Form 3520: The Reporting Form for Money That Is Not Taxed

Receiving a large gift or inheritance from a family member abroad is, for most Americans, not a taxable event. The money is not income and no tax is due on it.

That is exactly why the reporting requirement gets missed. People reasonably conclude that something not taxable is not reportable, and the two are unrelated.

The threshold most people hit

Gifts or bequests from a nonresident alien individual or a foreign estate are reportable once they exceed $100,000 in aggregate during the year. Aggregate matters: four transfers of $30,000 from the same family cross the line even though none does alone.

Gifts from foreign corporations or partnerships have a much lower threshold, adjusted annually, so a transfer from a family business is reportable at a far smaller figure than one from a person.

Foreign trusts are a separate and harder case

The same form covers transfers to and distributions from foreign trusts, and the rules there are considerably more involved. Some arrangements that are ordinary savings or retirement vehicles in another country are treated as foreign trusts under US rules.

That overlaps with how foreign pensions are treated, which is one of the most misread areas of expat reporting.

The penalty is sized by the gift

This is what makes it serious. The late-filing penalty is calculated as a percentage of the amount received for each month the form is late, subject to a cap, rather than as a flat sum.

On a six-figure inheritance that produces a bill out of all proportion to a form that reports no tax. Reasonable cause relief exists, but it has to be argued after the fact rather than relied on in advance.

It is filed separately from everything else

Form 3520 is its own filing with its own address, due with the income tax return including extensions. Filing your return does not file it.

If a transfer also pushed foreign account balances over a reporting threshold, that is a further separate filing, covered in FBAR and FATCA reporting.

How Exemplary Helps

Exemplary asks about transfers from abroad as part of every expat return, because the client almost never raises it themselves. Untaxed money does not feel like a tax question.

The cheapest version of this form is the one filed on time.