A gift or inheritance from Korea usually isn't taxed. The form you forget to file can still cost you 25%.

Here is a scenario we see all the time in the Korean community. Your parents in Korea wire you money toward a house down payment. A grandparent passes away and leaves you an inheritance. Your family sells an apartment in Seoul and sends you your share. In almost every one of these cases, the good news is real: you generally owe no U.S. income tax on money or property you receive as a gift or inheritance from family abroad. So people breathe a sigh of relief and move on. That relief is exactly where the trap is.

This is general information, not tax or legal advice. Cross-border gift and inheritance reporting is technical and fact-specific, and it should be reviewed by a qualified cross-border tax professional. Our role is to help you spot the issue early and get you to the right person before a deadline turns into a penalty.

First, the good news: the gift itself usually is not taxed

The IRS is clear that a foreign gift is not income to you. In its own words, a foreign gift is not subject to income tax. If your parents, who live in Korea and are not U.S. taxpayers, give you money, you do not report it as income and you do not pay income tax on it. The same is generally true of an inheritance from a family member abroad. The money is yours to keep.

So far, so good. The problem is not a tax. The problem is a form.

The catch: over $100,000, you have to report it

If you are a U.S. citizen or green card holder and you receive more than $100,000 in gifts or inheritances from a foreign individual or a foreign estate during the year, you must file IRS Form 3520 to report it. Form 3520 is an information return, not a tax return. You are not paying anything. You are simply telling the IRS that the money arrived.

Two details catch people. First, the $100,000 is an aggregate figure for the whole year, so several smaller transfers that add up across the year count together. Second, the form is filed separately from your regular tax return, on its own schedule, which is exactly why it is so easy to miss even for people who dutifully file everything else. Gifts from a foreign company or partnership have a much lower reporting threshold, a little over $20,000, but the family scenarios we see almost always involve the $100,000 individual threshold.

Why the form matters so much: the penalty

Here is the part that stuns people. The penalty for failing to report a foreign gift on time is 5 percent of the gift for each month it goes unreported, up to a maximum of 25 percent of the gift. On a $300,000 inheritance, that ceiling is $75,000, on money you never owed a cent of tax on. It is one of the harshest penalties in the tax code precisely because it is attached to a form, not to a balance due.

Recent good news, but do not lean on it

There is a meaningful, recent development. In late 2024, after years of criticism, the IRS stopped automatically assessing this penalty on late-filed foreign-gift forms. It now reviews any reasonable-cause explanation you provide before deciding whether to impose a penalty at all, which is a real improvement. But read that carefully: the penalty still exists. If you have no good reason for filing late, up to 25 percent is still on the table. The change makes it easier to fix an honest mistake, not safe to ignore the rule.

It rarely stops at one form

There is one more layer worth knowing, because a single event often triggers several filings. If you park that gift or inheritance in a bank account in Korea, or you already keep accounts there, you may also have to file an FBAR, the foreign bank account report, once the total in your foreign accounts tops $10,000 at any point in the year. Depending on your situation, a separate form called Form 8938 can apply on top of that, with higher thresholds that start around $50,000. In other words, receiving family money from Korea and leaving it in a Korean account can quietly create three different reporting obligations at once, each with its own penalties.

The bottom line

None of this is a tax on your family's generosity. It is reporting, and for most people it is straightforward when it is done on time. The danger is not knowing the obligation exists until the IRS raises it, when the numbers can get ugly fast. If money or property has come to you from family in Korea, or is about to, it is worth a short conversation to map out what has to be reported and by when.

That is where we come in. We help Korean-American families see these cross-border issues coming and connect them with the right tax professionals before a form becomes a penalty. We work with the Korean community in Korean.

Sources

This article provides general information only and does not constitute legal advice or create an attorney-client relationship.