Do I need to file Form 3520 if I receive over 100k living expenses from parents overseas?

Question

Context: My parents overseas (Japan) sent me a little over $100,000 to cover an expensive tuition payment and moderate living expenses in 2014. They are not US residents, Green card holders or citizens. They did not remit the tuition payment directly to the school. I am a resident (for tax).

If I understand correctly, only qualified education and medical expense paid directly to the school/hospital can "bypass" the gift definition in the US.

In Japan, we don't have to directly pay the institutions, but can explain to tax authorities that certain things were for living expense and thus are not gifts, so the transfer in 2014 would not be regarded as gifts at all.

Basically, the money I received won't be classified as gifts in my home country. Would I still need to submit Form 3520 since the IRC classifies it as a gift? Also, would the IRS send this information back to the Tax authority in Japan? It's not a problem either way but they can be quite a pain.. (like an audit here, maybe).

Answer 1

Context: My parents overseas (Japan) sent me a little over $100,000 to cover an expensive tuition payment and moderate living expenses in 2014. They are not US residents, Green card holders or citizens. They did not remit the tuition payment directly to the school. I am a resident (for tax).

This is enough to answer yes. That's basically the set of requirements for filing: you received >$100K from a non-US person and you yourself are a US person. You have to report it, and unless it is taxable income - it is a gift. Taxable income is reported on the form 1040, gifts are reported on the form 3520.

The fact that in Japan it is not considered a gift is irrelevant. Gift tax laws vary between countries, some (many) don't have gift taxes at all. But the reporting requirement is based on the US law and the US definition of "gift". As I said above, if it is not a gift per the US law, then it is taxable income (and then you report all of it regardless of the amount and pay taxes).

Had they paid directly to the institution, you wouldn't need to count it as income/gift to you because you didn't actually receive the money (so no income) and it went directly to cover your qualified education expenses (so no gift), but this is not the case in your situation.

Whether or not this will be reported by the IRS back to Japan - I don't know, but it was probably already reported to the authorities in Japan by the banks through which the transfers went through. As to whether it will trigger an audit - doesn't really matter. It was, most likely, reported to the IRS already by the receiving banks in the US, so not reporting it on your tax return (either as income or on form 3520) may indeed raise some flags.