Form 3520 Penalties

Form 3520 reports two kinds of transactions that many families do not think of as tax events: dealings with foreign trusts, and large gifts or bequests received from foreign persons. The form is informational, but the penalties for missing it are tied to the size of the transaction, not to any tax owed, so they can be severe. This page explains who files, how the penalties are calculated, what a gift from a relative abroad can mean, and how to respond.

Who files Form 3520

The instructions say U.S. persons, and executors of U.S. decedents' estates, must file if they:

• are responsible for a reportable event for a foreign trust, such as creating it or transferring property to it
• are treated as the owner of part of a foreign trust under the grantor trust rules, in which case Part II must be completed even if there was no activity
• received a distribution from a foreign trust, or a loan or the use of trust property
• received more than $100,000 during the tax year from a nonresident alien individual or a foreign estate that is treated as a gift or bequest
• received more than a threshold amount from foreign corporations or partnerships that is treated as a gift. That amount is adjusted for inflation, and the IRS publishes it on its inflation adjustment page.

The form is due on the 15th day of the fourth month after the tax year ends. For a calendar-year individual this is usually April 15, and an extension of time to file the income tax return can extend it, but not later than October 15. The instructions give a specific IRS address for filing. The related Form 3520-A, filed by the foreign trust itself, is due on the 15th day of the third month after the trust's year ends, which is March 15 for a calendar-year trust.

Families with relatives in India often send money across borders. See our page on gifts and inheritance from India for how that works in practice.

The penalty amounts

If the failure continues more than 90 days after an IRS notice, additional penalties of $10,000 per 30-day period apply to the trust-related penalties. The total is reduced if needed so it does not exceed the gross reportable amount. The IRS may also determine the income tax consequences of an unreported gift. A 20% accuracy-related penalty can increase to 40% for an underpayment tied to undisclosed foreign trust assets.

Examples (hypothetical).

• Foreign gift. You receive $150,000 from a parent who is a nonresident alien in 2025 and do not report it. The Part IV penalty is 5% of $150,000, or $7,500, for each month of continued failure. After three months it is $22,500. It reaches its limit at five months, 25% of the gift, or $37,500.
• Foreign trust transfer. You transfer $100,000 to a foreign trust and do not report it in Part I. The initial penalty is the greater of $10,000 or 35% of $100,000, which is $35,000.

Reasonable cause

The instructions say no penalty applies if the failure was due to reasonable cause and not willful neglect. They state that a foreign country's penalties for disclosure, a foreign fiduciary's reluctance to disclose, or trust provisions that prevent disclosure do not count as reasonable cause. The IRS international penalties page says you generally need to show you acted responsibly before and after the failure. Interest can be removed only if the penalty is. See reasonable cause penalty relief.

How to avoid penalties

• Track every transfer to or from a foreign trust and every large gift or bequest from a foreign person during the year.
• Keep documents showing the source: bank records, the donor's identity and country, and a letter or message describing the gift.
• Calendar the Form 3520 date with your tax return, including the extension date.
• Coordinate with any foreign trust. The U.S. owner is responsible for the 3520-A or a substitute attached to the Form 3520.

If a filing was missed

First establish what was received or transferred, in which year, and from whom. Then compute the thresholds for that year, because the dollar figure depends on the type of donor. If a filing is required, filing it promptly with an explanation of the reason is usually the starting point. Whether the facts support a reasonable-cause statement is the central question. We recommend professional review before submitting, especially for trusts, where the owner and grantor rules are technical.

How we can help

We prepare Form 3520 and Form 3520-A, review whether an overseas transfer or family gift is reportable, and help assemble the evidence for a penalty response. Our international tax team works with clients across the U.S. We cannot promise a penalty will be waived, and the amount of a notice can be large, so we encourage you to contact us as soon as it arrives.

Frequently asked questions

General information only, not tax, legal or accounting advice for your situation. Rules, limits and deadlines change; confirm the current rules with the official source or a qualified professional before you act. Reading this page does not create a professional relationship with CPA Tax Payroll and Accounting Corp.