Foreign Gifts and Inheritances – When Do You Need to File Form 3520?

If you receive a gift or inheritance from a foreign person or other foreign entity, you may need to file Form 3520- Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.

Is it foreign income or a foreign gift or bequest?

The first step in determining if you need to report your foreign gift or bequest to the IRS is to determine if the cash or property received is income or can be characterized as a gift. Income, of course, would be reported as income on your personal income tax return. If there were payments made to you in previous years that should have been characterized as income and you did not report that income on your U.S. income tax returns, you should seriously consider entering into the Offshore Voluntary Disclosure Initiative (OVDI) to avoid the maximum civil penalties and avoid criminal charges Amounts paid for qualified tuition or medical bills on behalf of a U.S. person are not considered gifts or income.   If the money or property received from the foreign person or entity can be rightfully characterized as a gift or bequest, then you need to consider whether you meet the filing thresholds to report the gifts.
What is the value of the foreign gift or bequest?

If during the course of a calendar year:

(a) The value of the gifts and bequests received from a nonresident alien individual or foreign estate, which must also include gifts or bequests received from foreign persons related to the nonresident alien individual or foreign estate, exceeds $100,000, OR

(b) The value of the gifts received from foreign corporations or foreign partnerships, which must also include gifts received from foreign persons related to the foreign corporations or partnerships, exceeds $15,102 in 2013, or $15,358 in 2014 (this value is adjusted annually for inflation),

THEN you must file Form 3520.

Where the donor (the person making the gift) is related to another donor, the IRS requires that you must aggregate these gifts to determine whether the filing threshold is met.  For example, if your uncle in Pakistan gives you $50,000 and your aunt in India gives you $60,000 in the same year, the sum of their gifts would mandate that the $100,000 filing threshold was met.   These gifts would be reported on Part IV of Form 3520.

Where and when to file Form 3520?

Form 3520 is filed separately from your income tax return.  The due date for filing Form 3520 is the same as the dues date for filing your federal individual income tax return, including extensions.  The form should be sent to the Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409.

There may be penalties if you do not file your Form 3520 or if it is incomplete or inaccurate.  For foreign gifts, you may be subject to a penalty equal to 5%, but not to exceed 25%, of the amount of the foreign gift or bequest for each month for which failure to report continues. For distributions from foreign entities, the penalty is equal to the greater of $10,000 or 35% of the gross value of the distributions from the foreign entity.

U.S. taxpayers who receive a gift or inheritance from a foreign person or other foreign entity would benefit from the experienced tax attorneys of the Law Office Of Jeffrey B. Kahn, P.C. representing you to avoid the pitfalls associated with failure to comply with the reporting requirements associated with the receipt of foreign gifts.

Description: Let the tax attorneys of the Law Offices Of Jeffrey B. Kahn, P.C. resolve your IRS tax problems, get you in compliance with your FBAR filing obligations, and minimize the chance of any criminal investigation or imposition of civil penalties.