How to Report Foreign Gifts Over $100,000: A Guide for US Taxpayers

If you have found yourself asking any of the following questions, this article is for you.

1. I received a gift over $100,000 USD this year, do I have to file anything?

2. Do I have to file Form 3520?

3. Does Form 3520 apply to me?

4. What counts as a foreign gift?

Who has to file Form 3520?

Put simply, if you are a U.S. Person as defined by the IRS, and you had one of the following situations, you will need to file Form 3520. As always, make sure to consult with a tax professional to make sure the form is prepared correctly and timely.

1. Transactions with Foreign Trusts: This includes the creation of a foreign trust by a U.S. person, transfers of money or property to a foreign trust, and any ownership stakes in foreign trusts under specific scenarios. Examples include, but are not limited to:

   1. You received or transferred property related to a foreign trust or person related to a foreign trust.

   2. At some point during the calendar year, you were treated as an owner of any part of assets of a foreign trust

   3. A trust sent you a distribution during the calendar year

2. Receipt of Large Gifts or Bequests: If you receive a substantial gift or bequest from a foreign individual, foreign trust, or foreign estate, it may need to be reported on this form. Examples include, but are not limited to:

   1. Your parents/family sent you money overseas and over the entire calendar year, it was $100,000 or more in gifts

   2. A foreign person transferred $100,000 to your bank account for any purpose

   3. A foreign corporation or foreign entity or person related to a foreign entity has sent you $100,000 or more in gifts

   4. You are filing for a deceased individual who has received $100,000 or more in gifts

When do I have to file Form 3520?

Filing Deadlines:

To stay compliant, file by the due date, usually aligned with the taxpayer's return deadline.

Form 3520 is typically due on the 15th day of the 4th month following the calendar year, which is often April 15. However, there are exceptions to this rule. Please consult a tax professional to see if one of the exceptions apply to you.

i.e. If you received the foreign gifts throughout the calendar year of 2023 (between January and December), then you will file Form 3520 at the same time as your individual tax return.

Penalties:

Late or incorrect filings can result in penalties so accuracy and punctuality are paramount.

Most common myths about Form 3520

Myth: Form 3520 is just for those with foreign trusts.

Reality: While it’s true that foreign trusts are a primary focus, the form also covers receiving large gifts or bequests from non-residents and other foreign transactions.

Myth: If I miss filing Form 3520, the penalties aren't significant.

Reality: Not filing can lead to substantial penalties, sometimes even up to 25% of the foreign gift's value or the amount involved in the transaction.

Myth: I only need to report massive sums or gifts.

Reality: Even seemingly 'small' amounts, depending on the circumstances, might require reporting. Always consult the latest threshold guidelines.

Myth: The IRS rarely checks or enforces Form 3520.

Reality: Given the IRS’s push for international tax compliance, it’s risky to assume they won't notice missing or inaccurate filings.

Myth: I can file Form 3520 anytime during the year.

Reality: Form 3520 has a specific due date, generally the same as the taxpayer's return. Extensions may be available, but it’s crucial to stay on top of deadlines.

More Reading

• IRS Form 3520 Instructions

Final Thoughts

Form 3520 is vital for anyone with specific foreign financial transactions, including trusts and large gifts. To stay compliant and avoid penalties, understand its significance, know who it applies to, and always file on time.

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