from a foreign parent is triggered when its value exceeds specific IRS thresholds. For gifts from a nonresident alien individual or a foreign estate, a U.S. person must report them if the total value from that person exceeds $100,000 during the tax year. This is an aggregate figure, so multiple smaller gifts must be added together to determine if the threshold is met.

Once the $100,000 threshold is surpassed, the recipient must separately identify each gift that has a value of more than $5,000.

A different threshold applies if the gift comes from a foreign corporation or a foreign partnership. A U.S. person must report gifts from these entities if the aggregate amount received exceeds an inflation-adjusted threshold of $20,116 for the 2025 tax year. This rule is relevant if parents use a family business abroad to transfer funds, as the IRS may recharacterize these transactions as taxable income.

Information and Documentation for Form 3520

When reporting is required, you must use IRS Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. To complete the form, you must gather several pieces of information:

• The donor’s full name and complete foreign address.
• The exact date on which you received each gift.
• A clear description of the property received.
• The Fair Market Value (FMV) of each gift in U.S. dollars, using the exchange rate on the date the gift was received.

Part IV of Form 3520 is used for reporting gifts from foreign parents. You will enter the information you gathered, completing a separate line for each foreign donor. The form also requires you to indicate if the gift was from a foreign individual, corporation, partnership, or estate.

Filing Procedures and Penalties

The due date for Form 3520 is the same as the deadline for your individual income tax return, Form 1040, which is April 15th of the year following the gift’s receipt. If you file for an extension for your income tax return, that extension automatically applies to Form 3520.

Form 3520 must be filed separately from your income tax return and mailed to a specific IRS service center. Always check the current Form 3520 instructions for the correct filing address. Sending it in the same envelope as your Form 1040 is a common mistake that can lead to processing issues and potential penalties.

The consequences for failing to file Form 3520 on time or for filing an inaccurate return are significant. The IRS can impose a penalty of 5% of the gross value of the foreign gift for each month the failure to report continues. This penalty can accumulate up to a maximum of 25% of the total value of the gift.