🎁 IRS Form 3520 Explained: How to Report Gifts and Inheritances from Non-U.S. Relatives

Receiving money or property from a parent, grandparent, or other relative living outside the United States is very common among Americans with international families. While these gifts or inheritances often feel straightforward, they can create serious U.S. tax reporting obligations. One of the most important forms involved is IRS Form 3520.

Form 3520 is an informational tax form used to report certain transactions with foreign trusts and the receipt of large gifts or inheritances from foreign individuals or estates. In most cases, these gifts are not subject to U.S. income tax. However, failing to report them properly can lead to significant penalties, even when no tax is owed. Because of this, understanding when Form 3520 applies is essential for U.S. taxpayers with non-U.S. relatives.

Who Must File Form 3520 for Foreign Gifts and Inheritances💲

Form 3520 must be filed by U.S. persons who receive certain large gifts or inheritances from foreign sources. A U.S. person includes U.S. citizens, green card holders, and individuals who meet the substantial presence test and are treated as U.S. residents for tax purposes. It also includes U.S. entities such as domestic partnerships, corporations, trusts, and estates.

In addition, executors of U.S. estates may need to file Form 3520 if the decedent received reportable foreign gifts during their lifetime. A decedent simply means a person who has died, usually referring to someone whose estate is being administered.

It is important to note that the responsibility to file Form 3520 lies with the U.S. recipient, not the foreign person who made the gift.

What Types of Gifts & Inheritances Must Be Reported📄

Form 3520 is required when the total value of certain foreign gifts or inheritances exceeds specific thresholds during a calendar year.

Gifts or inheritances from nonresident alien individuals or foreign estates must be reported if the total exceeds $100,000 in a single year. A nonresident alien is someone who is not a U.S. citizen and does not meet the IRS tests to be considered a U.S. resident for tax purposes. 

Gifts from foreign corporations or foreign partnerships are subject to a much lower threshold. These gifts must be reported if they exceed the annual inflation-adjusted limit, which was $20,573 for 2026. (Note: It was $20,116 for 2025 and $19,570 for 2024.) This threshold changes each year, so it is important to check the current IRS guidance.

Certain amounts are excluded from reporting. Payments for qualified tuition or medical expenses that are paid directly to a school or medical provider on your behalf are not reportable. In addition, distributions from foreign trusts are not reported as gifts. Instead, they are reported in a different section of Form 3520 under separate rules.

Aggregation rules are a common source of confusion. Gifts from related foreign persons must be combined when determining whether the reporting threshold is exceeded. If the threshold is crossed, each gift of $5,000 or more must be listed separately. If the total exceeds the threshold but no single gift exceeds $5,000, the IRS allows a statement confirming that no individual gift exceeded that amount.

When and How to File Form 3520📆

Form 3520 generally follows the same filing deadline as your U.S. income tax return. For most individual taxpayers, this is April 15th of the year following the receipt of the gift.

Taxpayers who live and work outside the United States may qualify for an automatic extension until June 15th. If a formal extension is filed for the income tax return, Form 3520 is due by October 15th. Form 3520 cannot be extended on its own and must follow the extension of the income tax return.

Unlike most tax forms, Form 3520 is not filed electronically with your tax return. It must be mailed separately to the IRS service center in Ogden, Utah. The form must be signed and dated, and electronic signatures are permitted.

What Information Must Be Reported 📋

When reporting a foreign gift or inheritance, the IRS requires detailed information. This includes the date the gift was received, a description of the property, and its fair market value at the time of receipt. Fair market value means the price the property would sell for in the open market between a willing buyer and a willing seller.

For gifts from foreign corporations or partnerships, additional identifying information about the donor is required, including the donor’s name and address, and any available taxpayer identification number. Maintaining clear documentation is critical, as the IRS can closely scrutinize Form 3520 filings.

Penalties for Failure to File or Incomplete Filing ⚠️

The penalties for failing to file Form 3520 are severe. The IRS may impose a penalty equal to 5% of the value of the unreported gift or inheritance for each month the failure continues, up to a maximum of 25%.

Even more concerning, if a gift is not properly reported, the IRS may challenge whether it was truly a gift and attempt to treat it as taxable income. Penalties may be waived if the taxpayer can demonstrate reasonable cause, meaning the failure occurred despite exercising ordinary care and was not intentional. However, reasonable cause claims require strong documentation and professional support.

Special Considerations and Exceptions ✳️

Not all foreign transfers are treated the same way under Form 3520. Gifts received from foreign trusts are not reported as gifts in the gift section of the form. Instead, they are reported as trust distributions, which are subject to complex tax rules.

Another important situation involves covered expatriates. A covered expatriate is a former U.S. citizen or long-term resident who gave up U.S. status and meets certain wealth or tax liability thresholds. Gifts from covered expatriates may be subject to a special transfer tax under Internal Revenue Code Section 2801 and may require additional reporting beyond Form 3520.

How It Actually Works 💃

Let’s suppose that Maria is a U.S. citizen who receives money from family members during 2026. She receives $80,000 from her father and $30,000 from her aunt. Both relatives are nonresident aliens living in Spain. She also receives $10,000 from a foreign corporation owned by her father.

Because Maria’s father and aunt are related, their gifts must be aggregated. The total of one hundred ten thousand dollars exceeds the one hundred thousand dollar threshold, so Maria must report both gifts on Form 3520. Each gift of over $5,000 must be listed separately.

The $10,000 from the foreign corporation does not exceed the applicable threshold for corporate gifts and does not need to be reported. If any portion of the gifts had been paid directly to a school or medical provider, those amounts would not count toward the threshold.

Maria must file Form 3520 by April 15th of the following year, or June 15th if she qualifies for the automatic foreign residence extension. If she files an extension for her income tax return, the deadline moves to October 15th.

Other Reasons You May Need to File Form 3520 📝

Although many taxpayers associate Form 3520 primarily with foreign gifts, the form also applies to foreign trusts.

Form 3520 is required when a U.S. person creates a foreign trust, transfers money or property to a foreign trust, or receives distributions from one. A foreign trust is generally a trust that is controlled or administered outside the United States. If you are treated as the owner of a foreign trust under the grantor trust rules, meaning you retain certain powers or benefits, you must report this ownership even if no money was distributed. A grantor trust is one where the person who set up the trust is still treated as owning the assets for tax purposes.

Loans or the free use of property from a foreign trust can also trigger reporting. These arrangements are often treated as disguised distributions unless strict requirements are met.

Where to Get Help 🛎

Form 3520 is one of the most heavily penalized international tax forms in the U.S. tax system. While foreign gifts and inheritances are often not taxable, failing to report them correctly can result in penalties that far exceed the value of the gift itself.

U.S. taxpayers with international families should keep detailed records of all foreign gifts, inheritances, and trust transactions and seek professional guidance when thresholds are approached or exceeded. Early planning and proper reporting are far less costly than fixing mistakes after the IRS becomes involved. If you have received money or property from non-U.S. relatives or are unsure whether Form 3520 applies to your situation, Matriarch Expat Tax can help. We specialize in U.S. tax compliance for Americans with international ties and can guide you through complex reporting requirements with clarity and confidence. Reach out and get peace of mind before penalties become a problem.