Foreign gifts and Form 3520: records to prepare

The $100,000 foreign-person threshold

A U.S. person generally has a Form 3520 reporting requirement when gifts or bequests from a nonresident alien individual or foreign estate exceed $100,000 in the aggregate during the tax year. Related donors can have to be aggregated when the rules treat the transfers as connected.

Different, inflation-adjusted rules apply to purported gifts from foreign corporations or foreign partnerships. Do not apply the $100,000 individual-or-estate threshold to those entities.

What records to keep

Keep bank-transfer records, gift letters or inheritance documents, the donor's name and country, the date and amount of each transfer, and information showing whether the donor is an individual, estate, corporation, partnership, or trust.

If several transfers came from related people or entities, identify those relationships. Aggregation can affect whether a reporting threshold is crossed.

Foreign trusts are a different category

A distribution from a foreign trust is not simply reported as a foreign gift in Part IV of Form 3520. Foreign-trust transactions have separate Form 3520 rules and should be identified before preparation.

If the transfer involved a trust, an entity, a covered expatriate, or a transfer made on someone else's behalf, flag that fact instead of assuming the ordinary foreign-gift rule applies.

Form 3520 is a separate information return

Form 3520 is filed separately from the individual income tax return under the current IRS instructions. Timing, extensions, penalties, and which part of the form applies should be checked against the current-year instructions before filing.