No tax on foreign cash gifts

Dear Tax Talk,
Is the $100,000 limit on receiving gifts from foreigners limited to individuals or families? For example, if a foreign uncle gives three young nephews $100,000 each to help pay for their education, will the nephews' parents be liable for taxes? -- Omar

Dear Omar,
The good news is that there is no limit on how much a foreigner can give to his nephews. And as with any gift, there is no income tax due by the recipient of the gift no matter the amount.

If you receive more than $100,000 in gifts from one foreign individual or related foreigners, then you need to file a statement with your tax return (Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts) naming the person who gave you those funds and indicating that you intend to treat the amounts as gifts.

The statement puts the Internal Revenue Service on notice so that later if they examine your taxes, you have a defense against the IRS claiming the amounts as income. Since there has been a lot of abuse in the area of foreign gifts, the IRS wants taxpayers to voluntarily divulge the information to avoid surprises and disputes upon examination.

Additionally, if the uncle pays the tuition directly, the amount paid is not treated as a gift to you and does not enter into the $100,000 reporting limit. So he could give you $80,000 and pay $30,000 in tuition and you would not have to report under the foreign gift guidelines.