With the increasing globalization of wealth and investments, U.S. taxpayers often engage in financial relationships with foreign entities, including trusts and individuals. However, the Internal Revenue Service (IRS) closely monitors such relationships for transparency and tax compliance. If you have received gifts or bequests from foreign persons or are involved with a foreign trust, you may be required to file Form 3520 and Form 3520-A.
Failure to report these relationships can result in steep penalties—even if there’s no tax due. This detailed guide explains when and how to file Forms 3520 and 3520-A, who must file them, and the consequences of non-compliance.
What Is Form 3520?
IRS Form 3520, titled “Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts,” is an information return, not a tax return. It must be filed by U.S. persons who:
- Receive gifts or bequests from foreign individuals, estates, or corporations exceeding certain thresholds
- Transfer money or property to a foreign trust
- Receive distributions from a foreign trust
- Are owners of any part of a foreign trust under the grantor trust rules
Form 3520 is filed separately from your income tax return and must generally be submitted by the same due date as your individual tax return, including extensions.
What Is Form 3520-A?
Form 3520-A, “Annual Information Return of Foreign Trust With a U.S. Owner,” is used to report the activities of a foreign trust with at least one U.S. owner. The foreign trust is required to file this form to provide information to the IRS and the trust owner (via a Foreign Grantor Trust Owner Statement).
If the foreign trust fails to file the form, the U.S. owner is responsible for ensuring the IRS receives the necessary information by attaching Form 3520-A to their personal tax return.
Who Must File Form 3520?
You must file Form 3520 if you are a U.S. person and:
- You receive more than $100,000 in gifts or bequests from a nonresident alien individual or foreign estate
- You receive more than $18,567 (as of 2024) in gifts from a foreign corporation or partnership
- You make a contribution to a foreign trust
- You receive distributions from a foreign trust
- You are treated as the owner of a foreign trust under Sections 671–679 of the Internal Revenue Code
Even if no tax is due, the form is still required for informational purposes.
Who Must File Form 3520-A?
A foreign trust with a U.S. owner must file Form 3520-A annually to:
- Report income, distributions, and ownership information
- Provide U.S. owners with the Foreign Grantor Trust Owner Statement
- Ensure compliance with IRS reporting obligations
If the foreign trust fails to file, the U.S. owner is responsible and may need to attach a substitute Form 3520-A with their Form 3520.
Form 3520 Filing Thresholds for Foreign Gifts
The filing requirement is triggered when you receive:
- More than $100,000 in gifts from nonresident alien individuals or foreign estates
- More than $18,567 in gifts from foreign corporations or partnerships (adjusted annually for inflation)
Multiple gifts from the same foreign person must be aggregated. Even if you believe the gift is not taxable, Form 3520 must be filed to report it.
Key Deadlines
- Form 3520: Due on the same date as your income tax return (April 15 or October 15 with extension)
- Form 3520-A: Due by March 15 (or extended to September 15 with Form 7004)
Penalties for Non-Compliance
The IRS imposes severe penalties for failure to file or incomplete filing:
- Form 3520: Penalties can be 35% of the gross value of the amount transferred to or received from a foreign trust. For foreign gifts, the penalty is 5% per month (up to 25%) of the unreported amount.
- Form 3520-A: The penalty is $10,000 or 5% of the gross value of the trust’s assets owned by the U.S. person, whichever is greater.
The IRS may waive penalties if the taxpayer can demonstrate reasonable cause and not willful neglect.
Exceptions to Filing
Some foreign pension plans and employer-provided retirement accounts may be exempt from these reporting requirements under tax treaties or IRS guidance. However, exemption is not automatic—you must carefully evaluate the specific facts or consult a tax professional.
Common Scenarios That Trigger Filing
- Receiving an inheritance from a foreign relative
- Being named a beneficiary of a foreign discretionary trust
- Transferring assets to a foreign trust for estate planning
- Receiving distributions from a foreign family trust
- Owning a foreign trust set up for a child’s education
Documents You May Need
When preparing Form 3520 or 3520-A, gather the following documents:
- Gift letters or documentation from foreign donors
- Trust formation agreements or deeds
- Bank statements showing transfer or receipt of funds
- Information statements from the trust (if available)
Accurate records are critical to substantiate your compliance and avoid potential IRS scrutiny.
How to File
Both Form 3520 and 3520-A must be mailed to the IRS separately from your income tax return. They are not electronically filed and must go to specific IRS addresses:
- Form 3520: Internal Revenue Service, P.O. Box 409101, Ogden, UT 84409
- Form 3520-A: Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409
Ensure that your forms are complete and accurate. Errors or omissions can delay processing and trigger penalties.
Helpful IRS Resources
Conclusion: Transparency and Compliance Are Key
Form 3520 and 3520-A are essential tools for the IRS to ensure that U.S. taxpayers disclose financial relationships with foreign trusts and donors. These forms are purely informational but carry steep penalties if ignored. Filing them correctly protects you from penalties and keeps your cross-border affairs compliant.
If you’ve received foreign gifts or have any dealings with foreign trusts, consult with a tax advisor experienced in international reporting. Even if you believe your gift is innocent or your trust is non-taxable, reporting is still required—and failing to do so could cost you significantly.
