Foreign Gift Tax
Foreign Gift Tax & the IRS: When a U.S. Person gives a gift that exceeds the annual exclusion amount, they typically must file a Form 709, unless an exception or exclusion applies. The rules are different when the U.S. Person receives a gift from a foreign person. That is because the foreign person (non-resident) is not subject to U.S. tax or reporting. Still, the IRS wants to know about the gift. Therefore, the IRS developed the gift from foreign person reporting rules on Form 3520. But, does that mean the U.S. person who receives a gift from a foreign person must pay tax on the gift?
Is there a Foreign Gift Tax?
Generally, the answer is No.
For example, if Michelle receives a $700,000 gift from her parents in Spain, she does not need to pay a “tax” on the gift. The reason is because the gift is not income.
Therefore, there is no “income tax” on the foreign gift.
Income Tax on Foreign Gift Income
Instead of a cash gift, let’s say Michelle’s parents gifted her a $500,000 foreign investment account.
That account generates $20,000 a year in income.
The $20,000 in income that the gift generates is taxable.
Because while the gift is not taxable, the income generated from the gift is taxable, since it is income.
*Foreign Tax Credits can apply (if applicable) to reduce the U.S. tax liability.
Reporting the Foreign Gift
Reporting the Foreign Gift is a key component to IRS law.
When a U.S. person receives a gift from foreign person, and the value of gift exceeds either the individual foreign person or entity foreign person threshold – the gift must be reported. If it is not reported, the U.S. person may be subject to Form 3520 penalties, which are usually 25% value of the gift.
If you received a CP15 notice, time is of the essence to respond, before the time to respond expires and the filer is left with very limited rights to fight the penalty amount.
We Specialize in Offshore Disclosure & Compliance
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Our lead attorney is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
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