Gift tax from foreign parents

[Martingale Kim]

my parents in law want to give us $60,000.

i know there's a $16,000 gift tax limit. 

so to qualify this limit, does my parents-in-law need to wire me and my wife respectively 4 times at $15,000 each time?

what will be the form to file it in my federal and MD tax return if it is needed?

[Jonathan R McLaughlin]

the limit is a yearly one, so its not the amount of transfers that matter. However--and check the law not a guy on the internet--I believe each parent can give each one of you 16,000 in any given year. 

So that would be her mom gifting you 16K and her 16K and then her Dad gifting you 16K and her 16K...same number of gifts but different rationale and methodology; does that make sense?

I don't know if that limit changes if the couple who is getting the gifts files jointly and PLEASE ask someone who does...but the concept is directionally right, especially from the giver side.

[David M.]

@Martingale Kim

Your subject says "foreign parents."  Do your in-laws have US citizenship?  Gift tax is paid by the gifter, in this case your in-laws.  However, if they aren't us citizens they aren't subject to US Federal income tax and its gift tax.  Since you are receiving the gift, there is nothing for you to declare.

Otherwise, probably to make it clean you would have 4 separate transactions, each person to each person criss-crossing..  But, probably okay to send it one shot assuming you have joint accounts.

Of course, double check with a qualified professional.

[Martingale Kim]

Quote from @David M.:

@Martingale Kim

Your subject says "foreign parents."  Do your in-laws have US citizenship?  Gift tax is paid by the gifter, in this case your in-laws.  However, if they aren't us citizens they aren't subject to US Federal income tax and its gift tax.  Since you are receiving the gift, there is nothing for you to declare.

Otherwise, probably to make it clean you would have 4 separate transactions, each person to each person criss-crossing..  But, probably okay to send it one shot assuming you have joint accounts.

Of course, double check with a qualified professional.

no. they are not us citizen. thanks for the reply. I didn't realize it's the gifter who need to pay tax. doesn't make perfect sense isn't it?
why not the people who receives money to pay tax? anyway, that's probably beyond the discussion here.

and we don't have joint account. try to avoid small fees here by doing one shot.
thanks a lot.

[Jonathan R McLaughlin]

@David M. good catch on the foreign parents, I missed that, but are you sure about not having to declare?  Thats ringing alarm bells for me.

@Martingale Kim well I'm absolutely sure David and I agree that you need to talk to a professional. Thats a fair amount of money to make a mistake with.

[Jonathan R McLaughlin]

@Martingale Kim @David M. or we could look it up: here is the IRS web site:

General Rule: Foreign Gifts and Bequests

In general, a foreign gift or bequest is any amount received from a person other than a U.S. person (a foreign person) that the recipient treats as a gift or bequest and excludes from gross income. A foreign gift does not include amounts paid for qualified tuition or medical payments made on behalf of the U.S. person.

A foreign person includes a nonresident alien individual or foreign corporation, partnership or estate, as well as a domestic trust that is treated as owned by a foreign person. Distributions from a foreign trust are reportable on Part III of Form 3520. See instructions to Part IV of Form 3520 for more information.

Reporting Requirements

You are required to report the receipt of foreign gifts or bequests only if the applicable threshold is exceeded. For purposes of determining the reporting thresholds, you must aggregate gifts received from related parties. See the instructions to Part IV of Form 3520 for more information; see also Section VI of Notice 97-34PDF.

• For gifts or bequests from a nonresident alien or foreign estate, you are required to report the receipt of such gifts or bequests only if the aggregate amount received from that nonresident alien or foreign estate exceeds $100,000 during the taxable year. If the gifts or bequests exceed $100,000, you must separately identify each gift in excess of $5,000.
  
• For purported gifts from foreign corporations or foreign partnerships, you are required to report the receipt of such purported gifts only if the aggregate amount received from all entities exceeds $16,815 for 2021 (adjusted annually for inflation). You must separately identify each gift and the identity of the donor. Note that the IRS may recharacterize purported gifts from foreign corporations or foreign partnerships.

[David M.]

@Martingale Kim so, if somebody gifts YOU money, YOU have to pay tax??  Gifts are normally part of itemized deductions of the GIFTER.  It reduces their taxable amount....  The Gov't promotes gifting/ philanthropy...

@Jonathan R McLaughlin nice catch...  I'm guessing that's legislation (Patriot Act, or any others in say past 10 years) --- or maybe I just didn't know ...  :)

At least in this case, its below the $100k threshold.

[David M.]

@Jonathan R McLaughlin did you see whether there is any tax liability if reported on form 3520?  Just curious if it was just a declaration thing vs reportable jncome

[Basit Siddiqi]

Whenever dealing with foreign transactions/accounts - you want to make sure that the proper forms are timely filed.
The penalties for failure to do so can be large.