Do I pay US tax on an inheritance or gift from my Canadian parent?

No. Receiving it is not taxable income to you. US law excludes gifts and inheritances from gross income, and there’s no US inheritance tax on the recipient. What there is, and what catches people, is a reporting obligation. Once you cross $100,000 from a nonresident alien individual or a foreign estate in a year, you file Form 3520, and the penalty for missing it accrues by the month.

Is the inheritance itself taxable to me?

No, and the exclusion is about as short and unconditional as the Code gets. It covers gifts and inheritances alike, and it doesn’t distinguish by where the money came from, so a Canadian parent’s estate is treated the same as an American one for this purpose. Canada has no estate tax either, though a deceased person’s final Canadian return can carry a deemed disposition, which is the estate’s problem rather than yours.

“Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance.” IRC 102(a)

Two things that survive that exclusion are worth naming. Income the property produces after you receive it is ordinary taxable income, and IRC 102(b) says so directly. And an inherited foreign account you now hold can trigger its own reporting, which is a separate question from the one this page answers.

When do I have to report it?

There are two thresholds and only one of them is the famous $100,000. The instructions to Form 3520 set the higher figure for gifts and bequests from an individual or an estate, and a much lower indexed figure for anything coming from a foreign company. The second one isn’t printed on the form, which is the part people miss.

“You are a U.S. person who, during the current tax year, received either: a. More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts or bequests; or b. More than the section 6039F threshold amount from foreign corporations or foreign partnerships” Instructions for Form 3520

Where it came from	Threshold	Where the number lives
A nonresident alien individual	More than $100,000	Fixed, stated in the instructions
A foreign estate	More than $100,000	Fixed, stated in the instructions
A foreign corporation or partnership	The indexed section 6039F amount, far lower	Not on the form; in that year’s revenue procedure

The instructions are explicit that the indexed figure has to be looked up rather than assumed, and they say where: IRS.gov/InflationAdjustment, then the applicable tax year news release, then that year’s revenue procedure, where the figure sits under section 6039F. One more flag on that row. The instructions note that gifts from foreign corporations or partnerships “are subject to recharacterization by the IRS under section 672(f)(4)”, so a company gift is not simply a smaller-threshold version of a parent’s gift.

Do I add up gifts from different family members?

Yes, where the donors are related to each other, and that aggregation rule is what pushes people over a threshold they thought they were under. The instructions require you to combine gifts from different nonresident aliens and foreign estates if you know or have reason to know that those people are related, or that one is acting as a nominee for another. So four separate gifts from four related family members, each comfortably below the line on its own, may still cross it together.

“To calculate the threshold amount of $100,000, you must aggregate gifts from different foreign nonresident aliens and foreign estates if you know, or have reason to know, that those persons are related to each other or if one is acting as a nominee or intermediary for the other.” Instructions for Form 3520, line 54

What is the penalty if I miss it?

It’s a percentage of the gift, charged monthly, and it’s the reason a tax-free inheritance becomes expensive. The rate is 5 percent of the gift for each month the failure continues, capped at 25 percent in total. On a $400,000 inheritance that reaches a $100,000 ceiling, which is a penalty many times larger than the cost of the filing that would have avoided it.

“such United States person shall pay (upon notice and demand by the Secretary and in the same manner as tax) an amount equal to 5 percent of the amount of such foreign gift for each month for which the failure continues (not to exceed 25 percent of such amount in the aggregate).” IRC 6039F(c)(1)(B)

• Whether a TFSA or similar account is a foreign trust, which is a different Form 3520 question entirely
• Who files Form 3520-A and why it is due early, the annual trust filing
• Fighting a Form 3520 penalty after the notice arrives

The statute carries a reasonable cause exception at IRC 6039F(c)(2), which switches the penalty off where the failure was due to reasonable cause and not wilful neglect. That is a defence to argue after the fact rather than something to rely on in advance.

What should I do next?

Write down every amount you received in the year, who it came from, and how those people are connected to each other. That list, not the total, is what decides whether you file. If any of it came from a company rather than a person, look up that year’s indexed threshold before assuming you’re clear, because it is nowhere near $100,000.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.