Scenario: U.S. tax person (individual) has european parents (non-US citizen), who are offering to make a larger monetary gift (>$100k; by wire transfer). Gift taxes etc are assessed and paid based on parents' country law. It appears that IRS Form 3520 needs to be filed along with the standard 1040 - correct? In addition, is there any other form of declaration needed and does this gift/money have any consequence on the U.S. person's income tax filing (assume married filing jointly)? If yes, what to look out for?
Thank you!
This is an excellent question and an area that's often misunderstood. Gifts of the type you are describing are not generally taxable to the recipient, but to the person making the gift. When the gift is larger than the federally allowed maximum amounts (as in this case), federal gift taxes may apply. But keep in mind that if structured properly, it's possible to avoid taxation on the transaction all together.
Form 3520 would be appropriate if the transaction were you and a foreign trust or international gift that meets certain criteria but that may not be the case here. And again, if structured properly, you can avoid the tax implications alltogether.
Because of the amonts and the international nature of the transaction, you should consult a tax professional who's also familiar with international transactions of this type. The steps to take are not complicated but they are critical. By doing so you'll save yourself lots of headaches on several fronts.
You are correct that you have to file Form 3520, since you are receiving more than $100,000 from a nonresident alien. FYI, the IRS has been sending request to Form 3520 filers to provide an amount for line 23, even when it is not applicable to them.
If your parents make the wire transfer from their foreign account, they are not subject to US gift tax. However if they make the wire transfer from a US account, generally this would be considered a gift of US asset, and your parents would be subject to US gift tax and have to file Form 709.
The other lawyers are correct that the gift is not taxable to you. At moment, there are no questions on Form 1040 regarding receipt of foreign gifts unlike distributions from foreign trust, so you don't have to report it on your 1040.
