What All Taxpayers Must Know About Form 3520 Obligations

What All Taxpayers Must Know About Form 3520 Obligations

Receiving Large Foreign Gifts

When it comes to international reporting of foreign assets and income, one of the most important aspects of reporting does not include income. Rather, it focuses on the reporting of foreign gifts. When a U.S. Person (U.S. Citizen, Lawful Permanent Resident, Foreign National who meets the Substantial Presence Test) receives a gift from overseas, sometimes that gift is reportable to the IRS, even if the gift is not taxable – and even when the gift does not generate any income. Failure to report these types of gifts can lead to fines and penalties (but they can often be avoided or abated through the IRS offshore disclosure programs). Let’s look at quick 5 things you should know about foreign gift reporting.

Is the Person Giving the Gift ‘Foreign’

The reporting requirements for U.S. Persons on Form 3520 kick in when the gift exceeds the reporting threshold and is made from a foreign person who is a non-resident alien (NRA). If the gift is from a U.S. Person who lives abroad, then Form 3520 is generally not required and instead, the person giving the gift files a Form 709.

Do U.S. Persons Abroad Have to Report Gifts They Receive?

Even if the U.S. Person who receives the gift lives overseas, they are still required to file a Form 3520, since they are still considered a U.S. Person.

One Large Gift or Multiple Smaller Gifts

The threshold can be met by either receiving one large gift, or several gifts from the same person (or related persons) in the same year. Form 3520 requires the filer to parse out each gift when the value of each gift exceeds a minimum threshold.

Related Parties

When multiple foreign non-residents who are related give gifts to the same U.S. person then the value of all the gifts combined is aggregated to determine if the reporting threshold is met. In other words, gift splitting cannot be used to circumvent the reporting threshold.

Gifts for Education and Medical Treatment

Certain types of gifts may be excluded from being included on the Form 3520. Two common examples are (direct) gifts made for educational purposes and for medical purposes. Usually, it requires payment to be made directly to the institution.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure

Contact our firm today for assistance.