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Taxes on cash gifts from non-U.S. citizens

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Dear Tax Talk,
My husband’s parents are not U.S. citizens and do not live in the United States. They do not pay U.S. taxes because they are retired and spend less than four months a year in the country. Both my husband and I work in the United States (my husband on a visa), and we obviously pay taxes.

If my in-laws want to give each of us $20,000 but all the funds come from the father’s account (my mother-in-law does not have her own account), how do we satisfy the Form 709 requirement?

— Elizabeth

Dear Elizabeth:
I have good news for you just in time for the holidays. Since your in-laws are foreigners, either one can give you an unlimited amount of money and not worry about having to complete Form 709.

Form 709, U.S. Gift Tax Return, only applies to U.S. citizens and residents. You, however, may be subject to specialized disclosures on your individual income tax return, depending on the source of the gifts or the amounts.

A U.S. taxpayer must report on Page 6 of Form 3520 gifts received depending on the donor (the giver) and the amount. If the donor is a foreign corporation or foreign partnership and the gift exceeds approximately $11,000 in 2001, the gift is reportable. If the gift is from a foreign individual and the gift exceeds $100,000, the gift must also be reported on page 6.

The Internal Revenue Service sets the thresholds lower for foreign entities than individuals, since it is unusual that a business would make a gift. The IRS would view the gift as a disguised form of taxable compensation. In all events, you should keep copies of documents that establish the payment as a gift rather than compensation.