The Top Form 3520 Mistakes to Avoid

Not reporting foreign gifts

If you are a U.S. person who received foreign gifts of money or other property from a foreign donor worth more than $100,000 in aggregate in any calendar year, you must report these gifts on Form 3520. Form 3520 is an information return, not a tax return, because foreign gifts are not subject to income tax.  A gift to a U.S. person does not include amounts paid for qualified tuition or medical payments made on behalf of the U.S. person.

Not reporting foreign bequest from foreign estate or decedent

If you are a U.S. person who received foreign bequest of money or other property from a foreign estate or foreign decedent (person who died) worth more than $100,000 in aggregate in any calendar year, you must report these bequests on Form 3520. Form 3520 is an information return, not a tax return, because foreign bequest are not subject to income tax.  

Penalties for Not Timely Filing

There are significant penalties for failure to file Form 3520 when it is required. You can be subject to a penalty equal to 5%, but not to exceed 25%, of the amount of the foreign gift or bequest if you’re required to file Form 3520 but fail to do so. You might also be subject to a penalty if you file the form but it’s incomplete or inaccurate.

Filing Form 3520 late

You can file Form 3520 separately from your income tax return.  In general, the due date for a U.S. person to file a Form 3520 is the 15th day of the 4th month following the end of the U.S. person’s tax year.  Filing late outside any IRS corrective procedure could result in a penalties being assessed against you.

Foreign Trust Gifts are different

Gifts from foreign trusts are subject to different rules than gifts from other foreign persons.  Form 3520-A may be required to be filed. 

Gifts of Tuition or medical payments are different

A gift to a U.S. person does not include amounts paid directly for qualified tuition or medical payments made on behalf of the U.S. person.  No Form 3520 reporting applies.

Gifts from a foreign partnership of corporation are different

Gratuitous gifts from a foreign partnership of corporation are rare and will be scrutinized. The IRS may re-characterize purported gifts from foreign partnerships or foreign corporations as items of income that must be included in gross income.