Dear Tax Talk,
Masha asks: I am expecting a large U.S. money transfer (from a foreign country to the U.S.). It will be a present from my godmother. I'm a U.S. citizen. What kind of tax would I have to pay? And does one have to pay tax on a gift?

Mona asks: My aunt would like to send me a monetary gift from Lebanon. Would this gift be subject to tax? What are the rules and the amount that I should be reporting to the IRS?
-- Masha and Mona

Dear Masha and Mona,
I seem to be the only one without a wealthy foreign relative. I get a lot of these questions and it always seems to me it is more wishful thinking than reality. If you really are getting this money, then you should probably splurge on a decent accountant to properly advise you. Since I don't have a wealthy foreign relative, but I am a decent accountant, you can certainly spread the wealth my way.

A person who receives a gift is considered the donee; the person who makes the gift is the donor. A donee never pays income or gift tax on the receipt of a gift. If any tax is due, it is the responsibility of the donor. Because the donor in each case is a foreign person, a gift of money is not taxable. A foreign donor who makes a gift of U.S.-based property (such as real estate) could possibly incur a gift tax.

A donee of a gift from a foreign person has to inform the IRS of the gift if it exceeds a certain threshold. The gift is disclosed to the IRS but no tax is due on it. Form 3520 is required to be filed with your individual return for the year that the gift exceeding the threshold is received. If you are not required to otherwise file an individual return, file Form 3520 by April 15 of the year following the year of the gift.

2 thresholds for filing Form 3520

• More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts or bequests. • Or more than $13,258 from foreign corporations or foreign partnerships (including foreign persons related to such foreign corporations or foreign partnerships) that you treated as gifts.

A lower threshold applies to payments received from business entities, as it is uncommon to receive a gift from a business. Generally, the IRS considers gifts from businesses to be disguised compensation. Many foreign individuals maintain holding companies for their personal financial affairs. Care should be given to payments from these entities to avoid a later challenge from the IRS on the nature of the gift.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.

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