Nonresident Gift Tax

Re your fact set: The only gift tax exclusion available to an NRA is the annual $16000 limit per donee. Other than that, gifts of real and tangible personal property are subject to US Gift Tax. See the following IRS FAQs on this subject. Any gift tax paid does add to the cost basis of the property.

t.ly/1y1g

Thanks. That's what I thought. But I couldn't find it in the code, so I was confused.

OK, finally found it. It's in sectioen 2505 - the credit under section

Alan (or Tempuser, if you prefer),

My client is inheriting money from a UK estate. Estate is unlikely to pay U.S. tax on funds. What happens here?

Nothing happens. For US income taxes the money is treated just like inherited money is treated from a US estate. If the client resides in a US state that taxes inheritances, then you must look to that state's law.

There may be a reporting requirement. IRS Form 3520 has to be filed with the IRS when one receives gifts or bequests valued at more than $100,000 from a nonresident alien individual or foreign estate.

There is one possible thing. He said there is an inheritance from a UK estate. But he doesn't specify that the property being inherited is located in the UK. If any of that is located in the US, then gift or estate tax will apply to that portion of the inheritance.

He actually said he inherited money.

Is money considered intangible property for this purpose?

Not sure why you are asking this unless you are wondering what if the foreign estate owned financial accounts in the U.S. The beneficiary still gets the funds without any tax implications, but the foreign estate may be subject to US estate tax.

According to Tempuser snipped-for-privacy@vacationmail.com:

If it's a foreign estate with no US contacts other than the beneficiary, how would they collect the estate tax? The IRS sends the foreign estate a bill, the estate throws it away. Then what?

That was my point. If cash is located in the US, it could be subject to gift/estate tax even if the donor was a non-citizen/non-resident who was not in the US at the time of the gift. If gift tax is due but the donor doesn't pay it, they can go after the donee.

I asked about intangible property because stock in a foreign corporation is considered intangible property. Even if it owns property in the US, if that stock is gifted by someone who is not a citizen or resident of the US, there will be no US gift or estate tax on it.

Then they can go after the beneficiary. Technically they go after the assets given to the beneficiary.

Let's try and be clear here so that the original query and answer is not lost. A US citizen or US resident alien who receives a bequest of money from a foreign estate is not subject to any tax. If the amount of the bequest is more than $100,000 there is a reporting requirement.

The foreign estate might be subject to US Estate Tax if there was US situs property in the estate and it exceeded the allowable threshold.

None of this has anything to do with gift taxes because there is no gift involved.

If you want to broaden this subject to include foreign entities subject to US gift and estate taxes then it gets real complicated because property can be tangible or intangible depending upon whether it is a gift or a decedent's bequest. Oh, it can also get real complicated figuring out what is US situs property.

Thank you.

unlikely

Basically that's correct. However if the client has one or more accounts outside the US that at any time during the year hold, in the aggregate, more than $10,000 in value, it has to be reported (though there is no tax). You report the account(s) by filing a Report of Foreign Bank and Financial Accounts (FBAR) on Financial Crimes Enforcement Network (FinCEN) Form 114.

In addition, if the inheritance is worth more than $100,000, there is another reporting requirement - the person has to file IRS Form 3520. Again, this is reporting only - there is no tax.