How it works
Form 3520 reports transactions with foreign trusts and the receipt of gifts or bequests from foreign persons above 100,000 dollars in a year (or a lower inflation-adjusted amount from foreign corporations or partnerships). It is due with your individual return. Form 3520-A is the foreign trust’s own annual return, due March 15, and the U.S. owner is responsible if the trustee does not file. Penalties start at 10,000 dollars or a percentage of the amount involved and are assessed automatically.
Why it matters
The gift is not taxable; the penalty for not reporting it is 5 percent per month up to 25 percent. Foreign pensions and certain foreign savings plans can be foreign trusts, which surprises many expats.
Example
A U.S. citizen receives a 250,000 dollar inheritance from her mother in Germany. No tax is due, but Form 3520 is required. Missing it for a year exposes her to a 62,500 dollar penalty.
Related: foreign gift reporting, reasonable cause. Read more: Form 3520 guide.
