Introduction
Many couples in the U.S. exchange gifts for various personal reasons, such as showing support for one another, purchasing a home, or planning for the future. In some situations, one spouse may be a U.S. citizen while the other is a foreign national. The foreign spouse may apply for their green card. While they wait for their green card, they may want to give a gift to their U.S.-based spouse. It’s essential to understand the specific gift tax rules in the United States, as they may create tax filing and compliance obligations. Failing to do so may cause penalties. Knowing these regulations may help avoid or mitigate any surprises.
This article explains how U.S. gift tax rules apply when a foreign spouse, awaiting their green card, makes a gift to their U.S.-based spouse.
Gift tax rules are dependent on the residency status of the foreign spouse, in accordance with the federal gift tax rules. First, let’s clarify the general residency test under the U.S. gift tax for foreign spouses.
Determining Residency for U.S. Federal Gift Tax Purposes for a Foreign Spouse
It is essential to determine the foreign spouse’s U.S. tax residency status for Federal gift tax purposes. This is because it may affect whether any U.S. gift tax applies when a foreign spouse makes a gift to a U.S. spouse.
U.S. residency for federal gift tax purposes is different from residency for income tax purposes.
Let’s understand each of them separately:
U.S. Tax Residency for Federal Income Tax Purposes:
For U.S. federal income tax purposes, a foreign spouse may be considered a U.S. tax resident if such individual meets any one of the following tests
(1) being a U.S. lawful permanent resident (i.e., a “green card” holder),(2) satisfying the substantial presence test (commonly known as the “day count test”), or
(3) making certain tax elections. For example, a foreign spouse may be treated as a U.S. tax resident through a special election under Section 6013(g). This is generally made by a U.S. Citizen or resident spouse to treat their nonresident spouse as a U.S. tax resident for the purpose of married filing jointly.
For more information about the substantial presence test, please refer to the following article.
Next, let’s understand the U.S. tax residency test for federal gift tax purposes.
U.S. Tax Residency For Federal Gift Tax Purposes:
For gift tax purposes, a foreign spouse may be treated as a U.S. resident if the individual is “domiciled” in the U.S. at the time of making the gift.
According to IRS regulations, a person establishes a domicile at a location by residing there, even for a short time, without any definite current intention to leave that place.
Residence without the intention to remain indefinitely may not suffice to constitute domicile. The intention should be accompanied by the individual’s moving to such a place. This means actions speak louder than words.
There may be situations where a foreign spouse does not meet the criteria for tax residency concerning income tax but qualifies as a tax resident for gift tax purposes. For instance, a foreign spouse might fail the substantial presence test for federal income tax but still be eligible as a tax resident for gift tax purposes. Let’s explore this in the next section.
Can a foreign spouse qualify as a tax resident for gift tax purposes even if they do not meet the substantial presence test?
A foreign spouse may still be treated as a U.S. resident for gift tax purposes even if they fail to meet the Substantial Presence Test.
This is because gift tax residency is based on “domicile,” not on the substantial presence test rules. In simple terms, domicile looks at where a person intends to live permanently (or indefinitely), rather than just how many days they spend in the U.S.
So, even if the foreign spouse does not spend enough days in the U.S. to pass the substantial presence test, they may still be considered a U.S. resident for gift tax purposes.
As discussed, a key aspect of meeting the domicile test is the foreign spouse’s intention to stay in the United States. This becomes even more complicated if the foreign spouse is awaiting their green card. This may imply that they intend to remain in the United States.
Let’s explore some of those factors in the next section.
Determining Intention to Stay in the U.S. For Foreign Spouse Awaiting Green Card
A pending green card application does not, by itself, establish U.S. domicile for gift tax purposes. The term “resident” in the gift tax context is based on the individual’s domicile — defined as living in a country with no definite present intent to leave, and this determination is highly fact-specific. This standard is codified in Treasury Regulation $20.0-1(b)(1), which states that a person acquires domicile in a place by living there with no definite present intention of later removing therefrom, which also includes a brief stay. Residence without the intention to remain indefinitely may not suffice to constitute domicile. The parallel gift tax provision is found in Treas. Reg. $25.2501-1(b), which contains nearly identical language.
Courts have not developed a bright-line test. No single factor is determinative; the same factor stressed in one case may carry less weight or even be disregarded in another.
The following are some factors for determining intent to remain in the United States.
Residential Property and Lifestyle in the United States
An individual’s intentions towards his or her permanent home will likely be reflected in his or her lifestyle and residence.
Owning a furnished and large home in the U.S., where the individual keeps most of their personal belongings, is generally weighed in favor of having domicile in the United States, as outlined in the case of Cooper v. Reynolds.
Statements of Intent
Making statements of intent to reside in the U.S. on an individual’s tax returns, on immigration-related documents, will be weighed in favor of having domicile in the United States.
In Estate of Paquette, the court noted that the decedent’s will was governed by Canadian law and that his tax filings pointed to Canada — both of which weighed against U.S. domicile.
Location of Business Interests
Having property and business interests in the U.S., particularly if they are significant relative to those in any other country, may weigh in favor of having domicile in the United States. This was cited in Estate of Robert A. Jack.
Location of Family Members
Having family members in the U.S. or a family history of immigration to the U.S. may weigh in favor of U.S. domicile. In Estate of Paquette v. Commissioner, the absence of family ties to the U.S. was among the reasons the court found no U.S. domicile, despite the decedent spending extended periods in Florida.
Motivation for Being in the United States
Being present in the U.S. by choice rather than by necessity may be weighed in favor of having domicile in the United States.
In the next section, we will apply the foregoing factors to a foreign spouse whose green card application is pending.
Determining Residency for U.S. Gift Tax Purposes When a Spouse Is a Green Card Applicant
When a foreign spouse is applying for a U.S. green card, it is common to assume that U.S. tax residency automatically follows. For gift tax purposes, however, this assumption can be incorrect. U.S. federal gift tax does not rely on immigration status or income tax residency rules. Instead, it turns on whether the individual is considered domiciled in the United States at the time the gift is made.
The central inquiry is whether the foreign spouse has moved to the United States with the intent to remain indefinitely. For green card applicants, the analysis often falls into a grey area. Factors weighing against U.S. domicile include maintaining foreign property or business interests, residing in temporary housing, frequent travel abroad, or holding an immigration status contingent on approval. Factors supporting domicile include purchasing or leasing a long-term U.S. residence, relocating personal belongings, working primarily in the U.S., and making future financial or family decisions premised on permanent U.S. residence. Statements in immigration filings, tax returns, or estate planning documents may reinforce either conclusion, but only where they align with actual conduct.
The determining factor is whether the overall pattern of behaviour demonstrates an intent to remain in the United States indefinitely.
Next, let’s explore how the domicile test for gift tax residency affects the gift tax implications for a foreign spouse in the United States.
U.S. Gift Tax Implications for a Foreign Spouse Depending on Their Domicile
The U.S. gift tax rules vary significantly depending on whether a foreign spouse is considered domiciled in the United States or non-domiciled. This distinction is critical because it determines what property is taxed and how broadly the U.S. gift tax applies.
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Foreign Spouse Is Domiciled in the United States
When a foreign spouse is treated as domiciled in the U.S., they are effectively brought fully within the U.S. transfer tax system.
This means that all gifts made by that individual, regardless of where the assets are located, are subject to U.S. gift tax rules. In other words, the U.S. applies a worldwide tax approach similar to that of U.S. citizens.
However, an important relief provision applies when the recipient spouse is a U.S. citizen. Under Internal Revenue Code $ 2523(a), gifts between spouses qualify for the unlimited marital deduction. This allows a spouse to transfer an unrestricted amount of property to a U.S. citizen spouse without incurring gift tax.
Practical result:
Even though the foreign spouse is fully subject to U.S. gift tax on worldwide transfers, no gift tax is actually payable on gifts made to a U.S. citizen spouse, regardless of the size or type of the gift.That said, being domiciled in the U.S. has broader implications. The individual is now entirely within the U.S. transfer tax regime, which means future lifetime gifts and estate planning strategies should be carefully structured to account for U.S. estate and gift tax exposure.
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Foreign Spouse Is Not Domiciled in the United States
If the foreign spouse is not domiciled in the U.S., the scope of U.S. gift taxation becomes much narrower.
In this case, the U.S. imposes gift tax only on transfers of U.S.-situs tangible property. Intangible assets and foreign property generally fall outside the U.S. gift tax system.
To better understand how this works, consider the following common scenarios:
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Gift of U.S. Real Estate
U.S. real estate is considered U.S.-situs tangible property, so it falls within the scope of the U.S. gift tax. However, if the property is gifted to a U.S. citizen spouse, the unlimited marital deduction still applies, eliminating any gift tax liability.
Outcome: Taxable in theory but fully offset, resulting in no gift tax.
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Gift of U.S. Stock (Intangible Property)
Shares of stock in a U.S. company are treated as intangible property. For a non-domiciled foreign individual, such assets are not subject to U.S. gift tax at all, regardless of the recipient.
Outcome: Completely outside the U.S. gift tax system—no tax applies.
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Gift of Foreign Assets
Assets located outside the United States—such as foreign real estate, foreign bank accounts, or shares in non-U.S. companies—are also outside the scope of U.S. gift tax for a non-domiciled individual.
From the recipient’s perspective, a gift received from a nonresident foreign spouse is not taxable income. However, U.S. reporting obligations may still arise. If the total value of gifts received from a foreign spouse exceeds $100,000 in a calendar year, the U.S. spouse should file Form 3520 to disclose the receipt of the foreign gift. This filing is informational, but penalties for noncompliance may be significant.
In this scenario, the tax cost may be limited, but compliance becomes critical. Proper characterization of the donor’s residency status at the time of the gift is essential to determine whether U.S. gift tax applies and which reporting obligations are triggered.
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Final Thoughts
Foreign spouses applying for a green card should consider whether they qualify as U.S. residents for gift tax purposes. This requires assessing whether they are domiciled at the time the gift is given. As discussed, the domicile test is subjective and assesses whether the foreign spouse resides in the U.S. with no intention of leaving. Applying for a green card may not be a definitive factor in determining the spouse’s domicile. Other factors supporting the intention to remain in the United States should be considered.
If the foreign spouse acquires the domicile, then they may qualify as a U.S. resident for gift tax purposes. In such a case, the spouse may unknowingly be subject to gift tax on gift of any property, whether located in the United States or outside. Conversely, a spouse who remains a nonresident may only be subject to gift tax on gifts of U.S.-situated property. But they may still trigger reporting obligations for the U.S. recipient.
The gift tax rules are the same whether a foreign spouse or a U.S. resident spouse gives a gift to their U.S. citizen spouse. What matters is the recipient’s residency status. If the recipient is a U.S. citizen spouse, the marital deduction rule applies. Under this rule, gifts made by one spouse to a U.S. citizen spouse may not be subject to U.S. gift tax, regardless of the amount or type of property transferred. Typically, these transfers do not require the filing of a U.S. gift tax return.
Because domicile depends on intent as demonstrated through conduct, careful planning and documentation are essential. Evaluating domicile before making a significant gift may help avoid unexpected tax exposure and ensure that transfers between spouses are handled in a compliant and tax-efficient manner.
Are you looking for personalized advice on how to handle gift tax obligations in the United States? Contact the International Tax Attorney at Arora Law P.C. today at (201) 620-1482 for an international tax consultation.
Disclaimer: The information provided in this article is for general informational purposes only and does not include legal advice. This article does not comprise an attorney-client relationship between the reader and Arora Law P.C. or its attorneys. If you have specific questions regarding your individual situation, please consult with a licensed attorney.
The information in this article is current as of the publication date. U.S. Tax laws and regulations change frequently, and readers should confirm whether any updates have occurred since.