Updated Reporting Requirements for Foreign Gifts and Foreign Trusts
Proposed Treasury Regulations (the “Proposed Regulations”) have recently been issued to update and clarify existing reporting obligations for U.S. persons who receive gifts from abroad or who are owners or beneficiaries of foreign trusts. These gifts, ownership interests, and distributions are required to be reported annually to the Internal Revenue Service (“IRS”) using Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. The Proposed Regulations provide guidance under Internal Revenue Code (“IRC”) Sections 643(i), 679, 6039F, 6048, and 6677 with respect to reporting receipt of large foreign gifts, transactions with foreign trusts, and loans from, and uses of, property of foreign trusts.
Foreign Gifts
IRC Section 6039F requires U.S. persons to report the receipt of large gifts from a foreign person during the U.S. person’s tax year on Form 3520. The reporting threshold is a gift or gifts, in the aggregate, of more than $100,000 received by the U.S. person from foreign individuals and/or foreign estates during the applicable tax year. Special rules apply in the case of gifts from foreign partnerships and corporations. The Proposed Regulations would increase the threshold amount for reporting gifts from foreign individuals or foreign estates by a cost-of-living adjustment and clarify the rules for aggregating foreign gifts from persons related to the transferor.
The receipt of any gifts or bequests from a foreign individual or estate meeting the reporting threshold requires the U.S. person to report the date of the gifts or bequests, a description of the property received, and the fair market value of the property received. The Proposed Regulations would now also require disclosure of the donor of the reportable gift in all circumstances, removing the anonymity of the foreign individual donor or foreign estate under current law. Under current rules, the IRS only requires a donor’s identifying information (name, address, and any identifying number) for gifts from a foreign partnership or corporation.
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