Form 3520: Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts

Who Files Form 3520

US persons (citizens, green card holders, residents, and domestic entities) who create or transfer property to a foreign trust, are treated as the US owner of a foreign trust under the grantor-trust rules, receive a distribution from a foreign trust, or receive gifts or bequests above the reporting threshold from foreign persons. The threshold is more than $100,000 in aggregate from a nonresident alien individual or foreign estate, or an inflation-adjusted amount ($20,116 for 2025) from foreign corporations or partnerships.

What Form 3520 Reports

Form 3520 reports three distinct situations: transfers to and distributions from foreign trusts (Parts I and III), ownership of a foreign trust under the grantor rules (Part II, which also triggers Form 3520-A), and the receipt of large foreign gifts or inheritances (Part IV). A foreign gift is generally not taxable income, but the reporting is mandatory once the threshold is crossed. The form is filed separately from Form 1040, mailed to the IRS in Ogden, Utah, by the income-tax return due date including extensions. Penalties are severe: up to 25% of an unreported foreign gift, and the greater of $10,000 or 35% of a foreign-trust transfer or distribution. In late 2024 the IRS announced it would stop automatically assessing penalties on late-filed Part IV gift reports before reviewing any attached reasonable-cause statement.

Key Deadlines

• Filed by the Form 1040 due date (April 15), including extensions to October 15, but mailed separately to the IRS in Ogden, UT
• Form 3520-A (foreign trust with a US owner) is due by the 15th day of the third month after the trust year ends (March 15 for calendar-year trusts)
• Failure to file can keep the statute of limitations on the related items open until the form is filed

Common Mistakes

• Assuming a non-taxable foreign gift or inheritance does not need to be reported (it does, if over the threshold)
• Missing the much lower reporting threshold for gifts from foreign corporations or partnerships
• Overlooking Form 3520-A when treated as the US owner of a foreign trust
• Treating a foreign pension or savings arrangement as a non-trust without confirming it qualifies for relief
• Filing late with no reasonable-cause statement, inviting the 25% or 35% penalty

Best Practices

• Report large foreign gifts even though they are not taxable. The penalty for silence is up to 25% of the gift.
• Attach a detailed reasonable-cause statement to any late Part IV gift filing; the IRS now reviews these before assessing penalties.
• Coordinate Form 3520 with the FBAR and Form 8938 when gifted or inherited funds sit in foreign accounts.
• For foreign-trust ownership, confirm whether Form 3520-A (or a substitute) is required and file both consistently.
• When a missed Form 3520 accompanies unreported foreign income, use the Streamlined Filing Compliance Procedures rather than a quiet late filing.

Source: Official Form 3520 information at IRS.gov