Gift Tax for Non-Residents who Transfer U.S. Property Situs: When a U.S. Person receives a gift from a foreign person, the IRS may require the Taxpayer to file a Form 3520, if the threshold exceeds the reporting threshold. There are different thresholds depending on whether the foreign person is an Individual or Entity. There are also related party rules to be aware of. But, the key ingredient is that the foreign person (who gave the gift) is not the person who has to file the form with the Internal Revenue Service.

Why?

Because the U.S. Government cannot exert tax or reporting requirements over a foreign person giving a foreign property gift, just because that person gave a foreign gift to a U.S. Person.

But, What if the Foreign Person gifts U.S. situs to a U.S. Person?

Non-Resident Gift of US Situs Property Example

Here is a common example we see often: Miranda is a U.S. Legal Permanent Resident.

Her foreign parents wanted to buy her a home, but they did not want her daughter to deal with FBAR & FATCA.

Therefore, instead opening an account overseas and depositing the money in the account for Miranda to purchase the house, they purchased the home direct — and then gifted it to Miranda.

Reporting the Non-Resident U.S. Situs Gift

The problem in this scenario, is that instead of giving Miranda a foreign money gift (in which Miranda would simply file a Form 3520), her parents (Non-Resident Aliens) gifted her U.S. Situs.

As a result, her parents must file a Gift Tax Return, and pay U.S. gift tax on the gift.

As provided by the IRS:

“Donors who are nonresidents not citizens of the United States are subject to gift (and generation-skipping transfer (GST)) taxes for gifts made of real and tangible property situated in the United States.

A person is considered a nonresident not a citizen of the United States if he or she, at the time the gift is made,

(1) was not a citizen of the United States and did not reside there, or

(2) was domiciled in a United States possession and acquired citizenship solely by reason of birth or residence in the possession.

Under certain circumstances, nonresidents who are not U.S. citizens are also subject to gift (and GST) taxes for gifts of intangible property. See sections 2501(a) and 2511(b).

If you are a nonresident not a citizen of the United States who made a gift subject to U.S. gift tax, you must file a gift tax return (Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return) when any of the following apply:

  • You gave any gifts of future interests.
  • Your gifts of present interests to any donee other than your spouse total more than $15,000 (for 2020).
  • Your outright gifts to your spouse who is not a U.S. citizen total more than $157,000 (for 2020).”

If you are in the situation of not filing a gift tax return or form 3520, it is important to get compliant.