Do Expats File Form 3520 to Report Foreign Gifts (with Examples)

How to Report Foreign Gifts on Form 3520, What to File

Reporting a Gift from a Foreign Person to the IRS

Internal Revenue Code Section 6039F requires certain US Persons to report large gifts, inheritances, and foreign trust distributions from foreign individuals and entities. To facilitate compliance, the US developed Form 3520. The form is required, even if the US Person is not required to file a tax return — and penalties can be issued, even when there is no unreported income. Not all gifts from foreign persons have to be reported. Rather, only gifts that meet the threshold requirement for reporting have to be disclosed on Form 3520. It is important to note that the threshold requirements will vary depending on whether it is a gift from a foreign individual or a gift from a foreign entity — all foreign trust distributions, no matter how small, are reported on Form 3520.  The IRS has significantly increased penalty enforcement and many people are getting hit with an automatic penalty assessment for untimely Form 3520 (absent showing reasonable cause). We will summarize the basics of foreign gift reporting rules —

When to Report a Gift from a Foreign Person

Form 3520 is filed at the same time a person’s tax returns are filed. If a person files for an extension for their US tax return, the Form 3520 filing goes on extension as well. If the taxpayer also has a form 3520-A filing requirement, the due date is different. In addition, if you need to apply for an extension, Form 3520-A requires the filer to submit a separate extension form (Form 7004). This is different than form 4868 which is the form used to extend the time to file a US tax return. Even if the filer does not have a tax return filing requirement (because possibly they are below the income levels for having to file a tax return) they still must file a form 3520 if they meet the threshold requirement for foreign gift reporting.

Gift from a Foreign Individual and Form 3520 Filing

When a U.S. person receives a gift from a foreign individual, the threshold requirement is generally “more than $100,000.” In other words, if the US person receives a gift or a series of gifts from the same foreign individual in the U.S. tax year  (or related persons) and the annual aggregate total exceeds $100,000 — the gift is reported on form 3520. Unlike a gift from a foreign entity, the reporting requirements for reporting a gift from a foreign individual are relatively straightforward.

Aside from some additional background information about the filer, the person filing the form 3520 must identify:

• • • The date or dates of the gift

    • The FMV value of the gift (in USD)

    • The type of gift.

Foreign Entity and Form 3520 Filing

When a person receives a gift from a foreign entity, the rules are different.  The threshold requirement for reporting is much lower, and in 2019 it was $16,388. Therefore, if a US person received a gift from a foreign entity that exceeds $$16,815, then Form 3520 is required. The reporting requirements for receiving a gift from a foreign entity are more detailed and require the following information to be disclosed on Form 3520:

• • • Date of Gift

    • Name of Foreign Donor

    • Address of Foreign Donor

    • Identification Number

    • Corporation or Partnership

    • Description of Property

    • FMV (Fair Market Value of the Gift)

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their Form 3520, FBAR, and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.