Form 3520: Reporting Gifts and Inheritances From Abroad, and Foreign Trust Transactions

Here is a call I dread, because it is so avoidable. A U.S. citizen's father, who lives in another country and is not a U.S. person, dies and leaves her $400,000. She owes no U.S. income tax on the inheritance. Nobody tells her that she was required to report it on Form 3520. Two years later, a notice proposes a penalty that can run up to 25 percent of the inheritance.

Form 3520 is the Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. It has two very different jobs: reporting large foreign gifts and bequests, and reporting transactions with foreign trusts.

Foreign gifts and bequests: the thresholds

Section 6039F requires a U.S. person, other than certain tax-exempt organizations, to report foreign gifts received during the taxable year if the aggregate amount exceeds a threshold. A foreign gift is any amount received from a person other than a United States person that the recipient treats as a gift or bequest, with exclusions for qualified tuition and medical payments under section 2503(e)(2) and for distributions properly disclosed under the foreign trust rules.

The IRS explains the reporting thresholds this way:

• From a nonresident alien individual or a foreign estate: report if the aggregate of gifts or bequests received during the taxable year exceeds $100,000. The IRS says you must aggregate gifts from that person and from foreign persons you know or have reason to know are related to them. Once the total exceeds $100,000, each gift over $5,000 is separately identified.
• From a foreign corporation or foreign partnership: report if the aggregate exceeds the inflation-adjusted amount, which the IRS lists as $20,116 for 2025 and $20,573 for 2026. Those figures match Rev. Proc. 2024-40 and Rev. Proc. 2025-32.

The reporting is an information requirement. Receiving a gift or inheritance does not, by itself, make the amount taxable income to the recipient. The problem is not tax. The problem is the form.

The penalty for not reporting a foreign gift

Section 6039F(c) has two consequences for failing to report a foreign gift on time. First, the IRS may determine the tax consequences of the receipt of the gift. Second, the recipient pays a penalty equal to 5 percent of the amount of the gift for each month the failure continues, up to a maximum of 25 percent.

There is a reasonable cause exception in section 6039F(c)(2). The penalty does not apply if the failure was due to reasonable cause and not willful neglect.

Note the first consequence. Because the IRS may determine the tax consequences of an unreported gift, an unexplained transfer from abroad can be treated as something other than a gift, such as income. Reporting it is how you establish what it was.

Due date and how it is filed

The IRS says Form 3520 is due by the 15th day of the fourth month following the end of your tax year, which is generally April 15 for individuals, subject to applicable extensions. Unlike Forms 5471, 8621 and 8938, Form 3520 is not simply attached to your income tax return. Delinquent Forms 3520 are filed according to the form's own instructions, as the IRS explains in its delinquent information return procedures.

Foreign trusts: the other half of Form 3520

Form 3520 is also used to report transactions with foreign trusts under section 6048: creating or transferring property to a foreign trust, being treated as the owner of a foreign trust, and receiving distributions from a foreign trust. A foreign trust with a U.S. owner also has its own return, Form 3520-A, which its instructions say is due by the 15th day of the third month after the end of the trust's tax year. An extension of the owner's income tax return does not extend Form 3520-A; a Form 7004 is required.

The trust penalties are larger. Section 6677(a) imposes the greater of $10,000 or 35 percent of the gross reportable amount for failures to file or for incomplete or incorrect returns under section 6048, with additional penalties if the failure continues more than 90 days after notice, capped so that total penalties do not exceed the gross reportable amount. For an owner's failure related to the Form 3520-A requirement under section 6048(b), section 6677(b) substitutes 5 percent for 35 percent.

Section 6677(d) provides a reasonable cause exception, and adds that a foreign law penalizing disclosure is not reasonable cause.

Some foreign retirement and savings arrangements are structured as trusts. The Form 8938 instructions note that Rev. Proc. 2020-17 exempts certain tax-favored foreign trusts from Form 3520 and 3520-A reporting, while leaving section 6038D reporting in place. Whether an arrangement qualifies is a detailed question.

What makes something a gift

The IRS describes a foreign gift as an amount from a foreign person that the recipient treats as a gift or bequest and excludes from gross income. That word "treats" matters. Calling a payment a gift does not make it one. A payment for services, a disguised distribution from a business or a loan that is never meant to be repaid can all look like gifts on a bank statement.

This is why the penalty statute lets the IRS determine the tax consequences of an unreported foreign gift. If you receive a large transfer from abroad, keep the paper that shows what it was: a letter from the giver, estate documents, a will, a probate order, or a signed gift letter. A few pages collected at the time can save a long argument later.

Distributions from a foreign trust are a separate category. The IRS says they are reported on Part III of Form 3520, not as foreign gifts.

Timing is a separate trap. The threshold is measured by what you receive during the taxable year. A parent who sends $90,000 in December and $90,000 in January has made two gifts in two different years, neither over $100,000. The same $180,000 sent in one year must be reported. Keep a simple log of transfers received from abroad, with dates and amounts, so the year-end question has a quick answer.

Real-life examples

• Parents abroad help with a down payment. A U.S. resident receives $60,000 from her mother and $60,000 from her father in the same year. Both are nonresident aliens. Gifts from related persons are aggregated, so the total of $120,000 exceeds $100,000. She files Form 3520.
• An inheritance through a foreign estate. A U.S. citizen receives $250,000 from his late aunt's estate in another country. The estate is a foreign estate. He files Form 3520 for the year received.
• A payment from a foreign company. A U.S. person receives $25,000 that a foreign corporation describes as a gift in 2026. That exceeds the $20,573 figure for 2026 for gifts from foreign corporations, so reporting is required, and the IRS may look closely at whether it is really a gift.

If you missed a Form 3520

The IRS's delinquent international information return procedures treat Forms 3520 and 3520-A a little more favorably than other forms: you write "Reasonable Cause Statement attached" at the top of the first page, and the IRS says reasonable cause statements for these forms will be considered before a penalty is assessed. That is a meaningful difference. Make the statement count.

If the gift or inheritance produced income that was not reported, such as interest on the inherited funds sitting in a foreign account, the streamlined procedures may be the better fit. Do not forget the account itself: inherited money held abroad usually means an FBAR. See who must file an FBAR.

A gift from family should be a blessing, not a penalty notice. If you received one and did not report it, let's talk.