By Bethany Bouw, CPA
With globalization increasing, it is not uncommon for gifts or inheritances to be given by nonresident aliens to US persons. There may be concern over what needs to happen when a gift or inheritance is received – What needs to be filed? Is any tax owed? When do I report the gift?
Six Things to know about foreign gifts:
1) If a non-resident alien (NRA) gives a US person (USP) a gift/bequest in excess of $100,000 (lump sum or spread out in the year in smaller gifts), the USP needs to report the gift on a Form 3520 for that tax year. For example, an uncle in the Netherlands gives you $140,000 as a gift in 2017. If a US person, you now must report the gift on Form 3520 Part IV.
2) If the USP knows or has reason to know the NRA gift giver is “related” to another NRA who gave them a gift, they must aggregate the gifts together for consideration of the reporting threshold. For example, your uncle in the Netherlands gives you $90,000 in 2017 and his wife gives you $15,000 in 2017. You must disclose the gifts on the 2017 Form 3520 since they are related.
3) If a foreign corporation or partnership gives a USP a gift(s) in excess of $16,649 for 2016 (adjusts for inflation), the USP needs to report the gift on a Form 3520 for that tax year. Also, all gifts from foreign corporations or partnerships are aggregated for purposes of the reporting threshold. Gifts from foreign partnerships or corporations are subject to IRS recharacterization.
4) There are penalties for failing to report the reportable gift on a timely filed Form 3520. The penalty is 5% of the gift amount for each month the filing is delinquent. The penalty is limited to 25% of the gift amount.
5) A gift from an NRA of real or tangible personal property located in the US at the time of transfer is subject to gift tax. For example, your nonresident alien uncle in the Netherlands gives you a plot of land in New York. This gift would be subject to gift tax even though he is a nonresident alien. A gift from an NRA that is not real or tangible personal property located in the US at the time of transfer would generally not be subject to gift tax in the US (see the next item).
6) Gifts from an NRA who recently expatriated from the US require additional considerations. This is especially pertinent if the NRA was a “covered expatriate” at expatriation. For example, your uncle in the Netherlands used to be a long-term US resident. He officially expatriated 2 years ago and was a covered expatriate because of his income. You now have additional considerations if he gives you a gift because he expatriated.
We have assisted clients with their foreign gifts and inheritances over the years and would be happy to assist you if you have foreign gifts/inheritances with which you are concerned.
The International Tax Team at Ryan & Wetmore is well-versed in foreign informational filings. For questions or concerns regarding your international accounts and assets, click here to email our foreign tax team. Please be aware that tax issues are complicated and may vary based on the details of your situation. For this reason, an initial phone call is generally required to obtain the facts and address the questions.
Bethany Bouw CPA, is a manager at Ryan & Wetmore and has been with the firm for over eight years. She has experience with offshore voluntary compliance and assisting taxpayers with foreign asset and entity reporting requirements.
Traci Getz CPA, is a partner with Ryan & Wetmore, P.C. Traci has over fifteen years of experience providing accounting, tax, and consulting services to small and medium-sized business owners. She works with clients to understand their accounting and tax issues while specializing in international tax, healthcare, and construction.
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation.Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer.The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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