Taxes The Rules on Reporting Foreign Gifts and Inheritances When and How to Report an Overseas Inheritance By Julie Garber Julie Garber Julie Garber is an estate planning and taxes expert with over 25 years of experience as a lawyer and trust officer. She is a vice president at BMO Harris Wealth management and a CFP. Julie has been quoted in The New York Times, the New York Post, Consumer Reports, Insurance News Net Magazine, and many other publications. learn about our editorial policies Updated on January 14, 2022 Reviewed by Ebony J. Howard Reviewed by Ebony J. Howard Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries. learn about our financial review board Fact checked by Ariana Chávez Fact checked by Ariana Chávez Ariana Chávez has over a decade of professional experience in research, editing, and writing. She has spent time working in academia and digital publishing, specifically with content related to U.S. socioeconomic history and personal finance among other topics. She leverages this background as a fact checker for The Balance to ensure that facts cited in articles are accurate and appropriately sourced. learn about our editorial policies Share Tweet Pin Email In This Article View All In This Article Which Gifts Are Taxable? Gift Tax Treaties Income Taxes The Value of the Foreign Gift or Bequest When IRS Form 3520 Is Due Penalties for Not Timely Filing More Information About IRS Form 3520 Some Distinctions Photo: Drazen_ / Getty Images Three types of taxes can potentially come into play when U.S. citizens or resident aliens receive gifts: the estate tax, the gift tax, or income taxes. The federal gift tax can apply when U.S. citizens or resident aliens receive certain gifts from other U.S. citizens or resident aliens, but it's payable by the donor, not the donee. The federal government doesn't impose an inheritance tax on its citizens, although it does tax multiple forms of income. Gifts or inheritances received from foreign estates, corporations, or partnerships are subject to some special rules, however. Which Gifts Are Taxable? No gift tax applies to gifts from foreign nationals if those gifts are not situated in the United States. In legal terms, the gift isn't "U.S. situs" property. Otherwise, you must file IRS Form 3520, the Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Note Tangible personal property, including real estate, is normally U.S. situs property, whereas many intangible assets, such as stock in foreign corporations, are not. There's no estate tax, either, provided that the decedent wasn't a U.S. citizen or a foreign national domiciled in the United States and that the property being transferred is situated outside of the United States. Gifts brought into the U.S. aren't subject to income tax, but they can be subject to the gift tax. Gift Tax Treaties The U.S. has entered into treaties with several countries for gift tax purposes, so gifts and inheritances from these jurisdictions would most likely not be reportable or taxable. You must claim the treaty exemption on a gift tax return, however, so you'd still have to file one. Income Taxes You might find yourself owing federal income taxes on a foreign asset, even if it's not derived from U.S. situs property, because the IRS taxes worldwide income. The federal government isn't particular about the national source of the funds if you received the money and are able to spend it. But this applies only to assets that produce monetary income. The first step in determining whether you must report your foreign gift or bequest to the IRS is, therefore, to determine whether the cash or property received is income or can be characterized as a gift. Income would be reported on your personal income tax return. Income represented by a foreign currency should be translated into U.S. dollars at the applicable exchange rate. Note Amounts paid for qualified tuition or medical bills on behalf of a U.S. person aren't considered to be either gifts or income. The Value of the Foreign Gift or Bequest Two qualifiers determine whether you must file Form 3520: The value of the gift or bequest received from a nonresident alien or a foreign estate—which includes gifts or bequests received from foreign persons related to the nonresident alien individual or foreign estate—must exceed $100,000 as of 2021.The value of the gifts received from foreign corporations or foreign partnerships must exceed $16,815 as of tax year 2021. This value is adjusted annually for inflation. When IRS Form 3520 Is Due IRS Form 3520 should generally be filed by the 15th day of the fourth month following the end of the recipient's tax year. This works out to April 15 for most taxpayers—the same time your 1040 return is due. If you request an extension to file your personal income tax return, Form 3520 would be due by the 15th day of the tenth month, or October 15. Penalties for Not Timely Filing You can be subject to a penalty equal to 5%, but not to exceed 25%, of the amount of the foreign gift or bequest if you're required to file Form 3520 but fail to do so. You also might be subject to a penalty if you file the form but it's incomplete or inaccurate. Note The IRS does make exceptions if you have reasonable cause. More Information About IRS Form 3520 Form 3520 is an informational return, similar to a W-2 or 1099 form, rather than an actual tax return, because foreign gifts themselves are not subject to income tax unless they produce income. You would therefore file it separately from your Form 1040 tax return. Note You can refer to the Gifts from Foreign Person and the Instructions for IRS Form 3520 when filing. Both are posted on the IRS website. Some Distinctions The gift and inheritance tax laws of the country where the foreign person or entity making the gift or bequest resides aren't a U.S. citizen's concern. The foreign person or entity must consult with tax experts in their own country to address gift and inheritance tax laws on their end. A U.S. citizen can receive unlimited gifts and inheritances from a spouse who is not a U.S. citizen. Such gifts are tax exempt. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. IRS. "Estate Tax for Nonresidents Not Citizens of the United States." IRS. "Frequently Asked Questions on Gift Taxes for Nonresidents Not Citizens of the United States." IRS. "Gift Tax for Nonresidents Not Citizens of the United States." IRS. "Instructions for Form 3520 (2021)." IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2021." IRS. "Large Gifts or Bequests From Foreign Persons."