Form 3520 and 3520-A: Reporting Foreign Trusts and Gifts

In an increasingly globalized world, many U.S. taxpayers find themselves entangled in international financial activities, such as owning foreign trusts or receiving significant gifts from abroad. Two key forms — Form 3520 and Form 3520-A—play a central role in reporting foreign trusts and gifts.

When to File Form 3520 and Form 3520-A

If you are a U.S. person involved with foreign trusts or gifts, you must be aware of your filing obligations. Here are the specific scenarios where these forms are required:

• 3520-A: Must be filed annually if you own a foreign trust as a U.S. person.
  
• 3520: Must be filed in the following circumstances:
  
  • Receipt of gifts or bequests exceeding $100,000 from foreign individuals or estates.
  • Receipt of more than $16,388 from foreign corporations or partnerships.
  • Receipt of distributions from a foreign trust.
  • Ownership of any part of the assets within a foreign trust.

Key Deadlines and Penalties

• Filing Deadline: The deadline for submitting both Forms 3520 and 3520-A aligns with your income tax return deadline, including any extensions.
  
• Penalties for Non-Compliance: Failure to file or late filing of these forms can result in severe penalties:
  
  • A penalty of 5% of the gift or bequest amount for each month of non-compliance, up to a maximum of 25%.
    
  • The IRS issues a CP15 notice to inform taxpayers of the penalty.

These penalties are considered civil penalties and can be abated if reasonable cause is demonstrated.

U.S. Person Definition

The term “U.S. person” extends beyond just U.S. citizens or green card holders. It also includes foreign nationals residing in the U.S. for more than 183 days within a calendar year, provided no exemption applies.

Our Offerings

Dealing with the challenges of international tax reporting can be tough, but Dimov CPA in New York offers expert guidance to help you through it. Our team is well-versed in the intricacies of Forms 3520 and 3520-A, ensuring that our clients remain compliant and avoid costly penalties.

• Services Offered by Dimov CPA:
  • Assistance with filing Forms 3520 and 3520-A.
  • Guidance on understanding your obligations under U.S. tax law.
  • Support in penalty abatement processes.
  • Consultation on the applicability of these regulations to your specific situation.