Received Gifted Funds from Overseas? Here’s What You Need to Know

Receiving a financial gift can be a generous gesture from family, whether it’s to purchase property, funding education, starting a business, or simply easing the cost of living. However, even as the recipient, it’s essential to understand the tax implications and reporting requirements to avoid any undue surprises from the IRS.

Who Pays the Gift Tax?

According to tax law, the responsibility for paying tax in the US lies with the gift giver, not the recipient. This applies in specific cases:

1. U.S. Citizens Living Abroad: If the gift giver is a U.S. citizen residing outside the U.S., they are subject to U.S. gift tax laws.
   

2. Permanent Residents (Green Card Holders): Green card holders, regardless of their residence, are also subject to these laws.
   

3. Covered Expatriates: U.S. citizens or green card holders who renounced their status but met certain criteria at the time of renunciation may still be liable for gift taxes.

If the gift giver does not fit into any of these above categories, they generally aren’t subject to U.S. gift tax laws.

Reporting Requirements

Even if no gift tax is owed, there are specific reporting requirements for large foreign gifts:

• Form 3520: If you receive a gift exceeding $100,000 from a foreign individual or estate, you must report it to the IRS using Form 3520. This form is crucial for compliance and should be kept indefinitely as proof of the gift.

Failing to file Form 3520 can result in substantial penalties, up to 25% of the gift's value.

Gifts from Foreign Entities

The reporting thresholds differ when the gift comes from a foreign corporation or partnership:

• For 2024, gifts from foreign corporations or partnerships must be reported if they exceed $19,580.

Compliance Matters

Properly reporting gifts from overseas ensures that you stay in good standing with the IRS and avoid hefty fines. While the process might seem daunting, it’s a small price to pay for the financial support and opportunities these gifts provide.

In conclusion, while you might not owe taxes on your gift from overseas, adhering to reporting requirements is essential. Always consult with a tax professional to navigate these rules effectively and ensure you’re complying with regulations correctly. 

DUNHILL FINANCIAL, LLC IS A REGISTERED INVESTMENT ADVISER. THE INFORMATION PRESENTED IS FOR EDUCATIONAL PURPOSES ONLY AND DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SPECIFIC SECURITIES, INVESTMENTS, OR INVESTMENT STRATEGIES. INVESTMENTS INVOLVE RISK AND UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY DISCUSSED HEREIN.