Navigating IRS Forms 3520 and 3520-A: A Quick Guide for Taxpayers

Forms 3520 and 3520-A play a crucial role in the tax reporting landscape, particularly for individuals with certain foreign financial interests. In this article, we’ll break down who needs to file these forms, the deadlines for filing, and the penalties associated with failing to comply.

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 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.

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 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.

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.

In conclusion, understanding the requirements for filing Forms 3520 and 3520-A is crucial for taxpayers with foreign financial interests. Filing these forms on time is not only a legal obligation but also essential for avoiding hefty penalties imposed by the IRS. If you find yourself in a situation where these forms apply, please feel free to reach out to Dimov Tax at the contact form below to ensure compliance and mitigate any potential penalties.