When You Have to Report a Gift

One question that I’m often asked are about gifts. I’ve just received a large gift or inheritance; must I pay tax on it? The good news is that gifts aren’t taxable to the recipient (if the gift is interest bearing, such as a gift of money in a savings account, you will owe tax on the interest received).

Unfortunately, there are gifts that must be reported even though they’re not taxed. If you receive a gift of more than $100,000 from a non-resident alien individual, or a gift of more than $13,258 from a foreign corporation or a foreign partnership, it must be reported to the IRS on Form 3520. The penalty for not reporting the gift is 5% of the value of the gift per month late, up to a maximum of 25%. There are special rules if you are the recipient of a gift from a foreign trust.

Note that Form 3520 is filed separately from your tax return but is due on the same date as your tax return (including extensions). The IRS has more in this release. Note that the link in the release to the Form 3520 instructions is invalid; the link I have provided works.

Hat Tip: Roth Tax Updates

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