Frequently Asked Questions on Gift Taxes for Nonresidents not Citizens of the United States

 

Below are some of the more common questions and answers about Gift Tax issues for nonresidents not citizens of the U.S.  You may also find additional information using the links on this page.  If the answers to your questions cannot be found in these resources, we strongly recommend visiting a tax practitioner.

The donor (person making the gift) is generally responsible for paying the gift tax. Under special arrangements the donee (person receiving the gift) may agree to pay the tax instead. Please consult a tax professional if you are considering this type of arrangement.

Transfers of certain property, as described below, to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return is considered a transfer subject to gift tax. 

Donors who are nonresidents not citizens of the United States are subject to gift (and generation-skipping transfer (GST)) taxes for gifts made of real and tangible property situated in the United States.

A person is considered a nonresident not a citizen of the United States if he or she, at the time the gift is made, (1) was not a citizen of the United States and did not reside there, or (2) was domiciled in a United States possession and acquired citizenship solely by reason of birth or residence in the possession.

Under certain circumstances, nonresidents who are not U.S. citizens are also subject to gift (and GST) taxes for gifts of intangible property. See sections 2501(a) and 2511(b).

If you are a nonresident not a citizen of the United States who made a gift subject to U.S. gift tax, you must file a gift tax return (Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return) when any of the following apply:

  • You gave any gifts of future interests.
  • Your gifts of present interests to any donee other than your spouse total more than $15,000 (for 2020).
  • Your outright gifts to your spouse who is not a U.S. citizen total more than $157,000 (for 2020).

The general rule is that a gift as described above in What is considered a gift for U.S. gift tax purposes? is a taxable gift. However, there are exceptions to this rule. Generally, the following gifts are not taxable gifts.

  1. Gifts that are not more than the annual exclusion for the calendar year.
  2. Tuition or medical expenses you pay for someone (the educational and medical exclusions).
  3. Gifts to your spouse who is a U.S. citizen. If your spouse is not a U.S. citizen, the marital deduction for gifts is limited to an annual exclusion of $155,000 for 2019 transfers and $157,000 for transfers in 2020. See IRC § 2523(i). 
  4. Gifts to a political organization for its use.

Gifts to qualifying charities that are trusts; community chests, funds, or foundations; or fraternal societies, orders, or associations operating under the lodge system must be for use within the United States.  See IRC§ 2522(b)(3) and (4).

Making a gift or leaving your estate to your heirs does not ordinarily affect your federal income tax. You cannot deduct the value of gifts you make (other than certain gifts that are deductible charitable contributions made to U.S. charities using assets in the U.S.).

The annual exclusion applies with respect to each donee. In other words, if you give each of your children $11,000 each year in 2002 through 2005, $12,000 each year in 2006 through 2008, $13,000 each year in 2009 through 2012 and $14,000 each year in 2013 through 2017, the annual exclusion would be available for each gift.

For 2018, 2019 and 2020, the annual exclusion is $15,000.

The annual exclusion will apply to gifts made by you and your spouse as if made by separate individuals. Together, you can give $22,000 to each donee (2002 through 2005) or $24,000 (2006 through 2008), $26,000 (2009 through 2012) and $28,000 (2013 through 2017).

In 2018, 2019 and 2020, the total annual exclusion available for gifts made by you and your spouse is $30,000.  However, gift splitting can only be used if both spouses are U.S. citizens or residents; if not, a gift tax return will need to be filed by each spouse. 

"The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate." Estate Tax Regulation §20.2031-1(b).

You do not have to be present during an examination unless IRS representatives need to ask specific questions. Although you may represent yourself during an examination, most donors prefer that a professional handle this phase of the examination. You may delegate authority for this by executing Form 2848, Power of Attorney.

You have many rights and options to appeal if you disagree with any proposals made by the IRS. See Publication 1 and Publication 5  PDF for an explanation of these options.

The general rule is that your basis in the property received is the same as the basis in the hands of the donor. You need to determine your basis to be able to determine the gain (or loss) from the sale of the property.  For example, if you were given land that the donor had purchased for $10,000 (and that was his/her basis), and you later sold it for $100,000, you would pay income tax on a gain of $90,000. (Note: The rules are different for property acquired from an estate). The basis of property acquired by gift is generally increased by any gift tax paid.  See §1015 and Publication 551.

For federal tax purposes, the terms “spouse,” “husband,” and “wife” includes individuals of the same sex who were lawfully married under the laws of a state whose laws authorize the marriage of two individuals of the same sex and who remain married. 

However, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.

If your spouse is not a U.S. citizen, tax-free gifts are limited to present interest gifts whose total value is below the annual exclusion amount, which for 2020 is $157,000.  There is no lifetime gift tax credit available to offset tax where such gifts result in a tax liability.

If your spouse is a U.S. citizen, direct gifts will generally qualify for the unlimited marital deduction.
For further information on the recognition of same-sex marriages, including the timeframes regarding filing claims or amended returns, see Revenue Ruling 2013-17 PDF.

Revenue Ruling 2013-17 PDF, along with updated Frequently Asked Questions for same-sex couples  and updated FAQs for registered domestic partners and individuals in civil unions , are available today on IRS.gov. See also Publication 555, Community Property.

Form 4506, Request for Copy of Tax Return PDF, is used to request a copy of previously filed tax returns with all attachments. Form 4506-T, Request for Transcript of Return PDF,  is used to request a transcript of the gift tax returns filed by a donor. Both forms and their instructions are available on IRS.gov. Forms 4506 and 4506-T have multiple uses and special attention must be taken when completing either form for a gift tax inquiry.

The IRS will provide a copy of a gift tax return or the gift tax return transcript when Form 4506 or Form 4506-T is properly completed and submitted with substantiation and payment. Upon receipt and verification (including matching current taxpayer and taxpayer representative records), a copy of the original tax return or the account transcript will be mailed as requested. Incomplete or unsubstantiated requests will be rejected, and a Notice will be sent to the Requestor. There is a $50.00 fee per tax return requested; ne fees apply to transcript requests.

For more detailed information on requesting a gift tax return or a gift tax account transcript, see Frequently Asked Questions on Gift Taxes on IRS.gov.