Tax Consequences of a Receipt of a Foreign Gift.

Disclaimer - The information present is for informational and educational purposes only and should not be construed as legal advice on any matter and does not create a lawyer-client relationship. The information is presented "as is" without any representations or warranties, express or implied. We make no representation as to the accuracy or completeness with respect to the information presented. If you have a specific question please contact your attorney or professional legal service provider.

FOREIGN GIFTS RECEIVED BY U.S. PERSONS ARE NOT SUBJECT TO THE U.S. GIFT TAX

Generally speaking, the gift tax will apply when a U.S. person who transfers property ("Donor") to another U.S. person ("Donee") while receiving nothing or for less than full value in return. The tax applies whether or not the Donor intends the transfer to be a gift.

When a foreign person makes a transfer of property (Donor) to a U.S. person (Donee), while receiving nothing in return or for less than the full value in return, the gift tax does not apply because the Foreign Donor is not subject to the U.S. gift tax. This only applies to the estate that the property that is being transferred does not have a U.S. situs. Thus a transfer of U.S. real property that is owned by a foreign person which is then gifted to a U.S. person will be subject to the gift tax. The gift tax will be 40% of the amount transferred above the $16,000 annual gift tax exclusion for 2022.

U.S. PERSON REPORTING REQUIREMENT

Even though there is no tax that may apply to the transfer of assets. When a U.S. persons receives a gift from a foreign person there is a reporting requirement that applies. The gift needs to be reported on Form 3520. Failure to timely and properly file Form 3520 will result in a penalty of 25% of the value of the gift for failure to report the receipt of a gift or inheritance from a foreign person.