5 Quick Facts About Preparing, Filing & Reporting IRS Form 3520 (Golding & Golding)
5 Quick Facts About Preparing, Filing & Reporting IRS Form 3520
When a U.S. person receives a Gift from a foregn person, the IRS may require that gift to be reported by the U.S. person. Reporting is generally based on the type of gift, amount of gift, and who gave the gift.
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What is Form 3520?
Form 3520 is a form required by certain U.S. Persons in any year the U.S. Person receives a gift from a foreign person individual, foreign corporation and/or foreign trust.
Here are 5 quick facts about Form 3520:
Beware of IRS Form 3520
The Form 3520 is a very dangerous form, due to the extreme level of penalty the IRS can issue.
Unlike an FBAR or FATCA form 8938 (used to report foreign accounts and/or assets), a gift is usually more sporadic, and oftentimes a one-time, single occurrence. Thus, it may not seem intuitive that the gift has to be reported.
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5 Quick Facts About IRS Form 3520
Here are 5 common and quick facts about Form 3520:
Received More than $100,000 Gift from a Foreign Individual?
There are different thresholds for reporting foreign gifts. The highest threshold is when the gift is from a foreign indivdiual — the current threshold is $100,000.
Why does the recipient of the gift have to report it?
Because since the “giver” of the gift is non-U.S. Person, he or she has no reporting requirement to the IRS (aka gift tax return). Therefore, in order to try to “track the gift,” the IRS requires the U.S. person to report.
Received More than $16,076 Gift From a Foreign Corporation or Partnership
When a person receives a gifr from a foreign business, the threshold is significantly less.
Why?
Commingling between personal and business transfers can get very complicated, the IRS wants avoid any artificall deflation of basis or other asset transfers which could be used to side-step Form 926 and other 8865 or 5471 requirements.
Difference Between a Foreign Person vs. Foreign Gift
One importan aspect of the Form 3520 is to assess who actually gave the gift, vs. the situs of the gift.
The Form 3520 is when the gift is received from a Foreign Person. It does not explicitly state that the property must be foreign, just the person. Why? Because the concept is to require the recipient to report a gift from a person (foreign) who is not otherwise required to report to the U.S. Just because the property is in the U.S. would not negate the requirement.
Foreign Accounts used for the Transfer
When foreign account issues accompany the gift transfer, it can get much more (and unnecessarily) compliance.
For example: Your grandma is China gave you a $750,000 gift to purchase your first home. But, to make life easier for your parents, they transfer the money to an account in your name overseas. Even though the money is only in the account for a few days — you may now have an FBAR, FATCA, and other international reporting form requirements.
Filing a Late Form 3520 without using Reasonable Cause or Amnesty
The IRS has procedures in place to assist you If you have not filed prior year Form 3520 forms. It is not as simple as just back-filing the forms. If you back-file, without submitting to IRS Tax Amnesty and/or submitting in conjunction with a Reasonable Cause statement, you are almost guaranteed to be penalized.
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