Parent Foreign Gift Reporting, IRS Common Examples
It is very common for U.S. taxpayers who have foreign, non-resident alien (NRA) parents to provide them with monetary and other gifts throughout the year to assist them with living in the United States. While the receipt of a foreign gift is not necessarily a taxable event, depending on the value of the gift and how the gift was received, it may be a reportable event. It is worth noting that it does not matter whether the taxpayer living in the United States is a U.S. citizen, lawful permanent resident, or foreign national who meets the substantial presence test; the baseline rule is that foreign gifts are reportable when the threshold requirements are met — although there are some exceptions, exclusions, and limitations. There are many common examples in which a foreign gift is reportable (and limited exceptions in which it is not reportable). Let’s go through some of the basics.
First, What are the Threshold Requirements?
The threshold requirements for reporting a foreign gift are as follows: if the U.S. person receives a gift or series of gifts from the same person or related parties that exceeds $100,000 in the tax year, they may be required to report this foreign gift on a Form 3520. If the gift is from foreign entities, the threshold requirements are much lower, closer to $20,000, and if the gift is from a foreign trust, there is no threshold requirement — even de minimis gifts are reportable
Living Expenses Gift
When a foreign parent provides living expenses to a U.S. person, those living expenses are reportable as a gift if the threshold requirements are met. For example, if a taxpayer is attending university and parents provide $200,000 a year for the taxpayer to rent an apartment, purchase food necessities, lease a vehicle, etc., then that $200,000 gift is reportable.
Money to Purchase Home
Oftentimes, when a taxpayer wants to purchase a home, but they did not grow up in the United States, they may have little to no credit established to obtain a mortgage. Sometimes the taxpayers’ foreign parents will provide them a gift to help them purchase a home, and this gift is reportable as well.
Direct Tuition or Medical Payments (Exception)
One exception is that if the taxpayers’ parents make payments to a university for tuition, for example, or medical payments, these payments are not considered to be a gift reportable on Form 3520.
As provided by the IRS:
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“A gift to a U.S. person does not include any amount paid for qualified tuition or medical payments made on behalf of the U.S. person.”
Visa Investment Gift
A very common ‘visa gift’ scenario is when a taxpayer who was previously an F-1 student wants to fast-track becoming a green card holder by going through the EB-5 visa investment process (aka U.S. Golden Visa). The taxpayer only recently graduated from university and does not have the $1,000,000 + buy-in required to apply for the visa. Thus, the foreign national parents provide him with a gift to make the EB-5 investment. Even though the parents are using this for the taxpayer’s visa application and may even make payment directly to the investment firm, it is still considered a Form 3520 reportable gift.
Late Filing Penalties May Be Reduced or Avoided
For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.
Current Year vs. Prior Year Non-Compliance
Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.
Avoid False Offshore Disclosure Submissions (Willful vs. Non-Willful)
In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties.
Need Help Finding an Experienced Offshore Tax Attorney?
Hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting can be overwhelming for Taxpayers trying to sift through the false information and nonsense they find in online research. Only a handful of attorneys worldwide are Board-Certified Tax Specialists who specialize exclusively in offshore disclosure and international tax amnesty reporting.
*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.
Golding & Golding: About Our International Tax Law Firm
Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.
Contact our firm today for assistance.