# Foreign wife received gift from mother



## ricktator (Apr 24, 2021)

Hi! I am a U.S. citizen living in Germany for the last ten years with my german wife. Three years ago my german mother-in-law gifted my wife a large sum of money when she divvied up her property between my wife and my wife's brother. We do not make a lot of money and I haven't paid U.S. taxes in years as Germany is my tax home, however I've been faithfully filing the U.S. paperwork.

I did not specify this gift on my taxes as I had no idea a gift from my German family to their german daughter would be an issue for Uncle Sam and, unfortunately, I recently received a letter from the IRS. Does anybody have any experience in this situation?

Cheers and thanks,
Ricktator


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## Moulard (Feb 3, 2017)

Gifts are not taxable but they are reportable, and the penalties for not reporting them, or the accounts they land it can be horrifyingly large.

Is your wife a US person? Has she elected to be treated as a US person? Did you or do you you file jointly? Was the give deposited into a joint account?

If the answer to those questions is no, then you will probably just need to respond providing showing enough information that you did not have a reporting requirement.

If the answer to any of those questions is yes, then you are going to want to form a plan of action very quickly particularly if you have received a notice of of the failure to file Form 8938 or 3250 or FBAR

The penalties for both forms are very ugly. There are reasonable cause exceptions to the penalties for both but all I would do is counsel you to treat it seriously.


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## ricktator (Apr 24, 2021)

Moulard said:


> Gifts are not taxable but they are reportable, and the penalties for not reporting them, or the accounts they land it can be horrifyingly large.
> 
> Is your wife a US person? Has she elected to be treated as a US person? Did you or do you you file jointly? Was the give deposited into a joint account?
> 
> ...


Hi, and thanks for the response.

She has no connection to the U.S., nor does her mother. The gift was deposited into our joint account in Germany. I will be in contact with the IRS shortly and will phone with them when I visit the states in May. Thanks!


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## Nononymous (Jul 12, 2011)

Would you mind providing a brief synopsis of the letter from the IRS? I'm curious as to what they might know, and how they might know it.


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## ricktator (Apr 24, 2021)

Sure thing.

They wrote and said Form: 1040 "we're working on your account, however we need an additional 60 days to send you a coplete response on what action we are taking on your account."

Actually, now that I read it, maybe I jumped the gun. There is nothing on there about an audit or the gift, however I've never received a letter like this before. I can only assume the gift is what flagged me, even though it hit the bank account in 2019. I guess I'll just be patient and wait for the next contact. Thanks for the response!


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## Nononymous (Jul 12, 2011)

I doubt that the letter has anything at all to do with the gift. The only information the IRS would have is possibly a higher-than-normal balance number from either FATCA reporting or your own FBAR form. Since your wife is not a US person and there are no US tax implications to this gift, the best way to avoid any prying inquiries is to *not* put large sums of her money into any joint accounts that are subject to FATCA (or that you report yourself with FBAR). The IRS doesn't need to know what your wife does with her money - I would not phone them up and ask about gift reporting requirements.


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## Moulard (Feb 3, 2017)

So long as you have been filing :"married filing separately", and the account is reported on FinCen Form 114 and Form 8938 (as required based of filing thresholds) and reporting the interest gained (at least your share) in the account, then unless there is something I have missed everything should be in order. And as Nononymous says it probably has nothing to do with the gift.

The letter/notice you received from the IRS should have a identifying number that signifies the "type" of notice it is which will help you to plan your course of action. 

You can use this page to learn about all of the notice types.






Understanding Your IRS Notice or Letter | Internal Revenue Service


Did you receive an IRS notice or letter? Search for your notice or letter to learn what it means and what you should do




www.irs.gov


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## ricktator (Apr 24, 2021)

Moulard said:


> So long as you have been filing :"married filing separately", and the account is reported on FinCen Form 114 and Form 8938 (as required based of filing thresholds) and reporting the interest gained (at least your share) in the account, then unless there is something I have missed everything should be in order. And as Nononymous says it probably has nothing to do with the gift.
> 
> The letter/notice you received from the IRS should have a identifying number that signifies the "type" of notice it is which will help you to plan your course of action.
> 
> ...


Hi, all it says is "Form 1040". Nothing more or less.


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## ricktator (Apr 24, 2021)

Married filing separately is what I check. I don't know anything about Form 114 or 8938--I file 1040 and 2555. Am I missing something important?



Moulard said:


> So long as you have been filing :"married filing separately", and the account is reported on FinCen Form 114 and Form 8938 (as required based of filing thresholds) and reporting the interest gained (at least your share) in the account, then unless there is something I have missed everything should be in order. And as Nononymous says it probably has nothing to do with the gift.


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## Nononymous (Jul 12, 2011)

Nothing here about those other forms - I don't know what they are either.

Since you do married filing separately, your wife does not exist as far as the IRS is concerned, so there are no US tax implications to her receiving a gift (or inheritance) from her mother. However, a large sum of money landed in your joint account and that becomes reportable under FBAR (and FATCA as well if the bank is aware of your US person status). If there is interest earned, you might need to declare 50 percent of that as your income, which is unearned so not excluded with the FEIE. 

In future, to make everyone's life simpler, your wife should not put significant amounts of her own money into any joint accounts with a US taxpayer.


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## Moulard (Feb 3, 2017)

If the letter doesn't have a notice type, then I have no idea what it is. If you paper filed, it could be a letter stating that they are just getting to processing your previous year return. The changes to the tax filing deadlines this year were to allow the IRS time to catch up. There is also the remote possibility it is a scam.

FinCen Form 1114 - aka the FBAR is a Report of Foreign Bank and Financial Accounts required to be submitted when a US person has financial accounts or signatory authority over accounts where the aggregate of account balances exceeds $10k USD. Its a US Anti-money laundering form that has been around since 1971 but mostly ignored by those overseas until first the IRS took over administration of it, and more so once FATCA came into the picture.

Form 8938 aka FATCA form is an IRS form Statement of Specified Foreign Financial Assets in which US persons have has to report account details and balances when foreign financial assets exceed the relevant threshold. In your case, Married Filing Separately AND living outside the US, the threshold is currently $200k USD on the last day of the US tax year or $300k USD at any point in the year.

While you don't mention amounts, except to say a "Large Sum" I would hazard to guess you have a FBAR filing requirement and may or may not have a Form 8938 filing requirement in light of the fact the gift was deposited into a joint account.

As nononymous says, interest earned, is not earned income and would be reported on Schedule B (if it exceeded $400 USD) and you would typically use Form 1116 (Foreign Tax Credit) to offset US taxes owed by the foreign taxes paid - if the standard deduction was not in itself sufficient..


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