Strategy Snapshot
Form 3520 is an information return, not a tax bill. Gifts and inheritances from foreign individuals are generally not taxable income, but crossing the reporting threshold without filing the form carries a penalty of up to 25% of the amount received. The filing turns on three triggers: large foreign gifts or bequests, distributions from foreign trusts, and U.S. ownership of a foreign trust.
More than $100,000 in aggregate gifts or bequests from foreign individuals or foreign estates in a single year requires the form, even though no tax is due.
Any distribution from a foreign trust must be reported regardless of size, and a U.S. grantor of a foreign trust files every year, with Form 3520-A alongside.
Assuming that because the gift or inheritance is tax-free, there is nothing to file. The penalty attaches to the missed disclosure, not to any tax.
Form 3520 catches more people by surprise than almost any other international form, because it applies to events that do not feel like tax events: a parent abroad passes away, a relative wires money to help with a house, a family trust overseas makes a distribution. None of those typically creates taxable income for the recipient. All of them can require Form 3520, and the penalty for skipping it is calculated against the money received, not against any tax owed.
The rule in one sentenceIf you are a U.S. person and significant money or property reached you from a foreign individual, estate, or trust this year, assume Form 3520 is in play until the analysis says otherwise.
The Three Triggers
Form 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts) is one form covering three very different situations:
1. You received a large gift or bequest from a foreign person. The most common trigger. If aggregate gifts and bequests from foreign individuals or foreign estates exceed $100,000 in a single year, the form is required. This threshold is per year, across all related foreign donors combined, and it is not indexed for inflation.
2. You received a distribution from a foreign trust. There is no dollar threshold here. Any distribution from a foreign trust to a U.S. person must be reported, whatever the amount, and the tax analysis (how much is taxable, and under which rules) rides along with the disclosure.
3. You are treated as a U.S. owner (grantor) of a foreign trust. If you created or funded a foreign trust and are treated as its owner under the grantor trust rules, you file Form 3520 every year the trust exists, whether or not anything moved. This trigger also brings Form 3520-A into the picture.
The same form also reports certain transfers to foreign trusts, which matters for anyone funding a foreign structure, but the three triggers above cover the overwhelming majority of filings we see.
The Thresholds: Gifts vs. Inheritances vs. Entity Gifts
For gifts and inheritances, the threshold depends on who the donor is, not on what you call the transfer:
| Source of the transfer | 2025 reporting threshold |
|---|---|
| Foreign individual (gift) | More than $100,000 aggregate for the year |
| Foreign estate (inheritance or bequest) | More than $100,000 aggregate for the year |
| Foreign corporation or foreign partnership | About $20,000 (indexed annually) |
| Foreign trust (distribution) | No threshold; every distribution is reportable |
Two details do real work in that table. First, gifts and inheritances from individuals and estates share the same $100,000 line, and amounts from related donors are aggregated: $60,000 from your mother and $50,000 from her estate later that year crosses the threshold together. Second, the entity threshold is dramatically lower. A transfer that looks like family money but actually left the account of a family company is tested against the roughly $20,000 line, and transfers dressed up as gifts from entities draw more scrutiny, because corporations do not normally give gifts.
Who Counts as a “Foreign Person”
The definition drives everything, and it follows tax status, not geography or nationality:
- A nonresident alien individual is a foreign person, even one who visits the U.S. regularly
- A foreign estate is a foreign person, which is how inheritances get pulled in
- A foreign corporation or partnership is a foreign person, with the lower threshold
- A U.S. citizen or green card holder living abroad is not a foreign person. An inheritance from a U.S.-citizen parent who spent forty years in Colombia is not a foreign bequest for this purpose
- Conversely, a parent who lives abroad and has no U.S. status is a foreign person even if they hold U.S. accounts or property
When the donor’s status is unclear (a parent with an expired green card is the classic hard case), the analysis is worth doing carefully, because it determines whether the form is needed at all.
Two Situations We See Constantly
The Latin American inheritance. A parent or grandparent in Colombia, Brazil, Venezuela, or Argentina passes away, and a U.S.-based child inherits cash, an apartment, or a share of a family business. The inheritance itself is generally not taxable income in the U.S. But if the total value exceeds $100,000, Form 3520 is required for that year, and the surrounding questions matter just as much: a foreign bank account opened to receive the funds may trigger FBAR and FATCA reporting, an inherited apartment starts a U.S. tax history for a foreign rental property, and an inherited share of a company can create Form 5471 exposure. The inheritance is the event; the reporting is a system.
Foreign parents helping buy a U.S. home. Parents abroad wire $150,000 or $300,000 toward a down payment. No U.S. tax is due on the gift, but the recipient must file Form 3520, and the mechanics deserve attention before the wire moves. Money routed through a parent’s company triggers the lower entity threshold and harder questions. Funds parked first in the child’s foreign account create account reporting. And if the transfer is really an informal loan, calling it a gift creates a story that unwinds badly later. Ten minutes of structuring before the transfer is worth more than any cleanup after.
The Penalty: Calculated Against the Money, Not the Tax
This is what makes Form 3520 dangerous relative to how harmless the underlying event feels.
- Unreported foreign gifts and bequests: 5% of the gift for each month the failure continues, capped at 25% of the amount received. On a $400,000 inheritance, that is up to $100,000 for missing a disclosure on a tax-free transfer.
- Unreported foreign trust distributions: up to 35% of the gross distribution.
- U.S. owner reporting failures: the greater of $10,000 or 5% of the trust assets treated as owned.
Late Filing Relief: Reasonable Cause
Missing Form 3520 is common and often fixable. The penalty can be abated (or never assessed) when the failure was due to reasonable cause and not willful neglect, and in practice, strong reasonable cause cases share the same features: the taxpayer came forward before the IRS made contact, the underlying transfer involved no unreported taxable income, the facts are documented (probate records, bank statements, the donor’s status), and the explanation is specific rather than boilerplate. Reliance on a preparer who never asked about foreign gifts, recent immigration to the U.S., and genuine ambiguity about the donor’s status all carry weight.
In 2024 the IRS stated it would begin reviewing reasonable cause statements before assessing penalties on late-filed gift reporting, which improved the odds for well-prepared submissions. Where the late Form 3520 is one piece of a larger cleanup involving unreported income or missed FBARs, the streamlined filing compliance procedures are often the better vehicle, because they resolve the related filings as a package.
Form 3520-A: The Companion Return
If you are treated as the U.S. owner of a foreign trust, a second form enters the picture. Form 3520-A is the foreign trust’s own annual information return, reporting the trust’s income, balance sheet, and U.S. beneficiaries. It is due March 15 (two and a half months after the trust’s year-end), earlier than the owner’s Form 3520, and extended separately on Form 7004 rather than with your 1040.
The trap: the obligation to see that Form 3520-A gets filed falls on the U.S. owner, not the foreign trustee, and foreign trustees routinely have no idea the form exists. When the trustee does not file, the owner must attach a substitute Form 3520-A to their own Form 3520. Owners of foreign trusts should treat the March deadline as their own.
Deadline and Mechanics
Form 3520 is due when your income tax return is due, April 15, or June 15 for taxpayers abroad, and extending your 1040 automatically extends it. But it is not attached to the 1040: it is filed separately, on paper, with the IRS center in Ogden, Utah. That separation is exactly why the form gets missed. The tax return gets filed, nothing on it asks loudly about foreign gifts, and the standalone form never gets prepared. Married couples who each received a share of a gift generally each file their own Form 3520.
When to Seek Help
A single clean gift from a foreign parent, documented and under one donor, is a manageable filing. Get help when the transfer came through an entity or trust, when the donor’s U.S. status is uncertain, when multiple years were missed, or when the gift is one piece of a larger cross-border picture involving foreign accounts or an inheritance still moving through probate. The harder judgment calls (was this a gift or a trust distribution, who was the real donor, what does the paper trail support) are covered in our companion piece on foreign gifts and inheritances , and this reporting sits at the core of our U.S. Persons with International Ties practice. The form itself is short; the analysis of what the transfer actually was is where the risk lives, and it is far cheaper to resolve before filing than after a penalty notice arrives.
Last updated: 2026