When living abroad as a US expat, receiving or giving foreign gifts can create confusion around taxes. Many US citizens living overseas wonder: Do I have to pay tax on a foreign gift? or Do I need to report gifts received from a foreign country? This comprehensive guide will answer those questions and clarify how the foreign gift tax applies.
What Is a Foreign Gift?
A foreign gift refers to money or property received by a US person from a foreign person, which includes nonresident alien individuals, foreign corporations, foreign partnerships, and foreign estates. A foreign gift or bequest is any amount received from a foreign person that the recipient treats as a gift or bequest.
Gifts from foreign nationals generally do not count as part of the recipient’s gross income and are generally excluded from gross income. You are generally not taxed on gifts received from foreign individuals or entities. The IRS does not have jurisdiction over gifts that come from overseas from nonresident, non-US citizens.
Are Foreign Gifts Taxable in the US?
Let’s be clear: if a nonresident alien gives a gift or bequest to a US citizen or resident, the gift tax usually does not apply. The US gift tax is imposed on the gift giver, not the recipient. But when the gift giver is a foreign person, the US does not have jurisdiction to impose gift tax.
Therefore, in most situations, US citizens who receive gifts from foreign individuals do not have to pay taxes on those foreign gifts. However, they are required to file Form 3520 when the value of the gifts received crosses the IRS reporting thresholds.
IRS Form 3520 and Reporting Requirements
Form 3520 is required to report gifts received from foreign sources that exceed certain thresholds. US persons must file Form 3520 to report foreign gifts when:
- Total gifts received from nonresident alien individuals or foreign estates exceed $100,000 in a calendar tax year.
- Gifts received from foreign corporations or foreign partnerships exceed $19,570 during the taxable year (adjusted annually).
You must aggregate gifts received from related foreign persons when determining reporting thresholds. If you receive multiple gifts from foreign individuals who are related, you must aggregate those gifts. Each foreign gift exceeding $5,000 must be separately identified when reporting on Form 3520.
Form 3520 is due by the 15th day of the fourth month following the end of the tax year. If you are granted an extension for your income tax return, the due date for Form 3520 is also extended to the 15th day of the 10th month following the year-end. It must be filed separately from your income tax return.
Reporting Thresholds and Examples
Let’s say you received $150,000 in foreign cash from a foreign estate. Though there is no gift tax, you must report foreign gifts by filing Form 3520.
If you received $25,000 from a foreign corporation, this also requires filing Form 3520 due to the lower threshold for foreign entities. Gifts from foreign corporations or partnerships must be reported if they exceed $19,570.
Types of Foreign Persons
The IRS defines a foreign person to include:
- A nonresident alien individual
- A foreign corporation
- A foreign partnership
- A foreign estate
- A foreign trust
Each type of foreign person has different implications under IRS regulations for foreign gift reporting.
Gifts from Foreign Corporations and Partnerships
Foreign corporations and foreign partnerships are often used for asset protection and tax planning. If you receive a gift or bequest from these entities exceeding the threshold, you must file Form 3520.
The IRS may reclassify purported gifts from foreign corporations as taxable gross income if they suspect it’s compensation or disguised income. That’s why tax advice from a tax professional is crucial.
What Happens If You Don’t File Form 3520?
The IRS may impose a penalty of 5% per month for each month that Form 3520 is not filed, up to a maximum of 25% of the value of the gift. Defective filing of Form 3520 could lead the IRS to determine the tax consequences of the received gifts.
You may be excused from penalties if you can demonstrate reasonable cause, but this requires detailed documentation and possibly legal assistance. To avoid penalties, ensure compliance with IRS rules and consult a tax professional if you’re unsure.
Gifts from US Citizens to Foreign Persons
Now consider the reverse: if a US citizen or green card holder gives a gift to a nonresident alien, US gift tax rules may still apply depending on the nature of the asset.
The gift tax generally applies to the transfer of tangible or real property located in the US. So if you’re giving a US home or jewelry to a non domiciled foreign national, a gift tax return (Form 709) may be required.
However, gifts from foreign individuals to nonresident alien recipients are not subject to US gift tax.
Exemptions from Gift Tax
Certain payments are tax exempt, including:
- Medical payments made directly to a medical institution.
- Qualified tuition paid directly to an educational institution.
- Gifts between spouses (if both are US persons).
These exceptions can help reduce or eliminate any transfer tax liability.
How Much Money Can I Receive as a Gift from Another Country?
There is no upper limit to the amount you can receive. But if the gift exceeds $100,000 from a foreign person, it triggers form 3520 reporting requirement.
Keep in mind that multiple gifts from related parties in a foreign country are aggregated. The combined value matters, not the amount of each individual gift. You must aggregate gifts received from related foreign parties when determining reporting thresholds.
Does Receiving a Foreign Gift Affect My Income Tax Return?
Generally, no. Foreign gifts are not part of your taxable income and do not create income tax consequences.
But if the IRS deems a purported gift as gross income (e.g., compensation disguised as a gift), it must be included in your income tax return. If a gift generates income, that income is taxable even though the gift itself is not.
Also, note that foreign financial accounts related to foreign gifts might require additional reporting under FATCA or FBAR, depending on the amounts involved.
Practical Steps for US Expats
To stay compliant, follow these steps:
- Track all foreign gifts received during the tax year.
- Determine if the gift exceeds the threshold requiring Form 3520.
- File Form 3520 on time with your income tax return.
- Maintain documentation to prove the foreign person gave you a gift or bequest.
- Identify each foreign gift over $5,000 separately on Form 3520.
- Consult a tax professional for tax advice on complex foreign transactions.
Special Considerations
- Military or naval service members stationed overseas should be especially diligent, as foreign individuals may give gift money during holidays or celebrations.
- Green card holders are treated as US persons and must comply with all reporting requirements.
- Use a tax professional familiar with IRS Form 3520 and foreign gift reporting to ensure full compliance.
Expert Help for US Expats — Taxes, Gifts, and Beyond
The foreign gift tax system is more about reporting than paying. While most US expats don’t owe taxes on foreign gifts, failing to file Form 3520 can trigger steep IRS penalties.
Understanding the rules around foreign gifts, estates, and corporations is essential to avoid costly mistakes — but it doesn’t have to be overwhelming.
At 1040 Abroad, we specialize in helping US expats stay compliant, minimize risk, and file with confidence. Whether you need help with Form 3520, your income tax return, or FBAR, our team is here to assist you every step of the way.
We also offer free tax advice to all US expats. If you have questions, reach out — no strings attached.
Stay informed. Stay compliant. And let 1040 Abroad take the stress out of expat taxes.
