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Form 3520 Used to Report Foreign Gifts and Bequests

Do you know that if you receive a gift or bequest from a family member, friend or estate who is considered a foreign person you may have a reporting requirement with the IRS?

Many U.S. taxpayers are unaware of the requirement to file Form 3520 “Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts.” Although Form 3520 is used to report other foreign transactions as well, this discussion will focus on the receipt of foreign gifts and bequests from individuals or estates.

A U.S. taxpayer must report the receipt of gifts or bequests from a nonresident alien or foreign estate if the total amount of gifts and bequests exceed $100,000 during the year. You are required to aggregate gifts received from related parties.  For example, if you receive $70,000 from nonresident alien A and $60,000 from nonresident alien B, and you know or have reason to know they are related, you must report the gifts because the total is more than $100,000.  Payments for qualified tuition or medical payments made on behalf of a U.S. person is not a foreign gift. Form 3520 requires you to provide the amount of the gift or bequest, a description of the property received, but not the identity of the foreign person.

Since there is no tax to pay on a foreign gift or bequest Form 3520 is an information return, not a tax return. However, if you were required to file the form and failed to do so, you can be assessed a penalty for failing to file. The penalty for failing to file Form 3520 is 5% per month of the amount of the foreign gift or bequest for each month of the failure to file not to exceed a total of 25%. If you can show that the failure to meet the filing requirements was due to reasonable cause and not willful neglect the penalty will not be assessed.

The due date for filing Form 3520 is the same as the due date for filing your income tax return, including extensions, but Form 3520 is filed separately from your income tax return.

If you have received a foreign gift or bequest which may need to be reported, or require other tax help, call us today to schedule your free consultation in our Boca Raton office.

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