Tax Reporting Requirements for Gifts

For gifts over $16,000, or multiple gifts totaling at least $16,000, the IRS requires the transaction(s) to be reported in tax filings each calendar year. Depending on the circumstances of the donor, this obligation may fall upon you. The penalties for failing to file can be steep, so ensuring that the gift is properly reported is always in your best interest.

Who Has to Report the Gift?

The reporting requirement is dependent on the citizenship status of the donor. If the donor is a United States taxpayer who makes a gift in excess of the annual exclusion amount ($16,000 for 2022), it is their responsibility to file a Form 709, Gift Tax Return. There are certain exceptions, including a gift made from one U.S. spouse to another U.S. spouse.  In that case, no gift tax return is required to be filed. There are other important exceptions as well.

On the other hand, if the donor is a non-U.S. person, the obligation to report the gift falls on the U.S. recipient.  He or she must filed IRS Form 3520 to report the receipt of a gift from a non-US person if (a) the gift or gifts is more than $100,000 from a foreign person or estate; or (b) the gift or gifts is more than $15,601 from a foreign partnership or corporation.

Why?  Because the foreign donor is not required to report or file United States tax. The story doesn’t end there, though – in both cases, there are some specifics to keep in mind to ensure you’re fulfilling your reporting requirements, and avoiding heavy taxes on your received gifts. 

For U.S.-Based Donors 

Donors from the United States should always be sure to file a gift tax return with their yearly income tax returns. Thanks to the lifetime exclusion, they won’t owe tax on the gift until they’ve given away more than $12 million dollars. The fact that they likely won’t pay taxes, however, doesn’t exclude them from reporting the gifts they make each year. The IRS is persistent in making sure that gifts are properly reported, and in recent years, has begun searches of estates to find gifts given or received that were not reported. By giving a gift during their lifetime, the donor also gains the benefit of reducing their taxable estate.

For Non-U.S.-Based Donors 

If your donor is not a United States taxpayer, then the onus is on you as the recipient to report the gift. For 2022, gifts that do not exceed $100,000 from a foreign individual or estate, or about $17,000 from a foreign business do not need to be reported. Any gifts (in the aggregate) that exceed these minimum threshold amounts must be reported by the U.S. recipient on IRS Form 3520.  If you fail to file this form on time, or your filing is inaccurate, you may be subject to a penalty of up to 25% of the total gift – a steep late fee that you’ll surely want to avoid.

Even if no tax is due thanks to the lifetime exclusion, it’s still well worth the time of yourself or your donor to file the gift. Properly filing your gift taxes not only ensures that you’ll stay out of trouble but can also provide some substantial benefit to yourself or the donor. If you run into any tax trouble, however, be sure to contact our team at (305) 374-5544 for qualified and experienced tax litigation representatives.

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Weisberg Kainen Mark, PL

As experienced trial lawyers with a passion for justice, our firm provides clients with compelling advocacy, attorney availability, and creative solutions to your tax or criminal law matters.

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