Dear Tax Talk,
My wife and I are both U.S. citizens and file our annual returns jointly. I have a question about reporting gifts from a nonresident alien to the IRS.
I have an aunt overseas (non-citizen and never lived in the U.S.) who would like to send us monetary gifts. I understand the IRS allows cash gifts of up to $100,000 from a foreign non-corporation party without needing to report on Form 3520. However, is this limit per person or per tax return, since we typically file jointly? Also, is this an annual or lifetime limit? Thank you.
— Dave
Dear Dave,
According to the IRS, you and your wife each constitute a “U.S. person” and would only be required to report the gift if either one or both of you received “more than $100,000 from a nonresident alien (your aunt) that you treated as gifts or bequests.” The only guidance the IRS gives for joint filers is that the 2 U.S. beneficiaries may file a joint Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. The $100,000 is an annual limit for each “U.S. person.”
To that extent, if each of you received less than the $100,000 threshold, even if filing jointly, neither of you would be subject to the reporting requirement, even though the collective gift received is in excess of $100,000.
Reporting gifts from a nonresident alien to the IRS
You can receive a gift of as much as $100,000 from a foreigner without reporting it, as long as it is not paid out through a trust and it does not get deposited in a foreign bank account owned by you. Married couples can receive double that amount.
However, be sure to maintain documentation regarding the gifts made to each of you. Because you are receiving the gift from the same foreign person, it could be perceived that you’re attempting to evade the reporting requirement. For example, if the funds were deposited into a joint account held by you and your wife, the IRS might question the amount of the bequest to each of you.
Please note that any speculation above goes directly out the window if your aunt pays this through a foreign trust, as this would automatically have to be reported, according to the IRS instructions for Form 3520.
Lastly, you need to be mindful of any other filing requirements this could potentially trigger: namely, foreign bank account reporting, commonly referred to as “FBAR,” should the funds be deposited into a foreign bank account owned by you and your wife. This would be reported on the Form FinCen 114. Because of the higher amount, you may potentially also have to file Form 8938, Statement of Specified Foreign Financial Assets, in addition to the FinCen 114.
Thank you for the great question and all the best to you.
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This article delves into the complexities of reporting gifts from nonresident aliens to the IRS. The scenario involves a couple, both U.S. citizens filing jointly, contemplating monetary gifts from an overseas aunt who has never lived in the U.S.
Let's break down the concepts discussed in this article:
Concepts Covered:
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Form 3520 Reporting: The article mentions Form 3520, an IRS form used to report certain transactions with foreign trusts and the receipt of specific foreign gifts.
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$100,000 Gift Limit: There's a clarification regarding the $100,000 limit for gifts from a nonresident alien. This limit applies per U.S. person annually.
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Joint Filing & Reporting: It clarifies that even if filing jointly, each spouse is considered a separate U.S. person for the purpose of the $100,000 gift limit.
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Avoiding Reporting: Strategies to avoid reporting include ensuring gifts aren't paid through trusts or deposited into foreign bank accounts owned by the recipients.
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Documentation & IRS Compliance: Emphasizes the need for meticulous documentation to demonstrate compliance and avoid potential IRS scrutiny.
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Additional Filing Requirements: There's a mention of FBAR (Report of Foreign Bank and Financial Accounts) and Form 8938 (Statement of Specified Foreign Financial Assets) if funds are deposited into foreign bank accounts.
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Professional Advice: The article underscores the importance of seeking professional advice tailored to individual circ*mstances for tax compliance.
Understanding these concepts is crucial for individuals receiving gifts from nonresident aliens to navigate IRS reporting requirements and potential tax implications effectively.
