{"id":4954,"date":"2023-03-21T08:35:00","date_gmt":"2023-03-21T08:35:00","guid":{"rendered":"https:\/\/www.irstaxapp.com\/?p=4954"},"modified":"2023-03-26T03:49:50","modified_gmt":"2023-03-26T03:49:50","slug":"form-3520-irs-gifts","status":"publish","type":"post","link":"https:\/\/www.irstaxapp.com\/form-3520-irs-gifts\/","title":{"rendered":"Form 3520 IRS Filing: A Must-Do for Tax-Free Gifts, Bequests, and Inheritances to Avoid Penalties!"},"content":{"rendered":"\n<figure class=\"wp-block-image size-large is-resized\"><picture><source srcset=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs-1024x576.webp 1024w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs-300x169.webp 300w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs-768x432.webp 768w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs-1536x864.webp 1536w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs-150x84.webp 150w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs-750x422.webp 750w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs-1140x641.webp 1140w,https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs.webp 1920w\" sizes=\"(max-width: 1117px) 100vw, 1117px\" type=\"image\/webp\"><img src=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs-1024x576.png\" height=\"628\" width=\"1117\" srcset=\"https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs-1024x576.png 1024w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs-300x169.png 300w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs-768x432.png 768w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs-1536x864.png 1536w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs-150x84.png 150w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs-750x422.png 750w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs-1140x641.png 1140w, https:\/\/www.irstaxapp.com\/wp-content\/uploads\/2021\/09\/form-3520-irs.png 1920w\" sizes=\"(max-width: 1117px) 100vw, 1117px\" class=\"wp-image-6984 sp-no-webp\" alt=\"form 3520 irs\" decoding=\"async\" loading=\"lazy\"  > <\/picture><\/figure>\n\n\n\n<p>Yes, the <strong>Form 3520 IRS <\/strong>requires everyone to submit if a US person receives a gift above a threshold . IRC makes it obligatory on part of gifts recipients in USA to report it any assets you received in form of gift above an specified limit from foreign person (aliens ) through its prescribed form 32520.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_62 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-662d9a2dd02d4\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-662d9a2dd02d4\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.irstaxapp.com\/form-3520-irs-gifts\/#What_is_Form_3520\" title=\"What is Form 3520 ?\">What is Form 3520 ?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.irstaxapp.com\/form-3520-irs-gifts\/#Video_Summary_on_Form_3520\" title=\"Video Summary on Form 3520\">Video Summary on Form 3520<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.irstaxapp.com\/form-3520-irs-gifts\/#Are_gift_bequests_or_inheritance_received_taxable\" title=\"Are gift, bequests or inheritance received taxable ?\">Are gift, bequests or inheritance received taxable ?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.irstaxapp.com\/form-3520-irs-gifts\/#What_type_of_Gifts_Not_Tax_Free\" title=\"What type of Gifts Not Tax Free ?\">What type of Gifts Not Tax Free ?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.irstaxapp.com\/form-3520-irs-gifts\/#Form_3520_IRS_wants_you_to_file_on_receipt_of_gifts_from_foreign_person_or_entities\" title=\"Form 3520 IRS wants you to file on receipt of gifts from foreign person or entities ?\">Form 3520 IRS wants you to file on receipt of gifts from foreign person or entities ?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.irstaxapp.com\/form-3520-irs-gifts\/#Form_3520_IRS_penalty\" title=\"Form 3520 IRS penalty\">Form 3520 IRS penalty<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.irstaxapp.com\/form-3520-irs-gifts\/#Download_Form_3520_IRS_instructions\" title=\"Download Form 3520 IRS instructions\">Download Form 3520 IRS instructions<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_Form_3520\"><\/span>What is Form 3520 ?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Tax Form 3520 is an informational form you use to report certain transactions with foreign trusts, ownerships of foreign trusts, or if you receive certain large gifts from certain foreign persons. It\u2019s an important one to file correctly because it falls in the category of forms that increase your risk of being audited.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Video_Summary_on_Form_3520\"><\/span>Video Summary on Form 3520<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<figure class=\"wp-block-embed is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio\"><div class=\"wp-block-embed__wrapper\">\n<div class=\"jeg_video_container jeg_video_content\"><iframe loading=\"lazy\" title=\"What is form 3520 ?\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/wPA-UrBTNF0?feature=oembed\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share\" allowfullscreen><\/iframe><\/div>\n<\/div><\/figure>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Are_gift_bequests_or_inheritance_received_taxable\"><\/span>Are gift, bequests or inheritance received taxable ?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The taxation rules on receipt of gifts or bequests by a US citizen or tax resident of the USA (owing to passing the <em><a href=\"https:\/\/www.irstaxapp.com\/use-substantial-presence-test-calculator\/\">substantial presence test<\/a><\/em> ) is straightforward. Under<strong> <a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/102\" target=\"_blank\" rel=\"noopener\">section 102 of the 26 US Code<\/a><\/strong><a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/102\" target=\"_blank\" rel=\"noopener\">,<\/a> any gift, bequests or inheritance in form of a property receipt of the gift by a US Citizen or US tax resident is generally tax-free . The relevant extract is given below:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\">26 U.S. Code \u00a7 102 &#8211; Gifts and inheritances<\/h4>\n\n\n\n<p class=\"has-green-background-color has-background\"><strong>(a)General rule<\/strong><br><em>Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance.<br><strong>(b) Income<\/strong><br>Subsection (a) shall <strong>not exclude<\/strong> <strong>from gross income<\/strong>\u2014<br>(1) the income from any property referred to in subsection (a); or<br>(2) where the gift, bequest, devise, or inheritance is of income from property, the amount of such income.<\/em><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_type_of_Gifts_Not_Tax_Free\"><\/span>What type of Gifts Not Tax Free ?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>While the general rule as given in section 102(<strong>a<\/strong>) of IRC is not to charge any tax on the <strong><em>value of property<\/em> <\/strong>received by a tax resident of the USA ( includes a US citizen whether or not he\/she is residing in the USA) . However, sub-<strong>clause (b) <\/strong>of section 102 of 26 US Code says that the <em><strong>income from gifted property <\/strong>or <strong>gift of income of a property <\/strong>is not to be excluded from gross income tax-free<\/em>. The provision of sub-section 2 of section 102 is extracted below:<\/p>\n\n\n\n<h4 class=\"wp-block-heading\"><span style=\"text-decoration: underline;\">Example<\/span>s<\/h4>\n\n\n\n<p><strong>Example 1 :<\/strong> Mr Jayant is from India. He is working in a USA company for the last seven years and therefore is a tax resident of the USA.His father gifted a house property to him which has a market value of $1 Million. <strong><em>Is the value of the gifted house taxable in the hand of Mr Jayant?<\/em><\/strong><\/p>\n\n\n\n<p>The answer is No because of the general exemption provided by section 102 of IRC.<\/p>\n\n\n\n<p><strong>Example 2 : <\/strong><span style=\"font-size: Revert; color: var(--global--color-primary); font-family: var(--global--font-secondary); background-color: var(--global--color-background);\">Mr SriHari is also from India. He is working in a USA company for the last seven years and therefore is a tax resident of the USA.His father created a trust under which the rental income from an ancestral property  earned by trust (say $10,000 ) would be transferred  Sri Hari as  gift every year.<strong><em>Is $10,000 received as a gift  taxable in the hand of Mr Sri Hari?<\/em><\/strong><\/span><\/p>\n\n\n\n<p>Answer is Yes. The money received by Mr Sri Hari will be taxable in USA as  section 102(b) of 26US Code clearly states that income of a property or periodical distribution of income of a property  can not be excluded from gross income. So such a gift is not <a href=\"https:\/\/www.irstaxapp.com\/what-does-tax-exempt-mean-under-us-code-26\/\">tax exempt<\/a>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Form_3520_IRS_wants_you_to_file_on_receipt_of_gifts_from_foreign_person_or_entities\"><\/span>Form 3520 IRS wants you to file on receipt of gifts from foreign person or entities ?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Yes, there is statutory reporting requirements in case a <strong>US person receives gifts or inheritance or bequests from non-residents persons <\/strong>above a threshold value which is explained below :<\/p>\n\n\n\n<ol><li>The aggregate amount received from that nonresident alien or foreign estate exceeds $100,000 during the taxable year.&nbsp; If the gifts or bequests exceed $100,000, you must separately identify each gift in excess of $5,000.&nbsp;<br>&nbsp;<\/li><li>If you received gifts from foreign companies or partnerships, you are required to report the receipt of such  gifts only if the aggregate amount received from <strong><em>all entities <\/em><\/strong>exceeds $16,649 for 2020 .&nbsp; You must separately identify each gift and the identity of the donor. <\/li><\/ol>\n\n\n\n<p>In both the aforesaid cases, you need to file Part IV of<strong>&nbsp;<a href=\"https:\/\/www.irs.gov\/forms-pubs\/about-form-3520\" target=\"_blank\" rel=\"noopener\">Form 3520,<\/a><\/strong><a href=\"https:\/\/www.irs.gov\/forms-pubs\/about-form-3520\" target=\"_blank\" rel=\"noopener\"> Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts<\/a>, <strong>by  April 15th<\/strong>  -basically the due date from filing of tax return. So that date may be changing if you have applied from any extension of time to file tax return.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Form_3520_IRS_penalty\"><\/span>Form 3520 IRS penalty<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/6677\" target=\"_blank\" rel=\"noopener\">Section 6677 of 26 US Code<\/a> provides law for imposing <a href=\"https:\/\/www.irstaxapp.com\/failure-to-pay-file-penalty-calculator\/\">failure to file penalty <\/a>if Form 3520 is not filed in time or or if the information is incomplete or incorrect. Generally, the initial penalty is equal to the<strong> greater <\/strong>of <\/p>\n\n\n\n<ul class=\"is-style-tw-arrow\"><li>$10,000 <strong>or<\/strong> <\/li><li>the 35% of the gross value of the distributions received from a foreign trust <\/li><\/ul>\n\n\n\n<p>Please note that penalty may not be imposed if you convince IRS that there were reasonable cause for delay in filing the<strong> form 3520<\/strong>.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-what-s-the-difference-between-form-3520-and-form-3520-a\">Difference between Form 3520 and Form 3520-A?<\/h3>\n\n\n\n<p>The main difference between Form 3520 and&nbsp;<a href=\"https:\/\/www.hrblock.com\/expat-tax-preparation\/resource-center\/forms\/form-3520-a-a-guide-for-u-s-expats\/\" target=\"_blank\" rel=\"noopener\">3520-A<\/a>&nbsp;is who actually files it and why. The only people that fill out Form 3520-A are those that manage foreign trusts with U.S. beneficiaries.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Download_Form_3520_IRS_instructions\"><\/span>Download Form 3520 IRS instructions<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>If you need to understand nitty gritty of Form 3520 , you better download more about the reporting of gifts through official <em>form <\/em><a href=\"https:\/\/www.irs.gov\/pub\/irs-pdf\/i3520.pdf\" target=\"_blank\" rel=\"noopener\"><em>3520 IRS instruction<\/em> <\/a>in PDF format .But it is always advisable that you seek help of a <a href=\"https:\/\/www.irstaxapp.com\/tax-attorney-vs-cpa\/\">tax attorney<\/a> if your received gifts of property  or inheritance  from anywhere. .<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Yes, the Form 3520 IRS requires everyone to submit if a US person receives a gift above a threshold . IRC makes it obligatory on part of gifts recipients in USA to report it any assets you received in form of gift above an specified limit from foreign person (aliens ) through its prescribed form [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":6987,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[10],"tags":[],"amp_enabled":false,"_links":{"self":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/4954"}],"collection":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/comments?post=4954"}],"version-history":[{"count":4,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/4954\/revisions"}],"predecessor-version":[{"id":6994,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/posts\/4954\/revisions\/6994"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media\/6987"}],"wp:attachment":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media?parent=4954"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/categories?post=4954"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/tags?post=4954"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}