Free Tax Guide
Filing Requirements for Trusts and Gifts: Form 3520/3520A
Key Takeaway
Foreign trusts and gifts trigger four reporting scenarios: (1) Form 3520 for receipt of foreign gifts or inheritance over $100K (individual) or $20,573 (2026, foreign corporation/partnership — indexed annually); (2) Form 3520 for transactions with foreign trusts; (3) Form 3520-A for foreign trust reporting by the trust (grantor-filed); and (4) potential throwback tax on accumulated distributions. The short version is that Form 3520 and 3520-A non-compliance triggers penalties of 5% per month up to 25% of a foreign gift, and 35% of trust distributions or assets — amounts that can exceed the transaction value. These are assessable penalties: after the D.C. Circuit’s 2024 reversal in Farhy v. Commissioner, the IRS assesses them administratively, and disputes generally run through refund or Collection Due Process channels. In our experience, many foreign gifts and trust distributions go unreported because taxpayers don’t realize informational reporting is required even when no income tax is due.1
Form 3520 question? A 15-minute consultation is free.
Four reporting scenarios for foreign trusts and gifts.
If you have a foreign trust or received a foreign gift and haven’t filed Form 3520:
Form 3520 failures carry penalties of up to 35% of the trust’s gross assets. A free 15-minute call covers whether the form is required for your situation, whether late filing or a streamlined disclosure program is available, and how the IRS treats technical vs. willful failures.
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The Four Foreign Trust / Gift Scenarios
GiftOver $100K / $18KTrust TransForm 3520Trust ReportForm 3520-AThrowbackAccumulated Distribs
| Scenario | Threshold2 |
|---|---|
| Foreign Gift | $100K individual / $18,567 entity (2024) |
| Trust Transactions | Any reportable transaction |
| Trust Annual Report | Annual 3520-A |
| Throwback Tax | Accumulated distributions |
Quick Reference
Jump to: gift, transactions, annual, or throwback.
1. Foreign Gift / Inheritance Reporting
Form 3520 Part IV when aggregate gifts exceed threshold.
If this is you: Received gift or inheritance from foreign person. Over $100K from individual, or $18,567 (2024) from foreign corporation / partnership. Form 3520 Part IV required. No income tax on gift typically but informational reporting mandatory.
Foreign Gift Strategy
- Identify foreign person donor.
- Aggregate gifts across year.
- Determine threshold met.
- Gather documentation.
- File Form 3520 by extended 1040 due date.
2. Foreign Trust Transactions
Form 3520 for contributions, distributions, and other trust transactions.
If this is you: Contributed to foreign trust, received distribution, or otherwise transacted. Form 3520 required. Separate from Form 3520-A annual report.
3. Annual Trust Report
Form 3520-A by foreign trust (or grantor if trust doesn’t file).
If this is you: Owner of foreign trust (grantor trust rules). Form 3520-A required annually. If foreign trust doesn’t file, grantor files. Due March 15 (extended September 15).
4. Throwback Tax on Accumulated Distributions
Undistributed net income distributions subject to throwback tax.
If this is you: Receiving distribution from foreign non-grantor trust including accumulated income from prior years. Throwback tax plus interest charge. Can significantly increase effective tax rate.
Foreign trust or gift question? Book consultation.
Form 3520 Document Lookup
| Form / Authority | Purpose |
|---|---|
| Form 3520 | Gifts, inheritances, trust transactions |
| Form 3520-A | Annual foreign trust report |
| IRC §6039F | Foreign gift reporting |
| IRC §6048 | Foreign trust reporting |
| IRC §6677 | Non-filing penalty |
| IRC §668 | Throwback tax |
3520 Statute
- 3-year standard if filed timely.
- Statute doesn’t start for unfiled 3520.
- 6-year for 25%+ omissions.
3520 Patterns
| Situation | Outcome |
|---|---|
| Filed timely | No penalty |
| Missed gift > $100K | 35% of gift (capped) |
| Missed trust transaction | 35% or $10K min |
| Reasonable cause | Potential abatement |
3520 Escalation
IRS Letter
CP15 penalty notice or examination.
Reasonable Cause
Abatement request.
Appeals / Court
Tax Court review of penalty.
First 48 Hours
- Identify reportable transactions.
- Gather documentation.
- Assess filing gaps.
- Evaluate reasonable cause.
- Engage international counsel.
★Brotman Law handles Form 3520 / 3520-A matters. Based in San Diego.
The ROI Question
35% penalty can exceed gift value. Proactive filing or reasonable cause defense essential.
When to Engage
- Foreign gift or inheritance received.
- Foreign trust interest.
- Missed 3520 / 3520-A.
- CP15 penalty notice.
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Guide Chapters
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Frequently Asked Questions
What is Form 3520?
Annual return reporting transactions with foreign trusts and receipt of certain foreign gifts. Informational return — no tax generally due on receipt — but filing is mandatory.
What gifts must be reported?
Aggregate gifts from foreign individuals > $100K annually, or from foreign corporations / partnerships > $18,567 (2024). Inheritances from foreign estates included.
Is Form 3520 income tax?
Generally no. Most gifts not taxable income to recipient. But reporting obligation separate. Non-reporting triggers 35% informational return penalty.
What is Form 3520-A?
Annual information return of a foreign trust with a U.S. owner. Filed by trust or by U.S. grantor if trust doesn’t comply. Due March 15 (extended September 15).
What are 3520 penalties?
35% of amount not reported (gifts, contributions, distributions). Minimum $10K. Can stack across years. Reasonable cause defense available.
What is throwback tax?
Tax on accumulated distributions from foreign non-grantor trusts. Deemed distribution in prior year. Plus interest charge. Significantly increases effective rate.
Do I need to file for small gifts?
Aggregate must exceed threshold. Multiple small gifts from same person aggregated. Related donors may be aggregated.
Is grantor trust reporting simpler?
Grantor trust taxed to U.S. owner. 3520-A required annually. Distributions not taxable to grantor again. Still reporting-intensive.
What is reasonable cause for 3520?
Good faith + reasonable reliance. Lack of knowledge supported by facts. Reliance on competent tax professional. Facts-specific determination.
What if I just found out?
Pro-active late filing with reasonable cause statement. Better than awaiting IRS contact. Attorney-drafted statement recommended.
Can I use streamlined for 3520?
Streamlined program covers 3520 / 3520-A. Non-willful determination required. Coordination with FBAR streamlined typical.
Does inheritance count as gift?
Yes under §6039F. Foreign estate inheritance > $100K reported on 3520 Part IV.
What about foreign life insurance?
Complex. PFIC and 3520 considerations. Some policies reportable; others not. Facts-specific analysis essential.
Next Steps
Form 3520 question? 15-min consultation free.
- Foreign gift reporting: IRC §6039F; foreign trust: IRC §6048.
- Penalty: IRC §6677; throwback: §§665–668.
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