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Wednesday, June 5, 2013

Receiving Gifts or an Inheritance from Relatives Overseas

If you live in the United States and receive a gift from a family member who lives overseas who is not a US citizen, you should be aware that the IRS requires the US beneficiary to file Form 3520 to report the gift.  You are also required to file Form 3520 if you are receiving money as part of an inheritance or a distribution from a foreign trust.

The requirement to report the gift, bequest or trust distribution kicks in for assets valued at more than $100,000.  All gifts, bequests and trust distributions received during the calendar year must be aggregated if they come from related parties.  So, if you receive $70,000 from your mother and $50,000 from your father (both of whom live in a foreign country and are not citizens of the US), you will be required to complete the Form 3520.  However, if you receive a gift of $95,000 from your parents and $10,000 from a friend, you will not have to report it.

Payments by a foreign person for qualified medical or tuition payments do not count against the $100,000 threshhold provided the payments are made directly to the health care provider or school.

The penalties for failure to file Form 3520 can be quite high.   If you do not file an accurate Form 3520 in a timely manner, you may be penalized 5% of the amount of the foreign gift for each month for which the failure to report continues (not to exceed a total of 25%).   The return is due when you file or income tax.

If you receive a gift of foreign property, money in a foreign bank account or a foreign business interest, do not forget that you may also need to file a IRS Form 8938 (FATCA Form) and the FBAR Form in addition to the Form 3520.

Finally, there are special rules for gifts from individuals who ceased to be a US Citizen or green card holder after June 16, 2008.  There are also special rules for gifts received from foreign corporations or foreign partnerships as gifts from those entities in excess of $14,723 (adjusted annually for inflation) must be reported as well.

1 comment:

Unknown said...

My parents live overseas and I just became a US citizen a few weeks ago. My father bought me a few US citizenship gifts to celebrate my accomplishment. My father also gave me a few other gifts that are from my homeland.