Ever heard of IRS Form 3520?
If you’ve received a large gift from abroad, or if there’s a foreign trust with your name on it, you probably should’ve.
It’s one of those forms that most people don’t think about… until they’re slapped with a five-figure penalty for not filing it.
Today, you’ll learn:
- What Form 3520 is (in plain English)
- Who needs to file it
- What counts as a foreign gift or trust
- How to avoid common mistakes
- Why the penalties are so high (and how to dodge them)
- The easiest way to file it the right way
Let’s get into it.
What is Form 3520? (And why does the IRS care?)
Form 3520 isn’t a tax form. It’s a reporting form.
Think of it like a “Hey IRS, here’s what happened” memo.
- “I received a big gift from overseas.”
- “I’m involved with a foreign trust.”
- “I transferred money to an offshore account.”
Why does the IRS care?
Simple. They want to make sure that Americans aren’t hiding money abroad to avoid taxes.
Example: Say your aunt in Italy gives you $150,000. Cool gift, right?
But if you don’t report it on Form 3520, the IRS sees that as a red flag. And that $150k could turn into a $10k+ penalty.
Who Actually Needs to File Form 3520?
If any of these sound like you, it’s time to pay attention:
- You’re a U.S. person (citizen or resident)
- You got more than $100,000 from a foreign person or estate
- You’re involved with a foreign trust (as a beneficiary, owner, or funder)
So even if it’s just your grandma in Canada helping you with a down payment — if that transfer crosses the $100k line, Form 3520 is on the table.
And for trusts? Even if you’re not the one receiving the money now, if you own or created the trust, you’re probably on the hook.
Example:
You opened an RESP or RRSP in Canada before moving to the U.S.
Yep, those might count as foreign trusts under IRS rules.
Even if Canada doesn’t tax them like that… the IRS often does.
Deadlines You Can’t Afford to Miss
There are two forms you might have to file:
- Form 3520 – due with your regular tax return (April 15, or June 15 if you’re abroad)
- Form 3520-A – due earlier, on March 15
- Form 3520-A is usually filed by the trustee of a foreign trust.
But if they don’t do it?
You, the U.S. person, are responsible. That’s right — you have to file a substitute.
Example:
You’re listed as a beneficiary of a trust in India. The trustee forgets to file 3520-A.
No worries, right?
Wrong. If you don’t catch it and file a substitute yourself, you get the penalty.
The Penalties Are No Joke
Here’s where it gets real.
Messing up on Form 3520 can cost you big:
- Minimum $10,000 fine
- Or 35% of what you were supposed to report (whichever is bigger)
- More penalties for every 30 days you delay — up to $60,000 total
For Form 3520-A, the fine is 5% per month of the trust’s value — capped at 25%.
Yup. That’s a five-figure hit for just being a little late.
Example:
You forgot to file 3520 for a $200,000 gift from your cousin in Japan.
35% of that = $70,000.
Even if you get it down to the base penalty, that’s still $10k for a form that doesn’t even calculate tax owed.
The Canadian Account Trap
Canadian accounts like RRSPs, RESPs, and TFSAs sound harmless.
They’re even tax-deferred in Canada.
But to the IRS? Many of them are classified as foreign trusts.
If you didn’t elect proper treaty treatment for something like an RRSP, guess what?
3520 and 3520-A likely apply. And if you’ve never heard that before… you’re not alone.
One client came to us with a RESP that had been growing for years.
They didn’t file any U.S. forms for it. The IRS didn’t like that.
We had to do a lot of cleanup to avoid penalties.
How to Actually File Form 3520
Filing Form 3520 isn’t hard once you know what you’re doing.
But it’s not exactly plug-and-play either.
You’ll need:
- Detailed info on the gift or trust
- Taxpayer identification of the foreign person or trustee (if possible)
- A narrative description of the transaction
- Copies of relevant documents
- (Possibly) Form 3520-A info if you’re covering for the trust
That’s why we usually recommend working with a CPA who’s done this before.
We’ve helped everyone from software founders to retirees clean up past filings and stay compliant going forward.
And yes, we deal with the IRS so you don’t have to.
Final Thoughts
So… Form 3520.
Not exactly exciting, but absolutely essential.
If you’ve received a large foreign gift, or you’re connected to a foreign trust — don’t wait.
What you learned today:
- What Form 3520 is and why it exists
- Who needs to file it
- How foreign gifts and Canadian accounts get people into trouble
- Why missing a deadline can cost you thousands
- How to file it right the first time
Need help?
That’s what we do. Contact us on our secure form and we’ll take it from there.
Frequently Asked Questions
Who Needs to File Form 3520?
Form 3520 is required for U.S. citizens, resident aliens, and certain non-resident aliens who receive gifts or bequests from foreign individuals, estates, or trusts that exceed $100,000 in a tax year. Additionally, individuals involved in transactions with foreign trusts for example distributions or who are treated as the beneficiary of foreign trusts must also file this form.
When do I need to File Form 3520?
Form 3520 is due with the filer’s annual income tax return, typically on April 15th. However, taxpayers living abroad may qualify for an extension until June 15th. Submitting the form timely is essential, as late filings may incur penalties.
What are the Penalties for Failing to File Form 3520?
Failure to file Form 3520 by the due date can result in significant penalties. The initial penalty is the greater of $10,000 or 35% of the gross value of the property transferred. Additionally, if the failure to report continues for more than 90 days after the IRS sends a notice, an additional penalty of $10,000 for each 30-day period (or a fraction thereof) may be imposed, up to a maximum of $60,000.
Who Needs to File Form 3520-A?
Form 3520-A is required for U.S. persons treated as the owners of a foreign trust. This includes individuals who transfer property to a foreign trust or who hold an ownership interest in a foreign trust during the tax year.
When do I Need to File Form 3520-A?
Similar to Form 3520, Form 3520-A is generally due with the taxpayer’s annual income tax return by April 15th, with a possible extension until June 15th for taxpayers living abroad.
What are the Penalties for Failing to File Form 3520-A?
The penalties for failing to file Form 3520-A are steep. A penalty of 5% of the gross value of the trust’s assets that are considered owned by the U.S. person may be imposed for each month the failure continues, up to a maximum of 25% of the trust’s assets. Furthermore, if the failure persists for more than 90 days after the IRS sends a notice, an additional penalty of $10,000 for each 30-day period (or a fraction thereof) may apply, up to a maximum of $60,000.