If you've got an IRS letter on your desk right now, you have a decision to make, and the clock matters. I'm Darrin Mish. I've spent 32 years helping people with exactly this kind of situation. Here's what you should do.
The Tax That Catches Foreign Donors Off Guard
U.S. gift tax is one of the least-understood pieces of the international tax code. A nonresident alien who has never set foot in the United States can still trigger U.S. gift tax when making certain transfers. Foreign individuals making gifts of U.S. assets, particularly U.S. real estate, frequently discover the U.S. tax exposure only after the gift is complete.
The rules are narrower than the estate tax rules – nonresident aliens are taxed on a smaller set of gifts than the estate tax covers – but the exposure is real and the planning to avoid it matters.
The Scope of U.S. Gift Tax for Nonresident Aliens
For nonresident aliens, U.S. gift tax applies only to gifts of U.S.-situs tangible property and U.S. real estate under IRC Section 2501. This is narrower than the estate tax rules, which apply to a broader range of U.S.-situs property.
Specifically, the gift tax applies to:
U.S. real estate, regardless of how titled or held (with some exceptions for property held through certain entities).
Tangible personal property located in the United States at the time of the gift – artwork, jewelry, vehicles, collectibles, equipment, anything physical that is in the U.S.
Cash held in the U.S. at the time of the gift (this is a contested area; some practitioners argue cash in U.S. accounts is U.S.-situs tangible property for gift tax purposes; the IRS position is generally that cash is intangible).
Notably exempt: U.S. stocks, U.S. bonds, U.S. partnership interests, and other intangible U.S.-situs property. These are not subject to U.S. gift tax when given by a nonresident alien, even though they would be subject to U.S. estate tax if owned at death.
The Annual Exclusion and Exemption
Nonresident aliens have very different exemption structures than U.S. citizens and residents for gift tax purposes.
U.S. citizens and residents have a lifetime gift tax exemption of approximately $13.99 million (for 2026, combined with the estate tax exemption). Nonresident aliens have no lifetime exemption for gift tax purposes – the gift tax applies from the first dollar.
The annual exclusion of $19,000 per donee (for 2025, indexed annually) is available to nonresident alien donors. The gift to a non-U.S. citizen spouse has an annual exclusion of $190,000 (for 2025, indexed annually).
For gifts above the annual exclusion, gift tax applies at the same graduated rates that apply to U.S. citizens – up to 40 percent.
The Sharp Contrast With Estate Tax
The treatment of intangible property is the key contrast between U.S. gift tax and U.S. estate tax for nonresident aliens.
Estate tax: nonresident alien dies owning $5 million of U.S. stocks. Estate tax applies on the full value above the $60,000 nonresident exemption. Tax of approximately $1.97 million.
Gift tax: nonresident alien gifts $5 million of U.S. stocks to children. No U.S. gift tax. Intangible U.S. property is not subject to U.S. gift tax for nonresident aliens.
This distinction creates a powerful planning opportunity. Lifetime gifts of U.S. stocks (or other intangible U.S. property) by nonresident aliens can transfer substantial wealth without U.S. gift tax. The same property held at death would generate substantial estate tax.
The U.S. Real Estate Trap
U.S. real estate is the most common gift tax trigger for nonresident aliens. The property is U.S.-situs tangible property (or treated as such under specific gift tax rules). Gifts of U.S. real estate trigger U.S. gift tax from the first dollar above the annual exclusion.
A common scenario: a foreign parent owns a U.S. vacation home or rental property and wants to gift it to a child. The gift triggers U.S. gift tax on the full fair market value above the $19,000 annual exclusion.
Planning techniques to mitigate this include:
Annual exclusion gifts spread over multiple years. Each year, $19,000 of value can be transferred to each donee without gift tax. For substantial real estate, this approach takes many years.
Sale to a child at fair market value with installment payments. Not a gift; not subject to gift tax. The child may receive favorable financing terms.
Restructuring the holding before the gift. Transferring the real estate to a non-U.S. corporation before the gift converts U.S.-situs tangible property to non-U.S. corporate stock, which is generally not subject to U.S. gift tax. The corporate restructuring has its own tax consequences that must be evaluated.
Direct sale to the child with the parent retaining no interest. Not a gift; no gift tax. Income tax consequences (gain recognition) may apply to the parent.
The U.S. Tangible Property Gifts
Artwork, jewelry, vehicles, and other tangible personal property located in the U.S. at the time of the gift are subject to U.S. gift tax when transferred by a nonresident alien.
The most common scenario: a foreign parent owns artwork on display at a U.S. property (vacation home, rental property, etc.) and gifts the artwork to a child. The artwork is U.S.-situs tangible property at the time of the gift. U.S. gift tax applies.
The location at the time of the gift controls. Foreign-located tangible property gifted by a nonresident alien is not subject to U.S. gift tax, even if the donee is a U.S. citizen.
For collectors and families with significant tangible assets, the location of the property at the time of any gift is a critical planning variable. Moving tangible property out of the U.S. before a gift may eliminate the gift tax issue entirely.
Filing Requirements
A nonresident alien making a gift subject to U.S. gift tax files Form 709, “United States Gift (and Generation-Skipping Transfer) Tax Return.” The form is due April 15 of the year following the gift, with an automatic extension to October 15.
Form 709 requires identification of the donor and donee, description and valuation of the gifted property, calculation of gift tax (if any), and supporting documentation including appraisals for significant gifts.
Even if no gift tax is owed (because the gift is within the annual exclusion or is otherwise exempt), Form 709 may still be required if the gift exceeded the annual exclusion. The reporting requirement is separate from the tax liability.
The Donee’s Side – Form 3520 Reporting
If the recipient of the gift is a U.S. person, the recipient may have reporting obligations under IRC Section 6039F. Gifts from a foreign individual exceeding $100,000 in a year are reported on Form 3520 Part IV by the U.S. recipient.
Gifts from a foreign corporation or foreign partnership exceeding the inflation-adjusted threshold (approximately $19,570 for 2026, indexed annually) are also reportable on Form 3520.
The reporting is for information only; the gift itself is not taxable to the U.S. recipient. But the failure to report carries penalties of the greater of $10,000 or 35 percent of the gift amount.
Coordinating the reporting between the foreign donor (Form 709) and the U.S. donee (Form 3520) is the cleanest approach. Inconsistencies between the two filings can trigger IRS scrutiny.
Treaty Considerations
The U.S. has gift tax treaties with only a handful of countries (Australia, Austria, Denmark, France, Germany, Japan, the U.K., and a few others). The treaties coordinate gift tax treatment and prevent double taxation.
For nonresident aliens from countries without a U.S. gift tax treaty, no treaty relief is available. The U.S. gift tax applies under U.S. domestic law alone, and the foreign country’s gift tax (if any) applies under its own law.
Three Steps for Nonresident Alien Donors
First, identify the situs of each asset before the gift. U.S. real estate and U.S.-located tangible property trigger U.S. gift tax. Intangible U.S. property generally does not.
Second, structure the timing and form of the gift. Lifetime gifts of intangible U.S. property can transfer wealth without gift tax that would apply at death.
Third, coordinate with the recipient’s reporting. Form 3520 by the U.S. recipient is required for gifts above the threshold. Mismatched reporting creates audit exposure.
Plan the Gift Before You Make It
After 32 years of cross-border tax work, U.S. gift tax for nonresident aliens is one of the most planning-sensitive areas in international tax. Small structural changes before the gift can eliminate U.S. gift tax that would otherwise apply. Contact the Law Offices of Darrin T. Mish, P.A. at (813) 229-7100. We analyze the situs and structure of the proposed gift and recommend pre-gift restructuring where it produces meaningful tax savings.