IRS Form 3520: Why You Must Report Foreign Gifts Of More Than $100,000
If You Have Received A Foreign Gift Or Inheritance Worth More Than $100,000, You Must File IRS Form 3520 Or You Could Land With Big Penalties.
IRS Form 3520 – used for reporting foreign gifts or bequests of cash or property — tends to trip up taxpayers.
That’s because one of the things it is used for is to report foreign gifts or bequests of more than $100,000. And sizable gifts like that don’t happen every day, though they are more common than you might think.
Essentially, any U.S. taxpayer who has received a foreign gift, bequest, or inheritance in the form of cash or assets from their parents, relatives or another party who resides overseas could be required to submit Form 3520, depending on the amount of the gift.
One piece of good news is that foreign gifts of this nature are not taxable. However, even though you don’t have to pay taxes on this gift or inheritance, you do have to tell the IRS about it in a timely fashion and in a specific way.
Attorney Sammy Kim has represented many clients who have been slapped with hefty penalties for failing to file Form 3520 or filing too late, and she has helped them get the penalties remove completely. If you need to appeal a penalty related to a foreign gift or inheritance, book a consultation now.
When Do I Have To File Form 3520 For A Foreign Gift or Bequest?
Here are the most common situations when you must file IRS Form 3520:
- You inherited cash, financial assets or real estate worth more than $100,000 from a foreign estate upon the passing of a foreign person in a single calendar year.
- You received cash, financial assets, or real estate worth more than $100,000 from a nonresident alien in a single calendar year.
While this article focuses on foreign gifts and bequests of more than $100,000, be aware that Form 3520 must also be filed for much smaller gifts received from foreign partnerships or corporations, with a total in a calendar year of more than $17,339 for gifts made in tax year 2022. It is also used for some other foreign trust transactions.
How To Report A Foreign Gift Or Inheritance Of More Than $100,000 on Form 3520
IRS Form 3520 must be filled out carefully. If you have any doubts at all about what you must write on the form, contact a tax attorney who is experienced in handling foreign transactions and gifts.
Here are the key steps:
- You must first check the box that says: “You are a U.S. person who, during the current tax year, received certain gifts or bequests from a foreign person.”
- As the form explains, you must then fill in all identifying information.
- Then, skip to Part IV of the form.
- Under question 54, check the box that indicates that you received “more than $100,000 that you treated as gifts or bequests from a nonresident alien.”
- Then complete the rest of that question, noting the date of the gift or bequest, the description of the property and the fair market value of the property you received.
- Sign and date the form as noted.
What Is The Deadline To File Form 3520?
Form 3520 is due on April 15th of the year that follows the reportable gift or bequest, or October 15th if you file an extension of your taxes.
However, because it is treated as an international tax matter, it cannot be electronically filed. That means you must both file it with your income tax return and separately mail Form 3520 to the IRS Service Center that handles international tax matters in Ogden, Utah. That is the location where it must be mailed no matter where you live.
The address is: Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409
If you file the form accurately and on time, the IRS has a three-year statute of limitations, or time limit, from the filing date to audit or examine the filing.
However, if you do not file the form as required, the IRS can audit you for failing to file it any time — forever — unless you eventually file the Form 3520 for your foreign gift or inheritance. Then the statute of limitations for the violation expires three years after the late filing.
What Happens If I Receive A Gift Or Inheritance From A Foreign Person But Fail To File Form 3520 — Or File Late?
Failing to file Form 3520 for your foreign gift or inheritance carries big, expensive consequences.
The penalty for filing a delinquent Form 3520 is 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.
Consider how big that penalty could be. For a gift of $200,000, it could mean a penalty of $50,000. One taxpayer who mailed the form in late — even after asking their accountant what to do to avoid penalties — was . Another taxpayer who unexpectedly received a foreign inheritance was .
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 file your delinquent international information return through normal filing procedures.
You may also attach a “reasonable cause” statement to the document, which an experienced IRS tax attorney can help you draft. It is possible that penalties will be assessed while your return is being processed. You can find more details on reasonable cause below.
If You’re Stuck With Penalties, How Can A Form 3520 Tax Lawyer Help?
After you receive a Notice of Penalty Charge for failure to file Form 3520, you have only 30 days to appeal. That means you’re inevitably stuck in a race to find and hire a tax attorney with experience, gather all the supporting data and documents, and give your attorney enough time to assemble an appeal package for you.
The one way to have Form 3520 penalties removed is by making a successful argument that your failure or delay in filing the form was due to “reasonable cause,” not due to “willful neglect.”
For many reasons, this type of highly complicated challenge requires engaging a tax attorney who knows the ins and outs of Form 3520 appeals related to foreign gifts and inheritances.
A reasonable cause argument requires proving that you did all you could, which might include seeking professional help once you learned about the need to file a Form 3520. You must also provide any documentation of emails, letters or other information that demonstrates that you did your due diligence on the matter.
Attorney Sammy Kim has successfully convinced the IRS to eliminate massive Form 3520 failure-to-file and late penalties for her clients, including the removal of a penalty that was nearly $400,000.
If you received a foreign gift or bequest of more than $100,000 and need help with Form 3520 problems, contact a tax attorney now.
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