Discussion:Inheritance or gift from foreign national

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Discussion Forum Index --> Tax Questions --> Inheritance or gift from foreign national


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Warren (talk|edits) said:

16 June 2006
Is there a tax or limit of any kind when receiving an inheritance or a gift from a foreign national that is not a US resident? I have a client whose mother is a citizen of and lives in Lebanon. She is worth a few million dollars. My client has told me that he heard from a friend's accountant that there is a $500,000 limit on gifts and inheritance from a foreigner without tax. I find no reference to this in the IRC.

Dennis (talk|edits) said:

16 June 2006
You have to be careful with transfers. Cash, for example, wants to be transferred into an account in client's name in a foreign country. You do run into problems if you do it here. Basic reference is Notice 97-34

Warren (talk|edits) said:

16 June 2006
What do you mean "you run into problems if you do it here"? We're not looking to do anything against the law or to evade taxes. I'd just like to know if it is subject to some kind of a gift or estate tax.

Warren (talk|edits) said:

16 June 2006
Notice 97-34 states that you must disclose gifts from foreign individuals over $100,000 but it doesn't say anything about a tax.

Dennis (talk|edits) said:

16 June 2006
Says a lot about penalties for failure to report, though. Not the clearest area of the law and not a specialty of mine. If the transfer is not done in US, none of this applies. I believe the annual exclusion applies and tax doesn't start until cumulative total is over $1,000,000. My understanding is that anything over annual exclusion requires 3520.

Riley2 (talk|edits) said:

16 June 2006
Warren, we are dealing with 2 different issues here.

A gift in excess of $100,000 from a nonresident alien must be reported on an information return -- use Form 3520.

Secondly, if a nonresident alien makes a gift to a resident of property that has a U.S. situs, the gift is subject to gift taxes. For example, if the NRA alien draws a check on a U.S. bank account made payable to a resident or citizen of the U.S., the gift is subject to gift tax. A similar rule would apply to a gift of U.S. real estate.

PatickC (talk|edits) said:

1 August 2006
Does US corp stock have US situs?

Dennis (talk|edits) said:

1 August 2006
Generally yes.

Riley2 (talk|edits) said:

1 August 2006
A US corporation's stock has US situs for estate tax purposes, but not for gift tax purposes.

Dennis (talk|edits) said:

1 August 2006
That's what I get for not bothering to look it up. All intangibles are excluded from gift tax for non resident aliens.

Eagle996 (talk|edits) said:

16 August 2006
So what happens when nonresident alien's gift is subject to US gift tax and said nonresident never sets foot in US and has no assets in US? Does that mean IRS can go after the resident donee? Is this codified in the IRC?

Riley2 (talk|edits) said:

17 August 2006
Eagle996, if the nonresident alien has no assets in the US, I don't see how he would be subject to gift tax.

However, a donee can be held liable for unpaid gift taxes. See Code Sec. 6901(a)(1)(A)(iii).

IntlTax (talk|edits) said:

30 January 2007
Riley, above you state "if the NRA alien draws a check on a U.S. bank account made payable to a resident or citizen of the U.S., the gift is subject to gift tax." I believe that there is an exception to gift tax for intangible property. I believe that cash (actual currency) may be considered tangible property. Do you know if there is any authority regarding whether money in a U.S. bank account is tangible or intangible property?

Riley2 (talk|edits) said:

30 January 2007
I believe that cash on deposit in the United States is considered to be intangible property under Internal Revenue Code § 2511(b)(2)(A). However, cash in a safe deposit box is considered to be tangible property. See Rev. Ruling 55-143. I believe that a check drawn on a U.S. bank and presented for payment in the United States becomes tangible property when it is presented for payment and honored by the bank. The obvious solution to the check problem is to simply make a gift of the entire bank account.

Dennis (talk|edits) said:

30 January 2007
I'm kind of with Riley on this one. Silly once upon a time ruling that bills and coins are tangible property. There are indications that a check drawn on a foreign account and cashed in US escapes (PLR 821005).

GKNOV29 (talk|edits) said:

13 February 2007
Hi Riley

You wrote A US corporation's stock has US situs for estate tax purposes, but not for gift tax purposes. Can You give me some reference to this inreseting law does it apply to a US C corporation too or only to public corporation's

Riley2 (talk|edits) said:

13 February 2007
Technically, the code provides that the gift tax will not be imposed on transfers of intangible property by a nonresident alien. You will need to look at Internal Revenue Code § 2511(b)(1) in connection with Internal Revenue Code § 2501(a)(2).

In contrast, the code provides that the estate tax will be imposed on transfers of stock (issued by a domestic coproration) by a nonresident alien. You will need to read Internal Revenue Code § 2103 in connection with Internal Revenue Code § 2104.

GKNOV29 (talk|edits) said:

13 February 2007
Hi Riley

One more Question Is a trustee personally liable for gift taxes to a Trust?

GKNOV29 (talk|edits) said:

13 February 2007
Hi Riley

One more Question Is a trustee personally liable for gift taxes to a Trust?

GKNOV29 (talk|edits) said:

14 February 2007
THANK YOU RILEY

In that case , would a shareholder in a USA "c" Corp. that holds rental properties still be intangible property even the underlying assets are real estate It is not a public Corp, just 10 shaerholders Thanks again for your help

Anne (talk|edits) said:

21 May 2007
Hi Everyone,

This is very interesting. I have a new client who is a US citizen but has relatives in India who are not. One of his Uncles has transferred ~$450,000 to an escrow company for the downpayment on my client's first home. I was going to prepare form 3520. There should be no gift tax consequences since the donor is not a US citizen, right?

Thank you!

Riley2 (talk|edits) said:

21 May 2007
Are the funds coming from a U.S. bank account? If so, may be a taxable gift.

Anne (talk|edits) said:

21 May 2007
Hi Riley,

The funds are coming from overseas going directly to the escrow company.

Riley2 (talk|edits) said:

22 May 2007
I think you are telling me that the check or wire transfer will not be drawn on a United States bank. If such is the case, then there will be no gift tax reporting issues.

Dennis (talk|edits) said:

22 May 2007
Question. If escrow fails to close, who has the right to the money?


Ginya (talk|edits) said:

10 April 2008
If my client is a Canadian citizen but a legally landed immigrant (resident alien)in the US, do the same rules apply for her as a citizen? She will be receiving about $250,000 as an inheritance from her Canadian citizen father who has never lived in the US and has no US assets.

Lazarreb (talk|edits) said:

6 May 2008
My client is a US citizen and she will be bringing money to the US from Romania. Some of the money was inherited and some is from property that may have been put in her name many years ago. Would she owe taxes on the sale of this gain? It may be a gain of $500k or more.

Riley2 (talk|edits) said:

7 May 2008
What gain and what sale?

Lazarreb (talk|edits) said:

7 May 2008
If she sold the property, would she owe taxes the gain?

Smktax (talk|edits) said:

7 May 2008
There are a number of items here. First, if she has an interest in, or signature authority over, a bank or other financial account outside the U.S. with a balance in excess of $10,000 at any time during the year, she should be filing Form TD F 90-22.1.

If she inherited cash in excess of $100,000 from a foreign person, she should report the inheritance on Form 3520. The penalty for failing to report the inheritance can be as much as 25% of the amount received (and other potentially adverse consequences).

She is a U.S. citizen and therefore she must include her worldwide income on her U.S. tax return. If she pays foreign income taxes, she may be able to claim the foreign tax credit to avoid double taxation. If the foreign property she owns generates income (e.g., dividends, rents, etc.), this income should be included on her U.S. tax return, regardless of whether the cash is brought to the U.S.

Thus, if she sells foreing property at a gain, she will need to include the gain on her U.S. tax return and she can claim foreign tax credits for Romanian tax paid.


DJCPA (talk|edits) said:

11 October 2008
Ladies & Gentlemen,

I have a client who is a non-resident alien owning property in the US. He wants to gift this property to his two daughters who are also non-resident aliens. Current value of the property is $500,000. What forms if any will he be required to file on this gift?

DJCPA

Riley2 (talk|edits) said:

11 October 2008
Send in Form 709 and a big check for the taxes.

Consider transferring the property into a foreign corporation, then gifting the stock in the foreign corporation to the daughters.

Smktax (talk|edits) said:

12 October 2008
As alluded to by Riley, there is no gift tax exclusion of #1,000,000 for nonresident aliens with property in the U.S. Thus, gift tax would be due on the gift to the extent it exceeded $24,000. Riley's suggestion may eliminate the gift taxes. For income tax purposes, the transfer to the foreign corporation will trigger gain and withholding tax under the FIRPTA rules.

DJCPA (talk|edits) said:

12 October 2008
thanks for the input. is there anything that needs to be done for NYS & NYC?

YH (talk|edits) said:

13 February 2009
Hi everyone

In this thread, one question raised in 2007 was never answered. I have the exact situation and would like know if anyone knows the answer. I understand no gift tax to a nonresident for a transfer of intanbile properties (e.g. stocks). How about, "would a shareholder in a USA "c" Corp. that holds rental properties still be intangible property even the underlying assets are real estate It is not a public Corp.." ?

  • As noted at the top of this discussion, posts from people who are not tax pros are moved to a separate discussion on the consumer forum: here.

ProTaxConsult (talk|edits) said:

19 August 2010
Greetings all!

I am a newbie...just signed up. So, please bear with me. Thanks.

FACTS: My client is a US Citizen, a single man in his late 50s'. He is semi-retired and is currently residing in Asia. He has no property/assets in the US.

His parents [living in Asia, NRA (Non Resident Aliens), never lived in the US and don't own anything in the US] have given him

(a) cash inheritance of US$500,000. Said amount has been transferred to a Dollar checking account under his name in a 100% local Asian bank (NOT a branch of a US bank) and,

(b) a condo worth US$100,000 in the Asian city, with the deed under his name. He has dual citizenship...US & Asian. Condo is for his private use when he visits, not being rented. He has complied with paying the necessary local taxes.

(c) he may receive additional cash inheritance, between US$200,000 - 400,000.

QUESTIONS: 1. In the threads I have read, it is clear that there is no US Tax on inheritance and, no upper limit on the amount. Am I correct? Of course, Form 3520 & Form TD F 90-22.1. would need to be filed.

2. Can he wire transfer the full amount ($500,000) from his Asian bank account to his US Bank account without facing any problems in the US since the funds came from his account overseas?

3. What if he does not transfer, continues to operate the Asian account; would he be subject to any US taxation? I presume he will have to report the amount in his US tax returns, correct?

4. If and when he receives additional cash inheritance down the road, would that amount also be non-taxable since there is no upper limit? There is no US$ 1 million limit in a calender year, correct?

5. The source/origin .. meaning, where/how/when the parents accumulated the money) .. is not up for question by the IRS, correct?

6. The condo will have to be reported in his returns, correct? Down the road, if he sells it and there is capital gain, will that amount be subject to taxation? Or not, because then it would be double taxation? [the Asian country does have a Tax Treaty with the US].

Thanks in advance for the input!

Jeffnun (talk|edits) said:

6 January 2011
I have another wrinkle in the foreign inheritance scenario. A US citizen is the executor and beneficiary of mother's estate who is a NRA with zero US assets Reading the instructions to 1041 it seems that as a fiduciary of a foreign estate a modified form 1040NR has to be filed along with TDF 90-22.1 and 3250. Does a 3250-A also need to be filed or not because the decedent was not a US person?
  • post from a non-pro has been moved to the discussion linked (and explained) in the blue box at top of page

MKinfo (talk|edits) said:

26 April 2011
This is a duplicate post - please see the discussion MKinfo had already started, with the same question, here: Discussion:Rejected Inheritance from Non-Resident Alien.

Shaib1 (talk|edits) said:

21 June 2011
My client is a US resident that holds a rental property abroad (reported on Sch E). He plans to gift the asset to his parents who do not live in the US and are not US citizens. The Value of the asset is $600K, so potentially it is below the lifetime exclussion. It doesn't make sense to me that a US resident could gift assets to foreign persons without tax implecations. Can anyone shed some light on this?

Thewizardof (talk|edits) said:

2 July 2011
I would start by looking at Pub 515 and Pub 901.

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