Where Form 3520 and EB-5 Investments Intersect (2027)
When foreigners or other U.S. visa holders want to apply for the U.S. golden visa — otherwise known as the EB-5 investment visa — it requires a significant cash outlay. Oftentimes, the individual who is applying for the EB-5 visa is a younger person, such as a child student in the U.S. who may not have sufficient funds to satisfy the EB-5 investment visa requirements. As a result, the foreign national parents may gift them money, which is then used to apply for the visa. The question then becomes whether receiving this type of gift is reportable on Form 3520. In most scenarios, the answer is yes.
First, Foreign Gift Reporting on Form 3520
When a U.S. taxpayer is a U.S. Person for tax purposes, such as a U.S. citizen, lawful permanent resident, or foreign national who meets a substantial presence test, and receives a large gift from a foreign national, that gift is reportable to the IRS. Form 3520 (the current threshold requirement for individual gifts is — if the gift exceeds more than $100,000 in the tax year, noting that it could be several gifts from the same person in the same year or multiple persons who are considered related for Form 3520 purposes.
Here are a few common situations to consider:
What if The Gift Goes Directly to the Investment?
Even if the foreign national gifts the money directly to the investment under the guise of the EB-5 visa, the IRS still takes the position that it is reportable on Form 3520
Why?
Because the IRS sees it as two transactions: they see it as the gift first went to the taxpayer and then for the investment, even if it is directly provided to the investment company, because it is on behalf of the taxpayer.
What if the Transfer is a Loan?
If the transfer of money from the foreign national to the U.S. taxpayer applying for the EB-5 visa is a loan, the requirements for the loan must be met. In other words, just saying that the transfer was a loan if there is no paperwork and there have been no repayments or interest payments/schedule may not suffice.
What if the Gift is Transmuted into a Loan?
In a not uncommon scenario, once the foreign national parent or relative realizes that the gift is reportable on Form 3520, they then want to transmute the gift into a loan. While there is nothing inherently wrong with doing that, that also solidifies the fact that the initial transfer was a gift and, therefore, in the year it was received as a gift, Form 3520 should have been filed.
Late Filing Penalties May Be Reduced or Avoided
For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.
Current Year vs. Prior Year Non-Compliance
Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.
Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)
In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties.
Need Help Finding an Experienced Offshore Tax Attorney?
When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.
*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.
Golding & Golding: About Our International Tax Law Firm
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