international tax gap series
if you are a US person (other than a 501(c) organization and exempt from tax under section 501(a) of the Internal Revenue Code) who received large gifts or bequests from a foreign person , you may need to complete Part IV of Form 3520 , Annual Return for Reporting Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, and file the form by the 15th day of the fourth month following the end of your tax year (generally, the April 15 for individuals), subject to any time-to-file extensions that may apply. If you file Form 3520 late, or if the information provided is incomplete or incorrect, the IRS may determine the income tax consequences of receiving such foreign gift or bequest and you may be subject to penalties under Section 6039f(c). if you don’t. have no just cause. for more information, see the instructions for the model 3520.
general rule: donations and foreign legacies
Generally, a foreign gift or bequest is any amount received from a non-US person. person (a foreign person) that the recipient treats as a gift or bequest and excludes from gross income. A foreign gift does not include amounts paid for qualified tuition or medical payments made on behalf of the US. uu. person.
A foreign person includes a nonresident alien individual or a foreign corporation, partnership, or estate, as well as a domestic trust that is treated as owned by a foreign person. Distributions from a foreign trust are reported on Form 3520, Part III. See the Form 3520, Part IV instructions for more information.
reporting requirements
You must report the receipt of foreign gifts or bequests only if the applicable threshold is exceeded. In order to determine reporting thresholds, you must add gifts received from related parties. see the instructions for part iv of form 3520 for more information; see also section vi of notice 97-34pdf.
- for gifts or bequests from a nonresident alien or foreign estate, you must report the receipt of such gifts or bequests only if the total amount received from that nonresident alien or foreign estate exceeds $100,000 during the tax year . If gifts or bequests exceed $100,000, you must separately identify each gift that exceeds $5,000.
- For purported gifts from foreign corporations or foreign associations, you must report the receipt of such purported gifts only if the total amount received from all entities exceeds $16,815 for 2021 (adjusted annually for inflation). You must separately identify each gift and the identity of the donor. Please note that the IRS may re-characterize purported gifts from foreign corporations or foreign partnerships.
File Form 3520 separately from your tax return by following the instructions in the Form 3520 Instructions. person to file a 3520 form is the 15th day of the fourth month following the end of the us. uu. person’s tax year. if you are a u.s. a citizen or resident living outside the united states and puerto rico or if you are in the military or naval service outside the united states and puerto rico, then the due date for filing a form 3520 is the 15th day of the sixth month following the end of the united states tax year of the person. If a US is granted an extension to file an income tax return, the due date for filing Form 3520 is also extended to the 15th day of the 10th month following the end of the US. uu. person’s tax year. for example, if you are a u.s. If you have a calendar year end of December 31, for tax year 2021, you must file your tax return by April 15, 2022. If you live outside of the United States, your return is due June 15, 2022. Yes You correctly filed an extension form 4868pdf before your return is due, you will be granted an extension to file your return by October 15, 2022. See the Form 3520 instructions for additional information.
presentation tips to avoid sanctions:
if an extension was filed on your income tax return, be sure to check form 3520, box 1k, and enter the form number of the income tax return to prevent your form 3520 from being treated as submitted late.
special rules applicable to gifts or bequests from covered expatriates
We citizens and residents who receive gifts or bequests from expatriates covered under IRC 877A may be subject to tax under IRC Section 2801, which imposes a transfer tax in the US. uu. people receiving gifts or bequests on or after June 17, 2008 from the former president of the us uu. US citizens or former lawful permanent resident citizens who are treated as expatriates covered by IRC 877A. however, the imposition of the section 2801 tax is deferred until final regulations are issued.
See the September 2015 proposed guidance regarding the taxation of certain gifts and bequests from covered expatriates pdf for additional information.
where to present the 3520 model
Send form 3520 to the following address:
internal revenue service center p.o. box 409101 ogden, ut 84409
sanctions for not filing part iv of model 3520
If your Part IV of Form 3520 is late, incomplete, or incorrect, the IRS may determine the income tax consequences of the receipt of the foreign gift or bequest. In addition, you may be subject to a penalty equal to five percent of the value of the gift or bequest for each month in which the gift or bequest is not reported, not to exceed 25 percent of the gift, unless you have a reasonable cause for failure to timely or accurately file. See the Form 3520 instructions for more information.
Note: You may also need to file FinCen 114. Please see the Foreign Bank and Financial Accounts Report (FBAR) for more details.
references:
- Guidance on the Taxation of Certain Covered Expatriate Gifts and Bequestspdf
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