Quiet Disclosure & Form 3520
Quiet Disclosure & Form 3520: When a U.S. person receives a gift from a Foreign Person — especially when the gift comes from a Family Member — U.S. Tax Law is literally the last thing on their mind. A quick Google Search reveals that in nearly all situations, receiving a gift from a foreign person is not a taxable evening.
Therefore, the gift amount is not included as income on the U.S Person recipient’s tax return.
But, a further review of the law would reveal that while the gift amount is not taxable, the U.S. recipient must still report the gift to the IRS when it meets the threshold for reporting.
If a person fails to report the form timely, or file it late and show reasonable cause — the penalties can be exorbitant.
It may lead a person to consider make a Form 3520 Quiet Disclosure.
IRS Form 3520 Penalties
As provided in the Form 3520 Instructions:
“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.”
26 U.S.C. 6039F
When it comes to Foreign Gift penalties, 26 U.S.C. 6039F provides the following:
“(c) Penalty for failure to file information
(1) In general
If a United States person fails to furnish the information required by subsection (a) with respect to any foreign gift within the time prescribed therefor (including extensions)—
(A) the tax consequences of the receipt of such gift shall be determined by the Secretary, and
(B) such United States person shall pay (upon notice and demand by the Secretary and in the same manner as tax) an amount equal to 5 percent of the amount of such foreign gift for each month for which the failure continues (not to exceed 25 percent of such amount in the aggregate).
(2) Reasonable cause exception Paragraph (1) shall not apply to any failure to report a foreign gift if the United States person shows that the failure is due to reasonable cause and not due to willful neglect.”
Should I Silently Disclose Form 3520?
No, absolutely not.
A Quiet Disclosure is when a person circumvents the established offshore disclosure reporting programs such as Voluntary Disclosure (VDP), Streamlined Filing (SFCP) or Delinquency & Reasonable Cause. Rather, the person just submits the Form 3520, hoping the IRS does not discover the late filing.
This can be very dangerous.
First, the IRS is in the business of assessing automatic Form 3520 Penalties at 25% value of the gift.
Second, the IRS has made it known it will pursue civil willful and even criminal investigations against anyone they catch.
While the penalties can be bad, oftentimes they can be mitigated through one of the approve offshore disclosure/amnesty programs.
Foreign Gift, Trust, and Inheritance Tax Specialist Team
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure, including help clients with late reporting of Forms 3520 and 3520-A.
We are the “go-to” firm for other Attorneys, CPAs, Enrolled Agents, Accountants, and Financial Professionals across the globe. Our attorneys have worked with thousands of clients on offshore disclosure matters, including FATCA & FBAR.
Each case is led by a Board-Certified Tax Law Specialist with 20-years experience, and the entire matter (tax and legal) is handled by our team, in-house.
*Please beware of copycat tax and law firms misleading the public about their credentials and experience.
Less than 1% of Tax Attorneys Nationwide Are Certified Specialists
Our lead attorney is one of less than 350 Attorneys (out of more than 200,000 practicing California Attorneys) to earn the Certified Tax Law Specialist credential. The credential is awarded to less than 1% of Attorneys.
Recent Case Highlights
- We represented a client in an 8-figure disclosure that spanned 7 countries.
- We represented a high-net-worth client to facilitate a complex expatriation with offshore disclosure.
- We represented an overseas family with bringing multiple businesses & personal investments into U.S. tax and offshore compliance.
- We took over a case from a small firm that unsuccessfully submitted multiple clients to IRS Offshore Disclosure.
- We successfully completed several recent disclosures for clients with assets ranging from $50,000 – $7,000,000+.
How to Hire Experienced Offshore Counsel?
Generally, experienced attorneys in this field will have the following credentials/experience:
- 20-years experience as a practicing attorney
- Extensive litigation, high-stakes audit and trial experience
- Board Certified Tax Law Specialist credential
- Master’s of Tax Law (LL.M.)
- Dually Licensed as an EA (Enrolled Agent) or CPA
Interested in Learning More about our Firm?
No matter where in the world you reside, our international tax team can get you IRS offshore compliant.
We specialize in FBAR and FATCA. Contact our firm today for assistance with getting compliant.