Currency Restrictions & Foreign Gifts
Currency Restrictions & Foreign Gifts: 3520 Form Reporting: In many foreign countries such as Taiwan and China, the governments in those countries have implemented currency transfer restrictions on money leaving the country. The purpose of the restrictions on transfer is to limit the amount of money that can leave the country. In a common scenario, a U.S. person adult child is to receive a large gift from their parents in Taiwan. But, because of the currency restrictions, the parents cannot just transfer $1,500,000 out of Taiwan. Instead, the parents have to call upon friends and family to make the transfer.
Is Form 3520 Required if none of the transfers from any single person is above $100,000?
Who is a U.S. Person
First, it is important to note that a U.S. person is not limited to a U.S. citizen. Rather, a U.S. person may include Legal Permanent Residents (aka Green Card Holders) and Foreign Nationals who have met the substantial presence test. There are exceptions, such as F-1 visa holders who have not been on that status for at least 5-years (unless they move onto an H-1B, L-1 or other employment/family visa status).
Form 3520 & Currency Restrictions on Gift Transfer
In this situation, the Form 3520 would still be required. The reason why is because the gift itself is coming from the parents. And, the total value of the gift from the parents exceeds $100,000.
The fact that the foreign parents had to call upon friends and family to facilitate the transfer does not reduce the value of the “gift” made by the parents.
What Information Does 3520 Gift Recipients Provide?
When a U.S. person receives a gift from a foreign person Individual (the rules for entities is more complicated), the information they must provide is limited.
It essentially boils down to:
- Date of the Gift
- Amount of the Gift
- Type of Gift
Personal information about the foreign person individual who gave the gift(s) is not important.
Penalty for Not Reporting Form 3520
The IRS has significantly increased enforcement of Form 3520 penalties.
As provided by the IRS:
- “Section 6039F. In the case of a failure to timely report foreign gifts described in section 6039F, the IRS will determine the income tax consequences of the receipt of such gift, and a penalty equal to 5% of the amount of such foreign gifts applies for each month for which the failure to report continues (not to exceed a total of 25%). No penalty will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect. See section 6039F for additional information.”
In conclusion while currency restrictions on a gift transfer may complicate the matter, especially from a foreign government regulation perspective, it does not have much if any impact on the U.S. reporting on Form 3520 requirement. Despite currency restrictions, when the gift came from a single person or related persons and the threshold is met, the form 3520 should still be filed — even if several foreign person each transferred less than $100,000 in a year.
International Tax Law Specialist Team: Golding & Golding
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure, including help clients with late reporting of Forms 3520 and 3520-A, including currency restrictions on gift transfer issues.
Contact our firm today for assistance.