Traditionally, under United States taxing principles a transferor (party making a gift) making a gift or bequest is the one subject to transfer tax (gift or estate) and reporting obligations attributable to the transfer. However, a U.S. recipient or transferee of nontaxable gifts from foreign sources may be obligated to report the transfer in some circumstances. Generally, contributions of property by foreign persons to domestic or foreign trusts that have U.S. beneficiaries are not required to be reported, unless the U.S. beneficiaries are treated as receiving the contribution in the year of the transfer. Moreover, reporting is only required if the U.S. recipient knows or has reason to know that the transferor is not a U.S. person.
For reporting purposes the IRS has issued certain monetary thresholds that will trigger the duty to report. In the case of gifts from individuals who are not U.S. persons or from foreign estates, the U.S. recipient is required to report only aggregate gifts from a single donor or estate that exceed $100,000 during the taxable year. Upon meeting the threshold, the U.S. taxpayer is required to separately identify each gift in excess of $5,000, but does not have to identify the donor. For gifts from foreign corporations or partnerships, a U.S. taxpayer must report all gifts from such entities exceeding $10,000. Each gift must be separately identified as well as the identity of the donor.
A U.S. taxpayer that receives such gifts or bequests is required to report the transfers on Part IV of IRS Form 3520. Failure to furnish the required information will subject the taxpayer to a penalty of 5% of the amount of the foreign gift for each month the failure continues, not to exceed 25% of the gift amount.
