How Do I Fill Out IRS Form 3520?
As the owner of a foreign trust or the recipient of foreign gifts, you must know how to report such information to the IRS. Learning how to fill out IRS Form 3520 is crucial so that you don’t face steep financial penalties.
When filling out IRS Form 3520, you’ll need to include certain information. Depending on your reasons for completing this form, you may need to have many details on hand regarding a foreign trust and foreign donor. You’ll have to complete Form 3520 if you’re a U.S. person who owns a foreign trust or has received a foreign gift in the past tax year. Generally, the deadline for filling out IRS Form 3520 is Tax Day. Failure to do so properly by the deadline can result in hefty financial penalties from the IRS.
Our experienced accountants are dedicated to helping expats navigate tax season. To learn more about the CPAs for American expatriates at US Tax Help, call us today at (541) 362-9127.
What Information Do You Need to Fill Out IRS Form 3520?
The purpose of IRS Form 3520 is to inform the IRS of transactions with foreign trusts and receipts of certain foreign gifts. If you’re an expat who has recently gained ownership of a foreign trust or received financial gifts from a foreign person, you may have to report such information to the IRS.
IRS Form 3520 is a several-page document that details an American’s interactions with foreign trusts and foreign donors. This document requires filers to fill out detailed personal and financial information, which can get overwhelming quickly. To ensure that you’re filling out the right information on Form 3520, you should consult a CPA for American expatriates. Failure to complete this form properly can result in costly financial penalties from the IRS.
For example, if you are documenting transactions with foreign trusts, you will have to have a lot of information on hand. Filers must include things like the trust creator’s personal information and any distributions to beneficiaries or charities throughout the previous tax year.
If you received a foreign gift exceeding a certain amount in the past year, you must report that using IRS Form 3520. Qualified gifts include those from foreign persons, trusts, and companies.
Who Has to Fill Out IRS Form 3520?
When tax season rolls around, it’s important to have a handle on which forms you may need to complete. Because of that, it’s vital to have a general understanding of who exactly has to fill out IRS Form 3520 and if those requirements apply to you.
The most general qualification for filing IRS Form 3520 is citizenship or residency status. If you’re considered a U.S. person, meaning you are a citizen or resident of the United States, you will have to complete IRS Form 3520 if you meet the additional criteria. This applies to expatriates who live abroad but still retain their American citizenship as well as those who live domestically.
Foreign Trust Owners
Remember, IRS Form 3520 is largely used to report transactions with foreign trusts. If you are the owner of a foreign trust, you will always have to complete IRS Form 3520 in part. Even if the foreign trust in question was not involved in any distributions or transactions in the previous tax year, you will still have to complete the Part II of the tax form.
Foreign Gift Recipients
Expats and U.S. residents who received any foreign gifts over $100,000 will need to report it to the IRS using Form 3520. That being said, the gift doesn’t have to be cash. Foreign gifts can be in the form of property equivalent to $100,000 as well. That means things like stocks and bonds, too. That’s why it’s crucial to ask a CPA for American expatriates for help when filing IRS Form 3520. You may be unaware that certain foreign gifts put you over the threshold for reporting to the IRS.
Here’s another reason why hiring a CPA for American expatriates is wise. If you’re an expat who sent a gift to a family member living in the United States, the recipient may have to pay a transfer tax. That’s important to know to save your loved ones the trouble of improper reporting.
What is the Deadline for Filling Out IRS Form 3520?
Knowing you have to file IRS Form 3520 and how to fill it out is all well and good, but you still need to know when to do so. Failure to file IRS Form 3520 by the deadline can result in steep financial penalties from the IRS.
Generally, the deadline for filling out IRS Form 3520 is Tax Day. You can submit this form regarding transactions with foreign trusts and foreign gifts alongside your other tax documents that are due on the same date.
If you don’t fill out IRS Form 3520 properly or fail to send it in by the deadline, you can face financial penalties. In addition to Form 3520, trust owners may need to also complete IRS Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner. Any inconsistencies between these two forms can also result in financial penalties.
Initial penalties for improper reporting of Form 3520 can start at $10,000. Additionally, foreign trust owners can face penalties equal to 35% of the gross value of trust property transfers or distributions throughout the past tax year. There may also be a penalty of 5% of the owner’s trust assets.
Failure to report foreign gifts exceeding $100,000 can result in a penalty of 5% of the total gift for each month that a person fails to file IRS Form 3520 for up to five months. Such penalties can become overwhelming quickly, which is why it’s smart to hire an experienced US tax accountant. Your CPA can help you file for an extension if necessary and fill out IRS Form 3520 by the necessary deadline.
Call Our Accountants for Help Filling Out IRS Form 3520 Today
Filling out IRS Form 3520 by yourself can be difficult, leading to improper reporting and hefty penalties from the IRS. To learn more about the CPAs for American expatriates at US Tax Help, call us today at (541) 362-9127.