What are the tax reporting requirements in the United States for a US resident receiving a substantial one-time inter vivos cash gift from a parent in Pakistan, with the funds being transferred directly from the parent’s Pakistani bank account to the recipient’s US account? The gift originates from the sale of real estate owned by the father in Pakistan, and there are no complicating factors such as trusts or nominees involved. The recipient does not have any financial accounts in Pakistan. Is Form 3520 the only requirement, or are there other necessary steps for reporting this international gift under US tax law?

When a U.S. resident receives a substantial cash gift from a parent in Pakistan, there are specific tax reporting requirements under U.S. law that must be adhered to. The key aspect to understand is the application of these requirements to international transactions, particularly gifts from foreign nationals.

Gift Tax Considerations:The U.S. imposes gift taxes on transfers where the donor receives nothing, or less than full value, in return. However, for a nonresident not a citizen of the U.S., the gift tax is typically applicable to the transfer of U.S.-situated property. Since cash is considered intangible personal property, a cash gift from a Pakistani account to a U.S. account, regardless of its size, would not trigger U.S. gift tax.

Documentation of the Gift: It is advisable to maintain written documentation of the gift. This is crucial for clarification purposes, as the IRS might otherwise classify the transfer as foreign undisclosed income, especially if the gift is substantial.

IRS Form 3520: The primary reporting requirement for the recipient in the U.S. is to file Form 3520 with the IRS. This form is used to report:

• Transactions with foreign trusts,
• Ownership of foreign trusts under sections 671 through 679,
• Receipt of large gifts or bequests from foreign persons.

Filing Criteria: Form 3520 is mandatory in situations where:

• A U.S. person receives more than $100,000 from a nonresident alien individual or a foreign estate that is treated as gifts or bequests.
• Transactions involve certain foreign trusts.

Potential Need for Additional Reporting: It’s important to note that there may be additional filing requirements such as FinCEN Form 114 (FBAR) and Form 8938 for reporting foreign financial assets, depending on the specifics of the taxpayer’s situation.

Illustrative Example: Consider a U.S. resident, Jane, who receives $150,000 from her father in Pakistan. The money is transferred from her father’s Pakistani bank account to Jane’s U.S. account. In this case, Jane would need to file Form 3520 to report the receipt of this gift. However, she would not owe any U.S. gift tax on this transfer. Adequate documentation should be maintained to substantiate the nature of the transfer as a gift.

Conclusion: Navigating the U.S. tax requirements for international gift transactions requires a clear understanding of the relevant laws and regulations. For those seeking deeper insights or personalized advice, it’s advisable to consult with a Certified Public Accountant (CPA) specializing in international taxation.

Note: This article is for informational purposes only and does not constitute legal or tax advice. Consult a tax professional for advice specific to your situation.