How to Properly Land Foreign Gifts?

Receiving cash from a foreign person generally does not trigger U.S. income tax. However, the gift must be reported.

A late gift reporting penalty is 5% of the unreported gift for each month it is late, with a maximum penalty of 25%.

The IRS may waive the penalty if the taxpayer can demonstrate reasonable cause for the violation.

What is considered a reasonable cause?

The IRS will analyze facts and circumstances. The taxpayer must prove the exercise of ordinary business care and prudence but nevertheless was unable to comply with the law.

A reasonable cause “may be established if the taxpayer shows ignorance of the law in conjunction with other facts and circumstances” or if the taxpayer is unaware of a requirement and could not reasonably be expected to know about it.

It is extremely important to consult a tax professional. Failure to file nearly any international information to the IRS triggers an unlimited period to audit and assess penalties and interest.

Depending on the circumstances, taxpayers may qualify for a streamlined procedure.