How Foreign Gifts & Form 3520 Leads to FBAR
How Foreign Gifts & Form 3520 Leads to FBAR Filing Requirements: Oftentimes, when a US person receives a money gift from a foreign person and the value of that gift exceeds the form 3520 filing requirement, the US person has to file Form 3520 with the IRS. It is not uncommon for the Taxpayer to presume that Form 3520 is the only form they are required to report — but that is not always the case. That is because when a person is a beneficiary of an estate and/or has elderly parents or relatives, then instead of receiving cash or a money transfer to the US, the gift may take the shape of Ownership or Co-ownership over a foreign account. This may in turn lead to reporting requirements for both form 3520 and the FBAR.
Let’s take a look on How Foreign Gifts & Form 3520 Leads to FBAR Filing
Form 3520 & Foreign Gifts
When a US person receives a gift from a foreign person (individual or entity) and the gift exceeds the reporting threshold, the US person must file a Form 3520. Timely filing of the form is critical, especially because in recent years the IRS has significantly increased the number of taxpayers who get head with a Form 3520 “Automatic Assessed Penalty.” And, since many times the value of the penalty will be 25% of the value of the gift — when a US person receives a large gift such as for the purchase of a home or as the result of an inheritance for example — it can lead to significant offshore fines and penalties.
FBAR & Foreign Gifts
The FBAR is used to report Foreign Bank and Financial Accounts to FinCEN — and is technically referred to as FinCEN Form 114. FinCEN is known as the Financial Crimes Enforcement Network. And, while the FBAR is filed directly with FinCEN, it is the Internal Revenue Service tasked with enforcing compliance with the FBAR. Aside from form 3520 penalties, the FBAR Penalties are some of the most serious international reporting penalties that the IRS assesses and enforces. Depending on whether the taxpayer is deemed willful (less common) or non-willful (more common) determines which penalty structure framework the taxpayer falls under.
Untimely FBAR & Form 3520 Filing
When a person has not timely filed either one of these two forms, they have an opportunity to get into compliance before it is too late. They accomplish this by submitting to one of the offshore tax amnesty programs aka “offshore voluntary disclosure” or FBAR Amnesty.
What are the Offshore Amnesty Programs?
The International Tax Amnesty Programs are programs developed by the Internal Revenue Service to assist Taxpayers who are already out of compliance for non-reporting.
Some of the more common programs, include:
- Voluntary Disclosure Program (VDP or “New” OVDP)
- Streamlined Domestic Offshore Procedures
- Streamlined Foreign Offshore Procedures
- Delinquency Procedures
- Reasonable Cause
Noncompliance Should Be Resolved Timely
In conclusion, when Taxpayers have a Form 3520 filing requirement for receiving a foreign gift, but the gift is a foreign account, they may also have an FBAR filing requirement. Just “filing forward” is not a safe option. That is because if they had a prior year reporting requirement, but only just now begin to start filing in the current year (Filing Forward) it is illegal.
In the world of offshore disclosure, this is referred to as a Quiet Disclosure.
The IRS has warned taxpayers that if they get caught in a FBAR Quiet Disclosure situation, it may lead to willful penalties and even a criminal investigation by the IRS Special Agents.
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