Tax
Form 3520 (Foreign Gifts and Foreign Trusts)
The information return a U.S. person files after receiving more than $100,000 in a year in gifts or bequests from nonresident individuals or foreign estates, or any distribution from a foreign trust. No tax is due with it; the late penalty is 5% of the gift per month, up to 25%.
Gifts and inheritances from abroad are not taxable income to a U.S. recipient, and U.S. gift tax falls on donors rather than recipients. Form 3520 exists so the IRS can see large inbound transfers anyway. Part IV is triggered when gifts and bequests from nonresident alien individuals and foreign estates, aggregated across related donors and across the calendar year, exceed $100,000. Gifts from foreign corporations and partnerships have a much lower, inflation-adjusted threshold.
The form is due on the due date of your income tax return including extensions, but it is mailed separately to the IRS in Ogden, Utah, rather than attached to Form 1040. The penalty for a late or incomplete Part IV is 5% of the gift for each month late, capped at 25%, so a late form on a $200,000 gift from parents can cost $50,000 for a filing that reports no tax. Since late 2024 the IRS has stopped assessing these penalties automatically and reviews the attached reasonable-cause statement first, which has materially improved outcomes for people who come forward.
Parts I through III cover foreign trusts: creating one, transferring to one, or receiving a distribution. Some foreign retirement and savings arrangements are treated as foreign trusts for U.S. purposes, which is where the form intersects with employer provident funds and similar plans. The U.S. treatment of those arrangements is unsettled and the position taken should be documented.
Common pitfalls
- Not aggregating gifts from both parents or across the year; the $100,000 test is a total
- Attaching Form 3520 to the Form 1040 instead of mailing it separately, which the IRS treats as unfiled
- Reporting your own transfer from your own foreign account as a gift; that belongs on the FBAR and Form 8938, not Form 3520
- Filing a late form without a reasonable-cause statement, which forfeits the review the IRS now gives before assessing
Related service
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Federal, state, and local returns prepared and reviewed by a licensed CPA, with the planning done before year-end rather than after it.