Different rules may apply for U.S. gift and estate taxes for U.S. citizens abroad and for nonresident and resident aliens.

U.S. citizens who live abroad are still subject to U.S. estate and gift taxes, regardless of the location of their assets. Resident and nonresident aliens can also owe gift and estate tax to the United States.

Gifts valued at $10,000 or more to any one person in one year must be reported to the Internal Revenue Service. It may even be necessary to pay taxes on these gifts. This applies to gifts of any property by U.S. citizens or residents, and to gifts of U.S. real property or tangible personal property by nonresident aliens. While most gifts to a spouse are free of tax, if the spouse is not a U.S. citizen, that tax-free amount is limited to $101,000 a year in 1999 ($103,000 in 2000). Use Form 709, "United States Gift Tax Return," to report gifts.

Certain nontaxable gifts must be reported to the IRS. If a U.S. recipient receives a gift or bequest from a nonresident alien or a foreign estate valued at more than $100,000, it must be reported. In addition, if a U.S. recipient receives more than $10,735 that was treated as a gift from a foreign corporation or a foreign partnership, the gift must be reported. Failure to report the gift can result in penalties. Use Form 3520, "Annual Return to Report Transactions with Foreign Trusts and Receipt of Foreign Gifts," to report these gifts.

When a nonresident alien dies with over $60,000 in U.S. assets, Form 706NA (nonresident alien), "U.S. Estate Tax Return," must be filed with the IRS. Also, when a U.S. citizen or resident dies with over $650,000 in worldwide assets ($675,000 in 2000), Form 706, "U.S. Estate Tax Return," must be filed.

In 1999, the amount that could be transferred tax-free by taxable gifts (gifts in excess of applicable exclusions) and transfers at death was $650,000. That amount increased to $675,000 for 2000. It will continue to increase in steps until it reaches $1 million in 2006. The $10,000 annual exclusion for gifts may increase in future years because it is indexed to inflation.

More information on gift and estate taxes is available in IRS Publication 950, Introduction to Estate and Gift Taxes. You can also request these items by writing to the IRS Area Distribution Center, P.O. Box 85074, Richmond, VA 23261-5074, USA.

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