Form 3520 is one of the most frequently missed international information returns. US persons who receive large gifts or inheritances from foreign persons, or who have transactions with foreign trusts, must file Form 3520 annually with their tax return. The penalties for failure to file are 5% per month (up to 25%) of the gift amount for unreported foreign gifts and 35% of the gross value for unreported foreign trust transfers and distributions.
Receiving a gift or inheritance from a foreign person is generally not subject to US income tax. The United States does not impose an inheritance tax on recipients. However, reporting is required when the amounts exceed the applicable thresholds. Failure to report is a separate violation from any tax owed - and the penalties apply even when no tax is due.
| Transaction Type | Form Required | Threshold | Authority |
|---|---|---|---|
| Gift from foreign individual | Form 3520, Part IV | Aggregate > $100,000 | IRC §6039F(a) |
| Inheritance from foreign estate | Form 3520, Part IV | Aggregate > $100,000 | IRC §6039F(a) |
| Gift from foreign corporation or partnership | Form 3520, Part IV | Aggregate > $20,573 (2026) | IRC §6039F(b) |
| Grantor of a foreign trust | Form 3520, Part I | Any transfer | IRC §6048(a) |
| Distribution received from foreign trust | Form 3520, Part III | Any distribution | IRC §6048(c) |
| Foreign trust with US owner (grantor trust) | Form 3520-A | Annual - regardless of activity | IRC §6048(b) |
| Loan from foreign trust treated as distribution | Form 3520, Part III | Any loan | IRC §643(i) |
| Use of foreign trust property | Form 3520, Part III | Any use | IRC §643(i) |
This is the most common scenario. A US resident receives a wire transfer from parents who live abroad. If the transfer is a genuine gift (not a loan, not compensation, not a business payment), it is reportable on Form 3520 if the aggregate exceeds $100,000 for the year. It is not taxable income - but it must be reported. The IRS has been clear that consistent non-reporting of foreign gifts over the threshold is treated as willful failure, even if no tax is owed.
The IRS scrutinizes transfers from foreign related parties. A transfer characterized as a "gift" from a foreign corporation controlled by the recipient's family member is treated as a gift from a foreign corporation (lower $20,573 threshold) rather than an individual. Transfers from a foreign entity to a US person in exchange for services are compensation - not gifts - regardless of how they are labeled.
A bequest or inheritance from a foreign estate is treated the same as a gift from a foreign individual for Form 3520 purposes. The $100,000 threshold applies. No estate or inheritance tax is imposed on the US recipient - but reporting is required if the threshold is met. Treas. Reg. §1.6039F-1.
If a foreign person loans money to a US person and subsequently forgives the loan, the forgiven amount may be treated as a gift for Form 3520 purposes. IRS scrutinizes transactions structured as loans between related foreign persons and US recipients to ensure they are genuine debt obligations rather than gifts with extra steps.
Form 3520 is due on the same date as the taxpayer's income tax return, including extensions. For calendar-year individuals, this is April 15, extended to October 15 with a Form 4868 extension. Form 3520 is filed separately from Form 1040 - it is mailed to a dedicated IRS address in Ogden, Utah, not submitted with the return. IRC §6048; Instructions to Form 3520.
Form 3520-A is filed by the foreign trust (or by the US grantor if the trust fails to file) and is due March 15, extended to September 15. This is an earlier deadline than Form 3520 itself.
A foreign trust with a US grantor is treated as a grantor trust for US income tax purposes under IRC §679. The US grantor must: (1) include all trust income, deductions, and credits on their personal return (Form 1040); (2) file Form 3520 annually; and (3) ensure the foreign trust files Form 3520-A (or file it themselves if the trust fails to do so).
A distribution from a foreign non-grantor trust to a US beneficiary is reported on Form 3520, Part III, and is generally taxable as ordinary income to the extent of the trust's distributable net income (DNI). The throwback rules under IRC §665-668 can cause distributions of accumulated income from prior years to be subject to a partial tax computed under IRC §667(b) using the beneficiary's own taxable income for the 3 of the 5 preceding years that remain after the highest and lowest are dropped, plus an interest charge under IRC §668 - a significant tax cost for trusts that have been accumulating income for years.
The $100,000 threshold is an aggregate of all gifts and bequests received during the tax year from a single nonresident alien individual or foreign estate, together with that person's related foreign persons. A taxpayer who receives $60,000 from a foreign parent in January and $60,000 from the same parent in June has received $120,000 in aggregate and must file Form 3520. Splitting a gift into multiple transfers below the threshold does not avoid the reporting requirement. The IRS looks at the total received from each nonresident alien individual or foreign estate, with gifts from that donor's related foreign persons (such as family members) combined - not at all foreign individuals combined. See the Form 3520 instructions.