Reporting a Gift From a Foreign Person

Receiving a significant gift or bequest from a person or entity outside the United States often comes with a federal reporting obligation. The Internal Revenue Service (IRS) requires the disclosure of these transfers to ensure transparency. This requirement is for informational purposes; it is a declaration of the transaction, not a calculation of tax owed. The need to report is triggered when the value of the gift or bequest exceeds certain monetary thresholds within a tax year, even if the recipient has no other reason to file a tax return.

Reporting Thresholds and Key Definitions

To determine if a reporting duty exists, one must first understand several key definitions. The term “U.S. person” is broad, encompassing not only U.S. citizens but also resident aliens. A resident alien includes individuals who hold a Permanent Resident Card, also known as a Green Card, or those who meet the substantial presence test based on their days physically present in the United States.

Conversely, a “foreign person” is any individual who is not a U.S. person, such as a nonresident alien. For gift reporting purposes, this category also includes foreign estates. The definition extends to business entities, specifically foreign corporations and foreign partnerships.

A “gift” is any direct or indirect transfer of money or property to an individual where full and adequate consideration is not received in return. This definition excludes certain payments, such as amounts paid directly to an educational institution for qualified tuition or to a medical provider for medical care on behalf of the U.S. person. These specific exclusions do not count toward the reporting thresholds.

For gifts received from a nonresident alien individual or a foreign estate, a U.S. person must report if the total value of all such gifts exceeds $100,000 during the tax year. This is an aggregate figure; for example, if a person receives $60,000 from one foreign relative and $50,000 from another in the same year, the $110,000 total triggers the reporting requirement.

A different threshold applies to purported gifts from foreign corporations or foreign partnerships. For the 2025 tax year, this threshold is amounts over $20,116, a figure adjusted annually for inflation. The IRS may recharacterize a “gift” from a foreign business as taxable income to the recipient.

Information and Documentation for Form 3520

When a reporting requirement is triggered, the transaction must be disclosed to the IRS on Form 3520, “Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.” The recipient should obtain the most current version of the form and its instructions from the IRS website.

Before completing the form, the recipient must gather key information for each reportable gift, including:

• The date the gift was received
• A detailed description of the property
• Its Fair Market Value (FMV) on the date of the transfer, which may require an appraisal for non-cash assets
• The donor’s full name and complete address

While Form 3520 has a field for the donor’s U.S. taxpayer identification number, most foreign donors will not have one. The absence of this number does not prevent the filing of the form, but all other available donor information must be provided.

The specific section for reporting foreign gifts is Part IV. The filer indicates if the gift is from a foreign individual, estate, corporation, or partnership and lists the required details for each gift. If total gifts from foreign individuals or estates exceed the $100,000 threshold, the filer must separately identify each gift valued at more than $5,000. While smaller gifts are included in the aggregate total, only those over $5,000 need to be itemized on the form.

Filing Procedures and Due Dates

The deadline for submitting Form 3520 is the same as the due date for an individual’s federal income tax return, Form 1040, which is April 15 for most taxpayers.

If a taxpayer needs more time, filing Form 4868 for an automatic extension of time to file an income tax return also pushes the Form 3520 deadline to October 15. For U.S. citizens or residents living abroad, an automatic two-month extension to June 15 is granted, which can also be extended to October 15.

Form 3520 must be filed separately from the income tax return. It is a standalone return mailed to a specific IRS service center listed in the form’s instructions. It is advisable for the filer to send the form using a mail service that provides proof of delivery and to retain a complete copy of the filed form for their records.

Penalties for Non-Compliance

Failing to file Form 3520 on time, or filing an incomplete or inaccurate form, can lead to substantial penalties. The primary penalty is calculated as a percentage of the value of the unreported foreign gift.

The penalty is 5% of the total value of the gift for each month that the failure to report continues, beginning the day after the form’s due date. The total penalty can accumulate to a maximum of 25% of the gift’s value. For a $200,000 gift, a failure to file could result in a penalty reaching a maximum of $50,000.

In addition to this penalty, the IRS has the authority to determine the income tax consequences of the unreported gift, which could involve recharacterizing it as taxable income. Other accuracy-related penalties could also be applied.

A taxpayer may avoid penalties if the failure to file was due to reasonable cause. To request this relief, the taxpayer should attach a statement to the late-filed Form 3520 explaining the reasons for the delay. The IRS evaluates such claims on a case-by-case basis.