If you are a U.S. citizen or resident who has received a large gift from a non-U.S. citizen, you may be worried about gift taxes and other consequences. In the United States, recipients of gifts do not pay tax on the amount of the gifts. Givers of gifts, however, may have to pay taxes if the gifts exceed a certain amount.
Do You Have to Report Gifts from Non-Citizens?
Yes, you have to report certain gifts from non-U.S. citizens to the Internal Revenue Service. While you do not have to pay income tax on the gifts, the IRS can impose substantial monetary penalties on you if you do not report them on an “information return.”
Which Gifts Do You Have to Report?
You need to report some gifts of money or other property that you (a U.S. citizen or resident) receive from a foreign person. If the foreign person pays for your school tuition or medical costs, you may not need to file an information return. You may, however, have to report those payments on other IRS forms.
Any gifts of more than $100,000 from foreign individuals or foreign estates must be reported. Gifts of more than about $15,800 from foreign corporations or foreign partnerships must be reported. This includes gifts from foreign persons related to the foreign corporations or foreign partnerships.
What Is a Foreign Person?
According to the IRS, a “foreign person” is a nonresident alien individual person, a foreign corporation, a foreign partnership, or a foreign estate. Even if you report a gift from a foreign partnership or foreign corporation on an information return, the IRS may re-characterize it as income that must be taxed. Also, there are additional rules for gifts from foreign trusts beyond those for gifts from other foreign persons.
When you receive a gift from a foreign person or even just someone who lives in another country, you should ask about their tax status. There are some special rules governing gifts from individuals who stopped being U.S. citizens or green card holders and from certain “covered expatriates”.
If you are not sure how to handle a gift from a foreign person, or if you are a foreign person giving gifts, talk to an estate planning attorney familiar with international tax issues.
Planning your estate? Look to Janet Brewer, Esq. for thorough and thoughtful estate planning advice. Janet’s more than 20 years of legal experience will give you confidence and peace of mind. To schedule a “Get Acquainted” meeting, visit Janet's website or call her office at (650) 469-8206.