If the value of aggregate foreign gifts that you receive during any year exceeds $10,000, you must report each foreign gift to the IRS. (The $10,000 figure will be increased for inflation after 1996.) A foreign gift is any amount you receive from a non-US person, which you treat as a gift or bequest. A non-US person is any person other than a citizen or resident of the US or a domestic partnership or corporation. The term non-US person also includes a foreign estate or a trust treated as a foreign trust.
Foreign gifts do not include qualified tuition or medical payments made on behalf of the recipient or gifts which are otherwise properly disclosed on a return under the separate requirements applicable to amounts received from foreign trusts.
Foreign gifts and bequests, which are reportable, must be reported each year on the new form 3520.
The penalty for failing to report a foreign gift that must be reported is 5% of the amount of the gift for each month the failure continues, up to a maximum of 25%. The penalty will be excused if reasonable cause for the failure can be established.