How to Report a Foreign Gift or Inheritance to the IRS: Tips for Filing Form 3520

Picture this: You just found out that you received an unexpected inheritance from your great grandfather overseas. You’re cheering and raising a glass to your new-found fortune and planning out how to spend it.

Stop right there. Before you take the partying too far, make sure you know about filing IRS Form 3520, the federal government form required for reporting foreign gifts, bequests, or inheritances of more than $100,000.

First, take a look at some example scenarios of real taxpayers who landed in trouble with the IRS because they didn’t file Form 3520 on time.

What confuses people about foreign gift reporting is that taxpayers are required to report certain foreign gifts and inheritances, even though you don’t actually have to pay taxes on the money.

The catch is that failing to submit Form 3520 on time could leave you stuck with significant penalties.

Here is a primer on how to know whether you must file IRS Form 3520 and what to do when you learn you are required to do so:

Am I Required to File IRS Form 3520?

You are required to file Form 3520 if you received a gift, inheritance or bequest from a non-resident alien, which is often a family member who lives overseas. However, if you receive a gift or inheritance from someone who is a U.S. citizen and happens to live overseas, you’re in luck — you do not have to file Form 3520.

Do I Have to File IRS Form 3520 For Property That Is Overseas?

Yes. If you are given property that is overseas and you are a U.S. taxpayer, you are still required to file the form.

What If I Received Multiple Foreign Gifts in The Same Tax Year And Together They Add Up To More Than $100,000?

Let’s say you received $50,000 from one relative, $40,000 from another relative and $15,000 from a third relative in the same tax year — and they are all non-resident aliens. That means that in the aggregate you have received more than $100,000 and you must file IRS Form 3520.

While you do not generally aggregate the amounts received if you received the money from unrelated non-resident aliens, you must aggregate gifts from different foreign nonresident aliens and foreign estates if you know (or have reason to know) that those persons are related to each other. A related person generally includes, but is not limited to: a member of your family (brothers, spouses, half-siblings, children, parents, etc.), or a corporation in which you, directly or indirectly, own more than 50% in value of the outstanding stock.

What Is the Deadline for Filing IRS Form 3520?

The deadline for filing IRS Form 3520 is the same as your tax filing deadline. So, if you’re filing on time, the deadline is April 15. If you file an extension, the deadline would be October 15.

Do I Mail Form 3520 With My Regular Tax Return? Can I E-File the Form?

The answer here is a double no. This form cannot be filed electronically. IRS Form 3520 must be sent by snail mail to the following address:

Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409

What If My Income Is Low or I’m Not Making Any Income? Do I Still Have to File the Form?

Yes. Sometimes taxpayers who aren’t making an income or aren’t making enough money to be required to file an individual tax return, assume that they don’t have to file Form 3520 if they receive a foreign inheritance or gift. But that’s not correct. If you have received a foreign gift, you must file to report the gift.

How Do I Fill Out Form 3520 To Report a Foreign Gift or Inheritance?

 Here are the key steps to reporting a foreign gift or inheritance on Form 3520:

• Check the fourth box on top of the first page. When reporting a foreign gift, bequest, or inheritance on IRS Form 3520, you want to select the fourth option under “Check all applicable boxes,” which states: “You are a U.S. person who, during the current tax year, received certain gifts or bequests from a foreign person.” If you are not sure which box or boxes apply to you, speak with a qualified tax attorney.
• Fill out the personal information requested on page 1 of the form.
• Jump to Part IV of the form on page 6 of the form and respond to Question 54. This is the question related specifically to foreign gifts and inheritances greater than $100,000. Here you are required to write the date of the gift, the description of property received, and the fair market value of the property. You must do this for each gift or inheritance you received in the relevant tax year. There are specific ways to report the gifts and check the box under this section. Please consult your tax professional if you are unsure.
• Sign the form. The form must be signed and dated at the bottom. If a CPA or tax attorney prepared the form for you, they will also need to include their information. Also, keep a copy for your record and proof of mailing as well.

I Found Out I Had to File Form 3520, But It Was Past the Deadline. What Do I Do?

If you’re already late, it’s a good idea to engage an experienced tax attorney who knows the ins and outs of foreign tax reporting. Attorney Sammy Kim can help you navigate the situation and avoid or reduce the significant penalties for failure to report a foreign gift or inheritance.

Uh Oh. Penalties? How Much Could I Have to Pay If I Didn’t File Form 3520 On Time?

Failing to file Form 3520 carries a penalty of 5% of the value of the unreported gift for each month that passes after its due date. The maximum penalty is 25% of the amount of the gift. If you file without explaining the situation, the computer will automatically generate a big bill.

With a gift of more than $100,000, that means a penalty that could be substantial — all for not reporting.

Can I Do Anything to Avoid Paying Penalties for Failing to File IRS Form 3520 On Time?

If you learn that you need to file a Form 3520 after the deadline has passed and you have not been contacted by the IRS on the matter, you should indicate that you are filing this form under the Delinquent International Information Return Procedure and follow the normal filing procedures.

You may also attach a “reasonable cause” statement to each informational return document, which an experienced IRS tax attorney can help you draft. It is possible that penalties may be assessed while your return is being processed, or you may need to resubmit your documents.

If you receive a Notice of Penalty Charge from the IRS, you only have 30 days to respond — and what you say and how you say it will affect whether you can get your penalties abated.

Do You Need a Tax Attorney Who Is an Expert in IRS Form 3520?

Attorney Sammy Kim has helped many clients get significant penalties removed after they filed Form 3520 too late or failed to file it at all.

If you need help with any issues related to IRS Form 3520 and reporting a foreign gift or inheritance, talk to an experienced tax attorney now.