Even if you are not required to pay taxes, you may still need to report foreign gifts and inheritances.

Upon arriving in Florence, Italy, we all know that tax season means deadlines for filing tax returns for Form 1040. While individual tax returns may attract all the attention, several other informational and reporting forms and receipts may also be required—especially for assets that may quietly fall outside your everyday view, such as foreign gifts and inheritances. This can be complicated because you may have a reporting obligation even if no tax is due. To cover all aspects, here is a brief overview of the declarations and forms you may need to file if you have acquired, inherited, received as a gift, or otherwise obtained assets outside the U.S.

Foreign financial accounts

In accordance with the Bank Secrecy Act (31 USC §5314), every U.S. citizen with a financial interest or signature authority or other authority over one or more foreign financial accounts with a total value exceeding $10,000 must report this account annually to the Department of the Treasury. This is done by filing Form 114, Report of Foreign Bank and Financial Accounts - more commonly known as FBAR. FBAR is an annual report that is due on April 15 (unless it falls on a weekend or holiday). This is the same deadline as Tax Day. However, you do not file FBAR with the IRS; you file it electronically with the Financial Crimes Enforcement Network (FinCEN). If you cannot file by the deadline, you can receive an automatic extension until October 15. Failure to file can result in a tax penalty, depending on whether the violation is willful or non-willful. Penalties can be severe, but typically the penalty for a non-willful violation is $10,000. However, due to a recent Supreme Court ruling, the penalty for a non-willful violation is assessed for each report, not for each account.

• If you received a gift or inheritance (including multiple gifts from the same person) worth more than $100,000 from a non-resident of the U.S. or their estate, you must file Form 3520.
• If the gift was received from foreign organizations, such as partnerships or corporations, the threshold is much lower - only $18,567 for 2023 or $19,570 for 2024.

• A foreign gift is money or other property that you consider a gift or inheritance and exclude from gross income - foreign gifts are generally not subject to taxation.
• Form 3520 also applies to certain transactions with foreign trusts, including distributions.

Foreign trust funds with American ownership

Form 3520-A is closely related to Form 3520.

Foreign financial assets exceeding certain amounts

You file Form 8938 if you are a citizen or resident of the United States with an interest in specified foreign financial assets exceeding the applicable reporting threshold based on your tax status. The thresholds for taxpayers living in the U.S. are:

• For individual taxpayers: more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.
• For married couples filing jointly: more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year.
• For married couples filing separately: more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year.

• The listed foreign assets may include (but are not limited to) foreign bank accounts, foreign stocks and bonds, foreign investment funds, foreign pension plans, and foreign life insurance policies.

Additional aspects

This doesn't necessarily end here. It may turn out that you need to submit additional forms. For example, some U.S. citizens and residents who are officers, directors, or shareholders in certain foreign corporations may be required to file Form 5471, while you may need to file Form 5472 if your U.S. company has a foreign person who owns at least 25% of the company's shares or if your foreign company is engaged in activities in the U.S. The rules can be complex from form to form - be sure to familiarize yourself with the regulations. Moreover, some individuals may need to file multiple forms at the same time - for instance, Form 8938 and FBAR in the same year. If you have interests in foreign assets or companies, or if you expect a gift or inheritance from abroad, it is advisable to consult a tax professional.