Reporting a Gift from Foreign Person & Form 3520
Reporting a Gift from Foreign Person & Form 3520 Reporting: When a U.S. person receives a gift from a foreign person individual, entity (partnership or corporation) or trust — they may be required to report the gift to the IRS on form 3520. Not all gifts from foreign persons have to be reported. Rather, only gifts that meet the threshold requirement for reporting have to be disclosed on for m3520. The threshold requirements will vary depending on whether it is a gift from a foreign individual or a gift from a foreign entity. The IRS has significantly increased penalty enforcement, and many people are getting hit with an automatic penalty assessment for untimely Form 3520 (absent showing reasonable cause).
We will summarize the foreign gift reporting rules:
When to Report a Gift from a Foreign Person
The form 3520 is filed at the same time a person’s tax returns filed.
If a person files for an extension for their US tax return, the form 3520 filing goes on extension as well.
If the taxpayer also has a form 3520-A filing requirement, the due date is different. In addition, if you need to apply for an extension, the Form 3520-A requites the filer to submit a separate extension form (Form 7004). This is different than form 4868 which is the form used to extend the time to file a US tax return.
Even if the filer does not have a tax return filing requirement (because possibly they are below the income levels for having to file tax return) they still must file a form 3520 if they meet the threshold requirement for foreign gift reporting.
Foreign Individual Gift
When a U.S. person receives a gift from a foreign individual the threshold requirement it Is generally $100,000.
In other words, if the US person receives a gift or a series of gifts from the same foreign individual in the U.S. tax year diving annual aggregate total exceeds $100,000, and the gift is reported on form 3520.
Unlike a gift from a foreign entity, the reporting requirements for reporting a gift from a foreign individual are relatively straightforward.
Aside from some additional background information about the filer, the person filing the form 3520 must simply identify:
- The date or dates of the gift
- The FMV value of the gift (in USD)
- The type of gift.
Foreign Entity Gift & Form 3520
When a person receives a gift from a foreign entity, the rules are different.
The threshold requirement for reporting is much lower, and in 2019 it was $16,388. Therefore, if a US person received a gift from a foreign entity that exceeded $16,388, then form 3520 Is required.
The reporting requirements for receiving a gift from a foreign entity are more detailed and require the following information to be disclosed on form 3520:
- Date of Gift
- Name of Foreign Donor
- Address of Foreign Donor
- Identification Number
- Corporation or Partnership
- Description of Property
- FMV (Fair Market Value of the Gift)
If you do not timely file form 3520 with the IRS you may be subject to fines and penalties, although these penalties may be avoided, reduced, or minimized.
Meet our International Tax Law Specialist Team
In conclusion it is important for US taxpayers who receive gifts from a foreign Individual, Entity or Trust to timely and accurately file Form 3520. Late-filed forms may result in an IRS penalty, but the penalty may be avoided, minimized or abated by showing reasonable cause.
Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure, including help clients with late reporting of Forms 3520 and 3520-A.
Contact our firm today for assistance.