When Do You Need to Fill Out IRS Form 3520 for Foreign Inheritances?
When someone receives a substantial inheritance, monetary or otherwise, the United States tax laws often demand a significant amount of reporting detail. The situation becomes even more complex when at least one of the parties involved in the inheritance transfer is not an American citizen.
Figuring out when and how to notify the IRS of a foreign inheritance can be a nuanced process. Generally speaking, if you have received a gift of over $100,000 in value from a foreign inheritance, you will have to submit IRS Form 3520 before or on the date of your next income tax return due date. The specifics of filing IRS Form 3520 depend on the nature and circumstances of the gift and are outlined in detail below.
For more information on reporting foreign inheritances to the IRS, contact the experienced international tax professionals at US Tax Help by visiting our Client Portal or by calling us at (541) 362-9127.
What is IRS Form 3520?
The critical document you need to worry about is IRS Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. The IRS requires the taxpayer to complete and submit IRS Form 3520 in situations where the taxpayer receives a gift of a certain value from a foreign person or a foreign estate, or in certain situations where there is a foreign trust involved.
When concerned specifically with a foreign estate, the form must be submitted when the value of the gift is greater than $100,000. This includes all forms of gift– for instance, if you received the deed to a property worth $200,000 through inheritance, that would be no different than receiving $200,000 in cash. In both instances, the IRS would require you to complete and file IRS Form 3520.
IRS Form 3520 is an information return, as opposed to a typical tax return. The taxpayer is not required to send any payment in conjunction with their submission of IRS Form 3520. Further, you won’t have to pay any taxes whatsoever on an inheritance that is based wholly outside of the United States. Some states do impose their own taxes on foreign inheritances, however. Make sure that you consult with one of our international tax professionals to figure out what taxes may apply to you.
When Do I Need to File IRS Form 3520 for a Foreign Inheritance?
The due date for submitting your IRS Form 3520 is the same due date as your upcoming income tax return due date, which is most commonly April 15. If you have an extended income tax return due date (i.e., October 15), you will need to indicate that extension on your IRS Form 3520 submission. Failure to do that will result in a penalty for lateness.
The process of filing IRS Form 3520 to disclose a foreign inheritance is different than filing to disclose income from a foreign trust, or any of the alternate uses of IRS Form 3520. It is important that you do not indicate the wrong disclosure when you are reporting, because the IRS will view any mistake just as they might view a failure to submit the form entirely.
IRS Form 3520 and the process that accompanies it are relatively new to the international tax world, and IRS agents sometimes struggle with properly handling its gray areas. If you are not sure how to file IRS Form 3520 or are concerned that you have missed a deadline, you should enlist the help of our diligent international tax law professionals by using our Client Portal or giving us a call at (541) 362-9127.
What Happens If I Don’t File IRS Form 3520 Or File Too Late?
The consequences of improperly failing to file (or incorrectly filing) IRS Form 3520 before the due date can be severe. The penalties laid out by the Internal Revenue Code depend on the nature and specifics of the gift. Specifically, if you receive a gift or inheritance from a foreign person or estate over $100,000 in value, and fail to report it via IRS Form 3520, the IRS will impose a penalty that depends on the value of the gift. Typically, the penalty will be the greater of either $10,000 or, more frequently, 25% of the value of the gift in question. In other words, if you receive via inheritance a house in France valued at $200,000, and fail to submit IRS Form 3520 correctly, you could owe the IRS up to $40,000.
Obviously, the cost of failing to file a timely, correct IRS Form 3520 can be painful. If you have any questions about whether you need to file with the IRS due to a recent foreign inheritance, it is critical that you speak to the foreign tax law professionals at US Tax Help as soon as possible. To hear from our team about your options and responsibilities, visit our Client Portal or call (541) 362-9127 today.
How Do I File IRS Form 3520?
Look no further– Ted and the rest of the team at US Tax Help have decades of experience filing with the IRS on behalf of clients just like you. To begin your filing process, visit our Client Portal or call us directly at (541) 362-9127 today.
Get Help with IRS Form 3520 Today
If you are the beneficiary of a foreign inheritance, you should do everything you can to prevent mistakes. To learn more about our services at US Tax Help, visit our Client Portal on our website or call us at (541) 362-9127.