US Tax and Form 3520 on Gifts and Inheritances From Abroad

Do I pay US tax on a gift or inheritance from family abroad?

A genuine gift or inheritance is generally excluded from the recipient's US income, whether it arrives as cash, shares or a home. The exclusion does not cover later income from the property, or an amount that is really pay for work or a business payment (Internal Revenue Code, section 102).

US gift tax is generally the donor's responsibility. A nonresident donor may have a separate US gift tax filing when giving US real estate or other tangible property located in the US (IRS: gift tax questions for nonresidents). Pennsylvania, for example, has an inheritance tax on transfers within its rules; US federal income tax treatment does not settle any state or foreign tax (Pennsylvania Department of Revenue).

When must I file Form 3520 for a gift or inheritance?

A US person generally files Part IV of Form 3520 when gifts or bequests received during the tax year exceed the applicable donor threshold. For this form, a US person includes a citizen or tax resident. A green card or sufficient US presence can make a noncitizen a tax resident; if the transfer arrived near a move, check when residency began (IRS: residency tests). The gift test is based on the source and amount received, not where the money was wired or whether you owe income tax (IRS: Form 3520 instructions).

For the individual or estate test, exceeds means an amount equal to the threshold alone does not trigger Part IV. Once the test is met, separately list gifts or bequests above $5,000 as the instructions for line 54 require. A distribution from a domestic trust treated as owned by a foreign person also belongs in Part IV (IRS: Form 3520 instructions). Direct payments of qualifying tuition to a school or medical costs to a provider are excluded from the foreign-gift definition; cash reimbursing you afterward is not that direct-payment exception (IRS: gifts from foreign person).

Do gifts from both parents count together, and what about my spouse?

Gifts from both foreign parents count together if you know, or have reason to know, they are related. The same aggregation applies when a donor acts as another's intermediary; using two accounts or separate transfers does not reset the threshold (IRS: Form 3520 line 54).

Each US-person spouse tests the gifts they actually received against their own threshold. If both received reportable gifts, each generally files a separate Form 3520 even on a joint income tax return. For a joint account or jointly titled home, use the donor's instructions and ownership records to establish each share before testing it (IRS: joint-return and Part IV instructions).

Does it matter whether the giver is a US citizen living abroad?

Yes. A US citizen remains a US person while living abroad, so a gift from that person is not a foreign gift for Form 3520 merely because it came from an overseas account (IRS: US person definition).

The US-citizen donor may instead have a Form 709 gift tax filing. That is the donor's filing, and filing can be required even when no gift tax is payable (IRS: gifts and inheritances). Check citizenship and US tax residency rather than relying on the donor's address or the bank's location.

My parents are paying my house down payment: what do I file?

If nonresident parents give you a down payment, count their gifts toward your Form 3520 threshold even if they wire money directly to the closing agent. The reporting rule covers amounts received directly or indirectly, and the qualified tuition and medical exceptions do not include a home purchase (IRS: gifts from foreign person; Form 3520 instructions).

Keep each donor's name and status, a gift letter stating whether repayment is expected, wire and closing records, dates, and the amount applied for your benefit. If the funds are a real loan, document its terms; if the parents buy or give you US real estate themselves, their US gift tax position needs a separate review (IRS: nonresident donor rules).

Is money I move from my own account abroad a gift?

Moving your own money between accounts is not a gift to yourself, so that transfer alone does not call for Part IV of Form 3520. The relevant question is whether another person actually transferred property to you without repayment or payment in return (Internal Revenue Code, section 6039F).

Keep statements showing the account ownership and the path of the funds. The foreign account may have its own reporting duties; see Foreign account reporting.

How do I value and report an inherited home, shares or cash?

For Form 3520, determine the tax year in which you received each estate payment or asset, then record its receipt date and fair market value in US dollars. The date-of-death value used to work out an inherited asset's basis is a separate figure. For noncash gifts or bequests, keep records showing how you determined the reported value (IRS: Form 3520).

For an individual donor or foreign estate, Part IV, line 54 asks for the date, description and US-dollar value of gifts or bequests that must be listed. For a foreign company or partnership, line 55 also asks for donor details. Answer line 56 if a donor may be an intermediary (IRS: Form 3520).

For foreign currency, retain the rate used to translate each receipt; the IRS generally describes the spot rate when an item is received (IRS: yearly average currency exchange rates). An inherited asset's Form 3520 receipt value and its later tax basis can use different dates. Get the estate papers and date-of-death valuation before a later sale.

What is my cost basis in property I inherit or am given?

Inherited property generally starts with fair market value at the decedent's death; a lifetime gift generally carries the donor's adjusted basis, with an adjustment for qualifying gift tax paid. These are different rules even if both receipts were reported on Form 3520 (Internal Revenue Code, section 1014; IRS: Publication 551).

If a US estate tax return covers the property, the executor may elect alternate valuation only if it lowers both estate value and estate tax. The election goes on Form 706 or 706-NA, generally due nine months after death; Form 706 allows a late election within one year of its due date, including extensions (IRS: Form 706 instructions; Form 706-NA instructions). Appreciated property you or your spouse gave the decedent within one year before death and then inherited instead keeps the decedent's adjusted basis (IRS: Publication 551). Ask for the donor's basis records when the gift is made; a later bank statement alone cannot establish them.

When is Form 3520 due, and how is it filed?

For a calendar-year individual, Form 3520 is generally due April 15 after the tax year and goes to the IRS address in its instructions. It is a separate information return, not a schedule attached to Form 1040 (IRS: Form 3520 instructions).

The IRS moves a due date that falls on a weekend or legal holiday to the next business day. Sign and mail Form 3520 to the address in the current filing instructions; keep a full copy and delivery proof. An income tax filing extension affects Form 3520 only if the extension applies to you under its instructions.

What about gifts from a foreign company or payouts from a foreign trust?

Purported gifts from a foreign company or partnership use the lower threshold above, and the IRS can reclassify them as taxable income or another payment. If a parent owns the paying company, their personal gifts can count toward that company threshold too. Check the payer and legal documents: a bequest paid by a foreign estate is tested under Part IV, while a foreign trust distribution generally belongs in Part III, even after a death. The instructions list trust-filing exceptions (IRS: Form 3520 instructions).

Get the company's ownership and payment records, or the trust deed, trustee statements and distribution records. A gift or bequest from a covered expatriate can trigger a separate recipient tax and Form 708. For individuals, that rule uses US residence by domicile, which differs from income-tax residence; an annual exclusion can remove the filing duty (IRS: Form 708 instructions). These cases need cross-border tax review.

What is the penalty for not filing Form 3520?

For an unreported foreign gift or bequest, the penalty is 5% of the unreported amount for each month the failure continues, capped at 25%. The IRS may also determine the receipt's income tax consequences; the statute has a reasonable-cause exception (Internal Revenue Code, section 6039F).

Foreign trust failures have different penalties. If you missed a filing or received a notice, see Catching up on missed foreign reporting before responding.

Example

Illustrative US dollars: Two nonresident parents each give their child US$60,000 for a US home down payment during one tax year. One parent sends the money to the child's bank; the other sends it to the closing agent for the child's purchase. The child received US$120,000 from related foreign donors, so the child generally files Form 3520 Part IV and lists both gifts. The gift itself is generally excluded from US income. If the parents instead lent the money under a real repayment agreement, the gift analysis would change.

Different for you?

The right filing changes with the donor, the asset and the year you became a US person. Gather donor citizenship and residency, dates, amounts, transfer records, estate papers and value evidence before deciding.

• You received the property before becoming a US resident: see Your first year as a US tax resident.
• The money remains in a foreign account: see Foreign account reporting.
• The gift or inheritance earns interest or other income abroad: see Foreign income on a US return.
• You inherited a home abroad and may rent or sell it: see Property abroad.
• You inherited foreign funds or investment products: see Funds bought outside the US.
• You missed a filing or got a penalty notice: see Catching up on missed foreign reporting.
• The transfer involves a foreign trust, company, covered expatriate or disputed ownership between spouses: get cross-border tax review with the transfer and ownership records.