Foreign gifts are not taxable as income under U.S. federal law, but if the amount is large enough you have to report the gift to the IRS on Form 3520, and the penalty for missing that filing is 5% of the gift’s value per month up to 25%. So the money itself is yours to keep tax-free; the paperwork is where the risk lives.
Under the Internal Revenue Code, property you receive as a gift or inheritance is excluded from gross income, whether the giver lives in the United States or abroad.1Office of the Law Revision Counsel. 26 U.S.C. 102 – Gifts and Inheritances Cash wired from a parent overseas, an inherited apartment abroad, shares transferred by a foreign friend — none of it goes on your Form 1040 as income.
One qualifier matters: income the gifted property later produces is taxable like any other income. If you inherit a rental flat in another country, the rent is taxable. If you receive foreign stock, the dividends are taxable. The gift is tax-free; what it earns afterward is not.
When a Foreign “Gift” Is Actually Taxable
The IRS looks harder at gifts from foreign corporations and partnerships than at gifts from individuals, because a transfer from a business entity is often something else in disguise — compensation, a dividend, or a distribution.
Federal regulations say that a purported gift from a foreign corporation generally has to be treated as a distribution from that corporation, which can be taxed as a dividend to the extent of the corporation’s earnings and profits.2eCFR. 26 CFR 1.672(f)-4 – Recharacterization of Purported Gifts If the corporation is a passive foreign investment company, additional rules can push the tax higher. A $50,000 transfer from a foreign company to someone who isn’t a shareholder and gives nothing back is not a tax-free gift in the eyes of the IRS; it’s a corporate distribution.
That recharacterization risk is one reason accurate reporting matters. Treating money from a foreign business as a tax-free gift without disclosing it can produce both an unexpected tax bill and a penalty.
Reporting Thresholds for Foreign Gifts
You only have to file Form 3520 if the gifts you received during the year cross a dollar threshold, and the threshold depends on who gave them to you.
- Gifts from a nonresident alien individual or a foreign estate: report if the total from that source during the year is more than $100,000.3Internal Revenue Service. Instructions for Form 3520 (12/2025)
- Gifts from a foreign corporation or foreign partnership: the threshold is much lower and is adjusted for inflation each year. For tax year 2024 it was $19,570. Check the current-year figure in IRS guidance before filing.4Internal Revenue Service. Gifts From Foreign Person
Add together gifts from the same source, and from sources you know or have reason to know are related.3Internal Revenue Service. Instructions for Form 3520 (12/2025) $60,000 from a foreign uncle plus $50,000 from his spouse in the same year is $110,000 in aggregated gifts, over the individual threshold.
Payments That Don’t Count
Direct payments of tuition to an educational institution and direct payments of medical bills to a healthcare provider are “qualified transfers” and are not treated as gifts at all for tax purposes.5eCFR. 26 CFR 25.2503-6 – Exclusion for Certain Qualified Transfer for Tuition or Medical Expenses This holds even when the payer is a foreign person and the school or provider is outside the United States. If a relative abroad pays your university directly, or pays a hospital directly, that money doesn’t count toward the $100,000 threshold and doesn’t go on Form 3520. The condition is that the money goes to the institution, not to you first.
Who Has to Report
The filing obligation falls on “U.S. persons,” a category broader than U.S. citizens living inside the country. You count as a U.S. person if you are a U.S. citizen (regardless of where you live), a lawful permanent resident (green card holder, even one who spends most of the year abroad), or a resident alien who meets the substantial presence test based on days physically present in the United States.4Internal Revenue Service. Gifts From Foreign Person6Internal Revenue Service. Substantial Presence Test
If you are a U.S. citizen or resident living outside the United States, your Form 3520 is due on the 15th day of the sixth month after the end of your tax year rather than in April.4Internal Revenue Service. Gifts From Foreign Person
What Form 3520 Asks For
Part IV of Form 3520 handles foreign gift reporting. For each gift from a foreign individual or estate above the threshold, you report the date received, a description of the property (including whether it’s tangible or intangible), and the fair market value at the time of transfer.3Internal Revenue Service. Instructions for Form 3520 (12/2025) Cash values itself; real estate, art, or jewelry needs an appraisal. You don’t have to name the individual donor unless the IRS later asks.
For gifts from a foreign corporation or partnership, you must give the entity’s full name and current address.7Internal Revenue Service. Form 3520 – Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts If you have reason to believe the person handing you the money was acting as a nominee for someone else, you have to disclose that too, and attach a statement identifying the true source if that source is a foreign corporation or partnership.3Internal Revenue Service. Instructions for Form 3520 (12/2025) If the actual source is a foreign trust, the transfer isn’t a gift at all — it’s a trust distribution, reported in Part III of the same form.
How and When to File
Form 3520 is a paper filing. Electronic filing is not available as of the most recent IRS instructions. Mail it to:
Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 844093Internal Revenue Service. Instructions for Form 3520 (12/2025)
Use a mailing method with delivery confirmation so you have proof it arrived. The deadline matches your income tax return: April 15 for calendar-year filers, and if you get an extension on your 1040, the Form 3520 deadline automatically extends to October 15.3Internal Revenue Service. Instructions for Form 3520 (12/2025) No separate extension request is needed. Form 3520 is filed on its own, not attached to your 1040.
Penalties for Not Filing
The penalty for a late or missing Form 3520 is 5% of the gift’s value for each month or part of a month it is late, capped at 25%.8Internal Revenue Service. International Information Reporting Penalties On a $200,000 gift, that’s $10,000 a month, reaching $50,000 after five months. The penalty applies even though the underlying gift is not taxable.
There’s a second consequence. If you don’t file, the IRS gains the authority to determine the “tax consequences” of the transfer itself.9Office of the Law Revision Counsel. 26 U.S.C. 6039F – Notice of Large Gifts Received From Foreign Persons In practice, that can mean reclassifying the “gift” as taxable income, adding a tax bill on top of the penalty.
Reasonable Cause and Fixing a Late Filing
The penalty can be waived if you show reasonable cause — that the failure was not due to willful neglect.9Office of the Law Revision Counsel. 26 U.S.C. 6039F – Notice of Large Gifts Received From Foreign Persons The IRS decides case by case. Not knowing the rule existed usually isn’t enough on its own; incorrect professional advice or genuine difficulty getting information from abroad can help. A foreign country’s own penalties for disclosure do not count as reasonable cause.
If you are not under audit or criminal investigation and haven’t been contacted about the missing form, you can file a delinquent Form 3520 through normal channels with a written reasonable cause statement attached.10Internal Revenue Service. Delinquent International Information Return Submission Procedures Expect the IRS to sometimes assess a penalty during processing anyway, requiring you to respond and ask for reconsideration.
The streamlined filing compliance procedures are a second option, available to taxpayers whose failure to report was non-willful — the result of negligence, mistake, inadvertence, or a good-faith misunderstanding of the law.11Internal Revenue Service. Streamlined Filing Compliance Procedures They are open to taxpayers both inside and outside the United States, but require a certification under penalty of perjury that the conduct was non-willful. Anyone already under IRS examination or criminal investigation cannot use them.
Related Filings a Foreign Gift Can Trigger
The gift itself is one filing. Where the money sits afterward can create others.
If the gift lands in a bank account outside the United States and the combined balance of all your foreign accounts crosses $10,000 at any point during the year, you have to file an FBAR (FinCEN Form 114).12Internal Revenue Service. Report of Foreign Bank and Financial Accounts (FBAR) The FBAR is filed electronically through the FinCEN BSA E-Filing System, separate from your tax return. It’s due April 15 with an automatic extension to October 15. Willful FBAR violations carry penalties that can reach the greater of $100,000 or 50% of the account balance.
The Foreign Account Tax Compliance Act adds another form. Form 8938 reports specified foreign financial assets — foreign bank accounts, foreign investment accounts, interests in foreign entities — if their total value crosses thresholds that depend on filing status and whether you live in the United States or abroad. For unmarried filers living in the U.S., the thresholds are $50,000 on the last day of the year or $75,000 at any point during the year; for joint filers, $100,000 and $150,000. Filers living abroad have higher thresholds. Form 8938 is filed with your income tax return. Assets already reported on Form 3520 don’t have to be duplicated on Form 8938, but that overlap only covers the specific assets on the 3520, not all your foreign holdings.