Form 3520: Reporting Foreign Trusts, Inheritances, and Gifts for Americans Abroad

If you’re at all familiar with taxes, it won’t come as a surprise that the IRS wants to know about any large financial assets under your control. It’s no different if these financial assets come from outside the U.S., and that’s why IRS Form 3520 exists.

Tax Form 3520 is an informational form you use to report certain transactions with foreign trusts, ownerships of foreign trusts, or if you receive certain large gifts from certain foreign persons. It’s an important one to file correctly because it falls in the category of forms that increase your risk of being audited. File it incorrectly or forget and you risk more than being audited—you may be penalized or fined a hefty chunk of change.

Below we’ll break down what this form is for, who files it, what happens if you don’t, and other information that will be handy to know this tax season. Already know you need to file but aren’t sure how? Leave it to us. Start with H&R Block today and we’ll make sure your taxes are done right. No matter where in the world you are, we’ve got a tax solution for you — whether you want to DIY your expat taxes or file with help from an advisor.

What is Form 3520?

Form 3520 is an informational return in which U.S. taxpayers report transactions with certain foreign trusts, ownership of foreign trusts, and receipts of large gifts from foreign entities. That word “certain” is key here—there are different reporting triggers depending on the nature of the foreign asset.

Who files Form 3520?

Three generations of an expat family required to file form 3520 for foreign inheritance

There are generally three reasons you might file Form 3520 as an expat:

  • You’re a U.S. owner of a foreign trust (includes the grantor, but could include other people)
  • You make certain transactions with a foreign trust
  • You receive a large gift or inheritance from certain overseas persons

Form 3520 for U.S. owners of a foreign trust

If you own any part of a foreign trust, you will probably have to file this form. If the answer is “yes,” then you need to file form 3520.

Form 3520 for U.S. taxpayer transactions with a foreign trust

There are three main types of transactions with a foreign trust you need to report on:

  • If you transfer any assets (money and property, for example) to a foreign trust
  • You receive direct or indirect distributions from a foreign trust
  • You have a qualified obligation as the responsible party to report a reportable event during your current tax year

Just because neither of the above apply to you doesn’t mean you’re in the clear—there are other rare cases that have to do with foreign trusts that you may have to report on. Because the reporting triggers are different for different kinds of transactions, it’s best to leave the filing to an expert tax advisor that specializes in U.S. expat taxes.

Form 3520 for U.S. recipients of foreign gifts

A common question our Tax Advisors get is “How much money can you receive as a gift from overseas?”

In reality, there isn’t a maximum amount of money you can receive as a gift from overseas, but there is a threshold which—if you cross it—you need to report that gift to the IRS. In the case of foreign gifts, the IRS generally only cares about extremely large amounts—so you don’t need to worry about the $500 your French aunt sent you for your birthday.

You’re only required to file this form if you received:

  • A gift of more than $100,000 from a foreign person or estate
  • A gift of more than $15,601 from a foreign partnership or corporation

So, for example, if that same French Aunt gifted you the deed to her swanky vacation home in Aspen, you’d have to report it.

What’s the difference between Form 3520 and Form 3520-A?

The main difference between Form 3520 and 3520-A is who actually files it and why. The only people that fill out Form 3520-A are those that manage foreign trusts with U.S. beneficiaries.

Form 3520 penalties and instructions

Form 3520 instructions can be hard to understand, even for seasoned accountants. Because there are so many factors that go into what’s included and who must file, we recommend you leave it to the pros. If you’re interested in seeing the instructions for yourself, you can find them on the IRS website.

If you’re supposed to file and you don’t (or you do file and you don’t follow the instructions correctly), you could be subjected to some hefty penalties or fines. The typical fine is whichever is greater--$10,000 or 5% - 35% of the gross value of all the property, assets, and distributions that weren’t reported.

Dealing with a penalty from the IRS is time-consuming and stressful—which is why we recommend you leave it to the experts. When you file your expat taxes with H&R Block, you can rest assured you’re taxes are done the right way, saving you the most money and giving you peace of mind.

Can Form 3520 be filed electronically?

Yes! You can upload your documents to your online H&R Block Tax Organizer and we will fill out and file the form for you. It’s as simple as that.

File with confidence with Expat Tax Preparation from H&R Block

Confused about which forms you need to file? Stumped with the instructions? Leave it to us. Whether you file expat taxes yourself with our online DIY expat tax service designed specifically for U.S. citizens abroad or file with an advisor, H&R Block is here to help. Start your expat taxes today!