Foreign Gifts and the Uncommon Form 3520: A Trap for the Unwary

When a U.S. person receives a gift from a foreign individual, corporation, partnership, or estate which is treated as a gift or bequest and excluded from gross income, the recipient may be required to file Part IV of Form 3520. Form 3520 is the Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. The form is uncommon and little known since few people have to file it on a regular basis.

When receiving a gift from a foreign individual, a U.S. person is required to report the gifts when the aggregate amount received during a taxable year exceeds $100,000. When the $100,000 threshold is met, the U.S. recipient must separately identify each gift over $5,000. When receiving a gift from a foreign corporation or partnership, a U.S. person is required to file the gifts when the aggregate amount received during a taxable year exceeds $16,649. When the $16,649 threshold is met, the U.S. recipient must separately identify the gifts and provide the name of the donor.

Form 3520 is typically due on the same day your income tax return for that year is due.  U.S. persons living outside of the United States have a due date to file of June 15th following the end of the tax year. U.S. persons granted an extension to file have a due date around October 15th following the end of the tax year. There is no automatic extension to file Form 3520.

Form 3520 is filed separately from your income tax return and sent to the following address:

Internal Revenue Service Center P.O. Box 409101 Ogden, UT 84409.  A late Form 3520 will result in an automatic computer-generated penalty. The penalties are a trap for the unwary and unfamiliar.

Professional legal counsel is recommended for Form 3520 filers. Taxpayers who have received a foreign gift or are planning to receive a foreign gift should contact Patel Law Offices. Over the years, our office has successfully assisted numerous taxpayers regarding their Form 3520 compliance issues.

Patel Law Offices offers a free strategy session to discuss how to resolve your foreign asset problem. Conveniently schedule online today by completing our questionnaire and online scheduler.

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