Form 3520: What Are The 5 Critical Steps for Reporting Foreign Gifts and Inheritances?
By Jason Kovan · June 5, 2023
Five practical steps for organizing the facts and records behind a Form 3520 foreign gift or inheritance filing.
1. Identify the transfer
Determine whether the transfer was a gift, inheritance, trust distribution, loan, or another type of transaction. The legal and tax characterization drives the reporting analysis.
2. Identify the person or entity
Record who transferred the property, where that person or entity was resident, and whether the transferor was an individual, foreign estate, foreign trust, or foreign business. The donor’s relationship to the recipient may also matter.
3. Establish the date and value
Preserve the transfer date and a supportable value in U.S. dollars. Bank records, closing statements, appraisals, and written correspondence can be important when the transfer is reviewed later.
4. Check the current filing instructions
Thresholds and instructions can change by tax year. Review the current Form 3520 instructions and coordinate the analysis with the taxpayer’s income tax return and any related international information returns.
5. Respond promptly to any notice
If a penalty notice arrives, note the response deadline and preserve the complete notice. A timely, fact-specific response may be essential to a request for relief or abatement.
A final caution
Foreign gift and inheritance reporting is fact-specific. The information here is general and is not tax or legal advice for any particular taxpayer.