What To Do If The IRS Contacts You After A Foreign Gift Or Form 3520 Filing Problem

Quick Summary

You received money from family overseas. Maybe parents in Korea, a relative in China, a business contact abroad. Now the IRS is contacting you about Form 3520, a foreign gift, or both. This article explains what the contact likely means, what the penalty exposure looks like, and what to do before you respond.

What Form 3520 Is and Why It Creates Problems

Form 3520 is an information return required when a U.S. person receives a gift or inheritance from a foreign person above certain thresholds. For 2024, that threshold is $100,000 from a foreign individual or estate. Gifts from foreign corporations or partnerships have a lower threshold. The form is filed separately from your income tax return, due on the same date.

The IRS treats foreign gifts seriously because they intersect with offshore asset reporting and tax evasion enforcement. Even when a gift is completely legitimate, a missing or late Form 3520 draws scrutiny. Many people who received money from family overseas had no idea the form existed. Their bank did not flag it. Their accountant may not have asked. The IRS may not contact them until years later, after penalties have compounded.

What The IRS Contact Might Mean

Not all IRS contact is equal. A CP2000 notice means the IRS is proposing changes to your return based on information it received from third parties. A Letter 3219 is a statutory notice of deficiency, a 90-day letter, which starts a legally significant clock.

If someone from IRS International Examinations or the Foreign Asset Compliance Unit has been in contact, that’s a different level of attention. This isn’t a computer-generated mismatch. That’s an actual examiner who has identified your account.

Whatever letter you received, it has a response deadline. Missing that deadline has consequences. Responding incorrectly, or responding without understanding what you’re conceding, can make things worse.

What The Penalties Look Like

The penalty for failing to file Form 3520 is 5% of the gift amount per month, up to 25%. On a $200,000 gift, that is $50,000 in penalties for a form that does not affect your taxable income at all. A separate 35% penalty can apply to unreported transfers involving foreign trusts.

What makes this particularly frustrating is that the IRS often assesses these penalties automatically when a Form 3520 is missing, without first determining whether the failure was intentional. People who had no idea the form existed receive the same penalty notices as those who were deliberately hiding assets. The notice looks the same. The urgency is the same.

There is a process for requesting penalty abatement based on reasonable cause. It requires a written explanation of why the failure occurred, supporting documentation, and in most situations, legal representation to make the argument properly. The IRS does grant abatement in legitimate cases, but the request has to be made correctly and before any applicable deadlines pass.

What To Do Right Now

Do not respond to the IRS yet. Not without knowing what you’re walking into.

Pull together your documentation: the source of the gift, any communications with the gift-giver, records of when and how funds were transferred. If you filed a Form 3520 and got it wrong, find the copy you filed. If you didn’t file one, determine which years are at issue.

Get legal representation before you respond. This is not a situation where you send a letter explaining what happened and hope the IRS understands. International tax compliance problems require someone who knows the specific disclosure regimes, penalty abatement procedures, and examination procedures that apply here.

The Law Offices of Sammy Kim handles exactly this type of situation, including foreign gift and Form 3520 issues, for clients across the country, including Korean-American families handling money received from abroad. Based in Fairfax, VA, Sammy Kim works in English and Korean, which matters when you’re trying to explain a family gift situation to an IRS examiner.

If you have a more complex IRS situation on top of this, a CNC request pending, other unreported accounts, see What Is IRS Currently Not Collectible Status and When Does It Help? to understand how different issues interact.

One thing to be clear about: receiving IRS contact does not mean the situation is unresolvable. Many Form 3520 cases are closed through proper late filing, penalty abatement requests, and documented explanations of how the filing requirement was missed. The earlier you get representation, the more options remain available.

Talk to a tax expert now. Call (703) 202-1005.