Monetary gifts from nonresidents

Dear Tax Talk,
I have contacted three different tax specialists (including H&R Block, the Internal Revenue Service and a local tax office), and have received three completely different answers. I am a resident alien and my parents (German citizens living in Germany) want to give me around $45,000 for a down payment on real estate. I received $11,000 last year and $11,000 this year because of the gift tax. After reading some of your answers, I am now completely confused since it almost sounds like there wouldn't be a tax burden on either my parents or me, even if they'd send the whole amount. Did I understand that correctly? Do I have to report the amount to the IRS as income? It is considered a pre-inheritance as far as the German law goes. Please help. I don't know whom else to ask. -- Kristi

Dear Kristi,
You really shopped this one around, so here's a fourth answer. It's also the only one you'll ever need.

The gift tax limitation of $11,000 annually (up from the historic $10,000 limit) applies to gifts made by U.S. individuals. The limitation is intended to prevent a U.S. individual from giving away all his assets to avoid an estate tax that may be due upon his death. Since a foreigner would not be subject to estate tax on assets that are not situated in the United States, it is logical that the foreigner would not have the same gift tax limitations when giving to a U.S. person, or anyone else for that matter.

Accordingly, there is no limitation, annual or otherwise, on the amount that a foreigner can gift to a U.S. person. And a U.S. person is never subject to federal income tax on any gift or inheritance he or she receives, from wherever received.

However, due to abuse in the area of foreign gifts, Congress instituted certain reporting requirements for large gifts received. If you receive more than $100,000 from a foreign individual, you need to advise the IRS of the gift, but you do not pay tax on the gift. The gift is reported on Part IV of Form 3520.

If the gift is from a foreign business, you need to report it on the same form if it exceeded $11,827 in 2003. The lower limit applies to business "gifts," as it is unusual that a business would make a gift and the IRS believes that such a transfer is disguised compensation.