Article

Gift or inheritance from a foreigner: what you need to know

May 29, 2025 · Authored by Michael Lum, April Maschke

Imagine this: You’re a citizen or tax resident of the United States (a U.S. person), and you receive a gift or inheritance from a non-U.S. person. After the initial excitement of sudden enrichment wanes, you wonder - how does this affect my taxes?

In general

The U.S. doesn’t tax gifts or inheritances. In other words, you can get an unlimited number of gifts and inheritances tax-free. Of course, if you still own those assets at death, your estate may have to pay U.S. estate tax. In 2025, $13.99 million per U.S. person is excluded from U.S. estate and gift tax. Amounts over that are taxed at 40%, unless given to a U.S. citizen, surviving spouse or charity. Additionally, you may have disclosure requirements or be responsible for income taxes on income generated by assets received throughout your lifetime.

The tax favorable rules for receivers of gifts and inheritances don’t apply to givers. A giver who is a U.S. person must pay U.S. gift or estate tax when making gifts or leaving inheritances over the above threshold. A giver who is a non-U.S. person must pay U.S. gift or estate tax on transfers of U.S. situs property (i.e., property that is considered to be located in the U.S.). For example, a non-U.S. person with U.S. real estate could incur gift tax if the property is transferred during life or estate tax if the property is held at death. Moreover, compared to the high exemptions for U.S. persons, the exclusion from U.S. estate tax for non-U.S. persons is only $60,000, and other than the annual exclusion ($19,000 in 2025), no exclusion is available for U.S. gift taxes. In limited circumstances, tax treaties may be available to alter the standard treatment.

Gift or inheritance from a covered expatriate

Since under the default rule, gifts and inheritances aren’t taxed to U.S. recipients, you’re in the clear, right? Not so fast. There is an important exception - The IRS will tax certain gifts and inheritances from “covered expatriates,” although the filing requirement is deferred until the IRS releases Form 708 discussed below.

Generally, a “covered expatriate” is a person who has relinquished their U.S. citizenship or long-term resident status (i.e., relinquishment of a green card held for at least eight of the last 15 calendar years) and meets any of the following criteria:

• The person’s average annual income tax for the five years before expatriation exceeds the applicable threshold in effect as of the expatriation date ($206,000 in 2025).
• The person’s net worth at expatriation is $2 million or more.
• The person fails to certify to the IRS that they have complied with all U.S. federal tax obligations for the five years before expatriation.

If an expatriate meets any of these criteria, they are considered a “covered expatriate” and a gift or inheritance that a U.S. person receives from the covered expatriate will be taxed at the highest estate tax rate (currently 40%), unless the Internal Revenue Code otherwise excludes the gift or inheritance.

Among others, the following transfers are excluded:

• Transfers reported on a timely filed U.S. gift or estate tax return.
• Transfers that would qualify for the marital or charitable deduction if the covered expatriate were a U.S. person.
• Transfers not exceeding the gift tax annual exclusion amount ($19,000 in 2025).

If this tax applies, the recipient pays it. The recipient is likewise responsible for determining whether the gift giver meets the definition of “covered expatriate.”

Importantly, the tax applies not only to property acquired directly from the covered expatriate, but also to property acquired indirectly, such as through a trust.

Tax disclosures

The IRS requires certain disclosures when a U.S. person receives a gift or inheritance from a non-U.S. person and meets certain criteria.

Form 3520

You must file the Form 3520 if you:

• Receive a gift or inheritance directly from a non-U.S. person of more than $100,000 in a calendar year, or
• Receive a distribution from a foreign trust, regardless of the distribution amount. Trust distributions may include the use of trust property.

Note: In addition to the circumstances above, there are other instances that necessitate filing Form 3520, which are beyond the scope of this article.

Failure to timely report a foreign gift or inheritance can result in penalties of:

•  5% of the gift amount per month, up to 25%, for direct gifts, or
• The greater of $10,000 or 35% of the value of a distribution from a foreign trust.

Note: The form is filed separately and is due on the same date as your income tax return, including extensions.

Form 708

You must report gifts or inheritances from covered expatriates that are not otherwise excluded from reporting on Form 708. The IRS has not yet released this form. The current estimated release date is mid-2027. Requirements to file are anticipated to begin after issuance of the form.

Form 8938

As a beneficiary of a foreign trust or estate, you may be required to file Form 8938 if you meet certain reporting thresholds that depend on your filing status and whether you live inside or outside the U.S. The form is filed as part of your overall U.S. income tax return and is subject to the same due dates, including extensions. The minimum penalty for failing to disclose the required information is $10,000.

Conclusion

Gifts and inheritances are most often blessings, but when they come from foreigners, they carry with them additional reporting obligations and, if received from a covered expatriate, potentially additional taxes.

Questions?

Connect with our team of advisors if you’ve received or expect to receive a gift or inheritance from a non-U.S. person to determine the reporting and tax implications.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.