When a parent overseas helps with a down payment on a real estate purchase, nobody writes “Form 3520” in the housewarming card.
The transfer may not come up until a client mentions the wire during tax preparation. That is when I ask who sent it, how much was received and which account it came from. The answers can point to a separate U.S. filing requirement even when the money itself is not taxable income.
A foreign gift or inheritance may require Form 3520 even when no income tax is due. Missing it can produce a five-figure penalty.
The Cost of a Missed Form
On a $150,000 transfer:
- Direct foreign gift: The penalty is $7,500 for each month it remains unreported ($150,000 × 5%), up to $37,500 ($150,000 × 25%), unless reasonable cause applies.
- Foreign trust distribution: The initial penalty is generally the greater of $10,000 or 35% of the gross distribution. In this example, that is $52,500 ($150,000 × 35%).
What to Tell Your Accountant
Your accountant will start with three facts:
- Who sent the money: Include the sender’s legal name, citizenship and tax residency. A U.S. citizen living overseas is generally still a U.S. person.
- How much you received: Add up every transfer received during the year, including transfers from related family members. A $75,000 wire plus a $40,000 wire totals $115,000 ($75,000 + $40,000).
- Where the money came from: Tell your accountant whether it came from a personal account, foreign estate, family company or trust.
In a family business, a parent may use the company account simply because that is where the cash is. That choice can change the reporting.
Form 3520 is filed separately from the income tax return. For a calendar-year individual, it is generally due April 15. A properly requested income tax extension generally moves the deadline to October 15.
Because the transfer may not appear as income on Form 1040, your accountant may have no reason to know about it unless you bring it up.
If you received money from a relative, estate, company or trust outside the United States and have not discussed it with your accountant, call us. We can review the transfer, determine whether Form 3520 was required and help you address the filing if something was missed.
Start with the wire record and any documents connected to the sender, estate, company or trust. We can take it from there.