The IRS information return “Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts” (or Form 3520 for short) is a key document which you must complete if you receive certain foreign gifts or deal with certain foreign trusts or property.
The rules around who must file a Form 3520––and how the disclosures can influence your tax return––are complex, but don’t worry. The Gordon Law tax team is here to break down what you need to know about completing Form 3520, including how to file your return and what to do if you encounter any tax issues along the way.
What Is IRS Form 3520?
Form 3520 is an IRS form which discloses certain interests in foreign trusts, property, and money transfers. For example, if you receive large financial gifts or inheritances from overseas, you own a foreign trust, or you make transactions with a foreign trust, you may need to complete this form.
- Form 3520 is an information return which should be completed annually as part of your wider income tax return.
- It doesn’t directly report tax due but it does disclose financial information which could influence the tax you pay.
The IRS uses Form 3520 for three main reasons:
- Confirming ownership of overseas property
- Tracking non-US transfers
- Monitoring for potential tax evasion involving overseas transfers
Put simply, Form 3520 promotes transparency and ensures the IRS fully understands any foreign income or ownership interests you have. Completing this form properly, if required to do so, helps to reduce the risk of future tax debt or IRS audits.
Who Must File Form 3520?
Not everyone files Form 3520, even if they do have an interest in foreign income or property, or overseas trusts. Only those with a certain level of financial interest, or ownership of foreign trusts, need complete this form. So, let’s break down the three categories of individuals who are required to submit Form 3520:
- Any U.S. owner of a foreign trust
- Individuals who transfer any money or property into a foreign trust
- Individuals who receive a direct or indirect financial benefit from a foreign trust transfer e.g. loans and credit card expenses covered by a trust should still be disclosed even if it’s not a direct financial transfer
- Any individual receiving $100,000 or more in foreign gifts, such as money and/or property (gifts exceeding $5,000 should be listed separately for full clarity)
Key Parts of Form 3520
Form 3520 seems lengthy and complex at first glance. But we can break down the key parts of the form as follows.
1. Personal Details
In this section, the individual provides their own personal details. If the transfer involves, for example, an inheritance, they should provide the decedent’s details, and if there’s an agent or foreign trust involved, those details should be provided.
2. Transfers to Foreign Trusts
Individuals complete this section if there’s a transfer to a foreign trust, whether it’s a simple transaction or something more complicated like a loan.
3. U.S. Ownership of Foreign Trusts
Even if the trust pays out no money for the relevant financial year, any individual who owns a foreign trust should complete this part for full transparency.
4. Foreign Trust Distributions
If a trust distributes cash or property, or provides any other economic benefit, then the individual should complete the relevant distributions section.
5. Large Foreign Gifts Received
Individuals disclose foreign gifts worth $100,000 or more in this section. This includes gifts received from corporations and partnerships.
Form 3520 vs. Form 3520-A
Confused by whether you should file Form 3520, Form 3520-A, or both? This is understandable—after all, the forms seem virtually the same at first glance. But there are two major differences between these forms: who submits the forms, and why.
- Form 3520: Any U.S. person who gains from a foreign trust, or receives a foreign gift, completes Form 3520, as do U.S. persons with an interest in a foreign trust. The point is to disclose ownership of a foreign trust, or to declare any potentially taxable income.
- Form 3520-A: U.S. persons who own a foreign trust with one or more U.S. beneficiaries must complete 3520-A. The point is to report the trust’s activities to the IRS.
If in doubt, give the Gordon Law team a call and we’ll help you determine whether you need to complete one or more forms.
Who Is Exempt From Filing IRS Form 3520?
Not all foreign transactions require Form 3520 filing. The IRS has a comprehensive list of exempt transactions, but the most common filing exceptions are:
- Transactions with foreign trusts formally recogized by the IRS as income tax exempt
- Transfers to and from certain Canadian retirement plans, such as Registered Retirement Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs)
- Transactions with certain foreign charitable trusts
- Certain property transfers, provided they’re at fair market value
- Very small transfers falling below IRS threshold amounts
- Any distributions already taxed for services provided
Knowing whether you could be exempt from Filing Form 3520 can be complicated. Err on the side of caution and contact the Gordon Law team to discuss your situation.
Can My Spouse and I File a Joint 3520?
Typically, yes. If you and your spouse choose to file a joint income tax return, you can file a joint 3520 if you are both transferors, grantors, or beneficiaries of the same foreign trust. If you have interests in separate foreign trusts, then you need to complete your own individual Form 3520 for that trust.
When Is IRS Form 3520 Due?
IRS Form 3520s are due on April 15 for the previous tax year. For example, a Form 3520 for the 2025 tax year is due on April 15 2026. The exception? If you live abroad, you have until June 15 to file Form 3520.
You can request an extension if you need more time to file Form 3520. This typically gives you until October 15 to file. If you don’t request an extension, and you file late, you could face IRS penalties, and even an IRS tax audit, down the line. So, if you’re concerned you won’t make the filing deadline, don’t hesitate and request an extension.
How Do I Complete IRS Form 3520?
Although IRS Form 3520 seems convoluted, it’s easier and quicker to complete this return if you follow these simple steps.
Gather the Right Records
First, gather any supporting documentation you need to complete the return. Anything which shows a record of the foreign transaction(s) is helpful. Examples include:
- Value of foreign transfers
- Date(s) of foreign transfers
- Gift letters
- Appraisals
The more information you have on hand before you complete your form, the easier the process will be.
Input the Relevant Details
Next, be ready to provide enough details on the form to satisfy IRS requirements. So, for example, you’ll need to provide your own personal information, including your taxpayer ID number, and your contact details. You’ll also need to provide information detailing whatever type of transaction took place, such as foreign trust details or a donor’s identity.
Complete the Correct Form Sections
The final step is completing the relevant part (or parts) of Form 3520. So, if you own a foreign trust, you complete Part II. Or if you sent money to a foreign trust, complete Part I.
Once you’re happy that the form is correct, you’re ready to file.
How Do I File Form 3520?
When you’re ready to file Form 3520, send the form and any supporting documentation to the IRS by post. Remember to allow sufficient time for the documents to arrive so you file on time.
The address to use is:
Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409
You must include all attachments you need to provide when you submit your initial return. Otherwise, the IRS will consider it an incomplete or incorrect return, and you could face penalties.
If you need more time to file, consider asking the IRS for an extension. Otherwise you risk failure to file penalties which we’ll cover below.
Amended Returns
Made a mistake the first time you submitted Form 3520? Simply submit a new return––make sure to select “Amended Return” on page 1 so the IRS knows it’s a second return.
Correcting the error doesn’t mean you’re free from possible tax penalties, though. The IRS may still impose financial penalties, or audit your tax return, even if you made an innocent mistake. That’s why, the moment you know you made a mistake, you should contact our tax attorneys for advice on how to manage the situation and reduce the risk of severe tax penalties.
What Are the Penalties for Incomplete or Missing Form 3520 Returns?
Unfortunately, the IRS may impose penalties for Form 3520 filing mistakes, especially if they suspect you acted deliberately. The two main penalties the IRS may impose are:
- A percentage of the gross value of any foreign monies received; or
- $10,000, whichever is the greater value.
They may also charge interest, or impose further penalties, if you don’t pay within 90 days of receiving an IRS penalty notice.
Can I Challenge IRS Form 3520 Penalties?
Yes. The IRS has the discretion to reduce or waive penalties if you made a reasonable or honest oversight. Meaning, you can appeal penalties, and reduce the chance of tax debt, when you can show there was no intent to deceive or conceal assets. You can challenge penalties if you:
- Failed to file IRS Form 3520
- Accidentally failed to file Form 3520 on time
- Filed an incomplete return
- Made mistakes when filing the return
The goal is to show “reasonable cause”, meaning that you acted honestly when you made a Form 3520 error. If you can show that you acted with reasonable care, and that you didn’t intentionally mislead the IRS, then the IRS can waive the penalties.
Your best chance of appealing IRS tax penalties is with the support of an experienced tax professional on side. Don’t hesitate to call us for urgent advice and assistance if you’re facing IRS scrutiny.
Do I Need a Lawyer to Help Me Complete Form 3520?
As with any part of your tax return, you can file Form 3520 alone. But here’s how hiring the Gordon Law tax attorneys can help you stay on track.
- Personalized Advice: Our team takes the time to fully understand your unique situation, no matter how complicated your foreign tax affairs may be, so we can offer the most reliable and effective advice to help you complete any foreign information return.
- Dedicated Support: We understand how stressful completing IRS returns, such as Form 3520, can be. That’s why we’re on hand to answer any questions you might have so you complete your form with ease.
- Tailored Planning: Form 3520s are typically part of a wider tax return. Our tax lawyers will help you understand your tax obligations and offer advice as to how you might reduce your future liabilities.
- Ongoing Guidance: You should never feel like you need to manage your tax affairs alone. We are here to guide you through any tax problem, whether you need advice on managing tax debt or handling IRS negotiations.
At Gordon Law, we don’t just help you through this year’s tax return. We give you the support, knowledge, and confidence you need to effectively plan for the future.
Ready to File IRS Form 3520? Contact Gordon Law Today!
Are you preparing your IRS Form 3520 for this year’s tax return? Then don’t hesitate to contact the tax team at Gordon Law before you file. Whether you’re looking for support to complete your form, or you’re confused about your obligations, we are here to help.
Take the first step towards managing any tax issue––give us a call or request a consultation to learn about our services.
