If I receive a gift from abroad, do I have to pay taxes to the IRS?

There are many factors to consider when it comes to paying taxes. Therefore, it is totally normal that you have asked yourself: If I receive a gift from abroad, do I have to pay taxes to the IRS? Do not worry, with this article you will be able to clarify all your doubts.

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If you are an American and have received large gifts or bequests from a foreign person, you may need to complete the Part IV of Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts (Annual return to report transactions with foreign trusts and receipt of certain foreign gifts).

If I receive a gift from abroad, do I have to pay taxes to the IRS?

Keep reading: How much money can I receive as a gift without paying taxes?

When do I have to submit the form?

Form 3520 must be filed by the 15th day of the fourth month after the end of your tax year (generally April 15 for individuals). You are subject to any filing time extensions that may apply. If you file late, or if the information provided is incomplete or incorrect, the IRS may determine the consequences of receipt of said foreign gift or bequest. Remember that you may be subject to sanctions if you do not have a reasonable cause. For more information, review the Form 3520 instructions.

In general, a foreign gift or bequest is any amount received from a non-U.S. person (a non-national person) that the recipient treats as a gift or bequest and excludes from gross income. A foreign gift does not include amounts paid for qualified tuition or medical payments made on behalf of the US person.

It is understood by foreign person any non-resident foreign person, corporation, partnership or foreign estate. As well as a national trust that is considered property of a non-national person. Distributions from a foreign trust are reported on Part III of Form 3520. See the instructions for Part IV of Form 3520 for more information.

Keep reading: If I give money, do I have to pay taxes to the IRS?

When should I report the donation or legacy?

You are required to report the receipt of foreign gifts or bequests only under certain conditions. In order to determine when you must report, you are first required to report gifts received from related parties. See the instructions on the Part IV of Form 3520 for more information. Also read the section VI of notice 97-34.

In the case of gifts or bequests from a nonresident alien or a foreign estate, you must report the receipt of such gifts or bequests only if the total amount received exceeds $100,000 during the tax year.

If gifts or bequests exceed $100,000, you must separately identify each gift that exceeds $5,000.

In the case of alleged donations from foreign corporations or partnerships, you must report its receipt only if the total amount received from all entities exceeds $16,388 for the year 2019 (adjusted annually for inflation).

You must separately identify each donation and the identity of the donor. Keep in mind that the IRS may requalify purported gifts from foreign corporations or partnerships.

Filing of Form 3520

File Form 3520 separately from your tax return, following the corresponding instructions. Generally, the due date for a U.S. citizen to make such a filing is the 15th day of the fourth month following the end of the fiscal year..

If you are a US citizen or resident living outside the United States and Puerto Rico or if you are in the military or naval service outside of US territory, the deadline to submit the Form is the 15th day of the 6th month following the end of the tax year.

In case of extensions

If you are granted an extension to file an income tax return, the deadline to file Form 3520 will also be extended to the 15th day of the 10th month following the end of the tax year. If you wish, you can read the Form 3520 instructions for additional information.

Data to avoid penalties: If you were filed with an extension on your tax return, be sure to check the 1K box and enter the tax return form number to avoid being considered a late Form 3520 filing.

Keep reading: How does the IRS track gifts?

Special rules applicable to gifts or bequests from covered expatriates

Citizens and residents of the United States who receive gifts or bequests from expatriates covered by IRC 877A may be subject to tax. This is pursuant to IRC Section 2801, which imposes a transfer tax on United States persons who receive gifts or bequests on or after June 17, 2008, from former United States citizens or lawful permanent residents who are treated as expatriates covered by IRC 877A. However, the imposition of the tax of article 2801 is postponed until the final regulation is issued.

For additional information, you can refer to the September 2015 Proposed Guidance on the Taxation of Certain Gifts and Bequests by Covered Expats (PDF).

Where should I file Form 3520?

Send form 3520 to the following address:

Internal Revenue Service Center

PO Box 409101

Ogden, UT 84409

Penalties for not filing Part IV of Form 3520

If your filing for Part IV of Form 3520 is late, incomplete, or incorrect, the IRS may determine the income tax consequences of receiving the foreign gift or bequest. In addition, you may be subject to a penalty equal to five percent of the value of the gift or bequest for each month that the gift or bequest is unreported, not to exceed 25 percent of the gift.. Unless you have a reasonable cause for not reporting on time or accurately, we recommend that you comply with your obligation within the established period.

Note: You may also be required to file FinCEN Form 114. check the Foreign Bank and Financial Accounts Report (FBAR) for more details.

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