Do You Need to Fill Out IRS Form 3520 if You Received a Gift from a Foreign Person?

If you or someone you know has received a gift of a substantial value from a foreign person or other source, the IRS probably wants to hear about it.  Many U.S. taxpayers are faced with this quandary every year, and the system for disclosing is somewhat complex.  It is important to understand whether the requirements apply to your situation, and if so, what responsibilities you may have as a result.

In general, if you are an American taxpayer and have received more than $100,000 by way of a gift from a person who resides in a foreign country, you are required by the Internal Revenue Code (IRC) to disclose the nature of the transaction and the assets to the IRS.  This disclosure is completed via the submission of IRS Form 3520.

Form 3520 can be complicated, and the penalties for doing it wrong are problematic and severe.  Experienced professionals can assist you as you attempt to navigate the system. US Tax Help can get you immediate assistance from respected international tax professionals.  For more information, use our Client Portal or call us at (541) 362-9127.

Why Should I File Form 3520?

IRS Form 3520 is the main form that you should consider when exploring disclosure requirements for any foreign income.  Form 3520, also known as the Annual Return to Report Transactions with Foreign Trusts and Receipt of Foreign Gifts, applies to American taxpayers only.  If a taxpayer receives a trust distribution, gift, or assets as part of an inheritance from any international person, entity, or estate, they will be required to disclose certain details to the government by submitting Form 3520.  In most instances, Form 3520 only needs to be filed once per foreign gift.  However, if your gift is the type of asset that may lead to recurring distributions (such as a holding in a mutual fund) you may have additional filing requirements.  Be sure to speak to a tax pro if you aren’t sure about the requirements for your particular gift.

If you have received less than $100,000 from the transaction or transactions in question, the IRS’s foreign disclosure requirements do not apply to you.  The benchmark remains the same regardless of whether the gift comes in the form of cash or a tangible asset.  For instance, if you receive the deed to a house that has a value of $300,000 from a cousin from Spain, the transaction falls within the disclosure requirements and you must submit Form 3520 to the government.  For questions on valuation of non-monetary gifts, consult one of the international tax experts at US Tax Help.

When Should I File Form 3520 for a Gift from a Foreign Person?

The IRS requires that people who are submitting Form 3520 to declare a gift from a foreign person are due on the same day as the taxpayer’s next calendar income tax return is due.  For most Americans, that deadline falls on April 15 of each year.  Some taxpayers have extensions on their income tax return deadlines.  If you have an extension to October 15, then October 15 is also the deadline for your submission of Form 3520.

It is important to note that extensions must be indicated in the appropriate place on Form 3520.  If you fail to properly indicate that you have an extension on your federal income tax return, you will be penalized for failing to file Form 3520.

Form 3520 is unlike your typical income tax return.  It is actually an information return, as opposed to a tax return.  Therefore, you won’t have to submit payment along with Form 3520, and you don’t have to make your submission of Form 3520 in conjunction with your income tax return despite their having the same date.  You are free to send Form 3520 to the IRS at any point prior to the due date, regardless of whether you have already sent your federal income tax return yet.

If you have questions about filing requirements for Form 3520, US Tax Help can straighten you out.  Make sure that you are comfortable with your standing by speaking to our exceptional international tax professionals before you proceed with any decision to file or not file.

What Are the Penalties for Not Filing Form 3520?

If the IRS determines that you have either incorrectly filed or otherwise failed to file Form 3520 on time in order to disclose a gift from a foreign person, you are likely to face hefty fines.  The IRC requires that violators of disclosure requirements surrounding Form 3520 for a foreign gift will face a penalty that depends on the size of the gift.  Specifically, the agency will levy a penalty of the greater of either $10,000 or 25% of the overall value of the gift in the transaction.

In other words, if you receive a gift of $500,000 in December, and fail to file Form 3520 declaring the gift to the IRS by April 15 of the next year, you could owe the IRS $125,000 in penalties.

The IRS does not consider a late filing of Form 3520 any differently than it would a complete failure to file.  Therefore, it is important to act as soon as possible if you believe that the terms of the requirement may apply to you.

Call Us for Help Filling Out Form 3520 to Declare Your Foreign Gift

If you feel that you may owe the IRS some information about a gift from a foreign person, your first step should be speaking with the diligent international tax professionals at US Tax Help.  Set up an appointment through the Client Portal or give us a call at (541) 362-9127.