Filing Form 3520

[sunnyritz14]

I received a gift from my foreign father that was < $5000.  My wife received gift(s) from her foreign parent that exceeded the limit and hence needs to report under form 3520.  The money gifted to my wife was wire transferred into our "joint" bank account. As background, we are filing a joint income tax return.

A few Qs:

1. Do we need to file a form 3520 jointly?  or just under her name as her mother gifted her the money?  This is relevant as line 1i) in the form asks for it.  Pls note < $5000 amount gifted by my father to me.

2. What does one chose for line A - initial or final return in the form?  This is the first time filing form 3520 and I assume it will be final as I don't intend to file another one for tax year 2022.

3a. Can I file income tax return electronically and mail form 3520?  Does it cause any issues with reconciling form 3520 with one's income tax return?

3b. Or does one need to file income tax and form 3520 manually and mail together as a package?

4. If 3a is the way to go, does form 3520 have to be filed immediately once taxes are e-filed?

5. Are there any attachments (like copy of one's form 1040 (filed electronically) or other requirements), that one has to attach & mail "together" with form 3520 when mailing it?  For us, only section IV of the form is applicable and it's a list of gifts that we have to fill in and provide.

Thanks for your help.  

[msalem06611]

Foreign tax reporting is my specialty. I file many Forms 3520, 3520-A, FBARs etc.  I work for an international law firm which has many clients whom are foreign or have foreign connections.

1.  Yes you file a joint Form 3520 because the funds gifted to your wife were deposited to a joint account.  The minimum threshold for reporting is $100K.  If the total gifts are under $100K you do not have to file this form. Additionally, because you are filing a joint 3520 you should report your gift as well.

2.  If this is your first return you check the box "initial".  Don't check the box final unless you are certain you will not be filing in the future.  Since you both have foreign family members this may not be your final Form 3520.  Do any of the foreign family members have a trust which you or your wife are beneficiaries?  If yes, then you will likely be filing a Form 3520 in the future to report trust distributions.

3/4.  Form 3520 is not filed with your 1040.  It is a paper filed return and filed separately from your 1040. I would recommend filing by certified mail.  Also the due date for the 3520 is 4/18.  If you extend your 1040, the Form 3520 is automatically extended as well.  

5. If you can't fit all the gifts (list each gift by date and amount in the gift section of Form 3520), then you need to attach an additional sheet.  This would be the only required attachment. The IRS does not need to know whom the gifts came from.  Just list each gift by date and amount.

I hope this helps

[DaveF1006]

According to the instructions for form 3520, you may file jointly if If you and your spouse are filing a joint income tax return for tax year 2022, and you are both transferors, grantors, or beneficiaries of the same foreign trust,  Otherwise, only your wife would have a 3520 filing requirement. 

I would say definitely say this is the first form but don't report this as a final return if you expect more gifts from your foreign relatives, unless you are sure.

According to these instructions from the IRS, form 3520 may be mailed separately but is due by April 18. You may file your return electronically without the 3520.

Returns with attachments may not be efiled but must be printed and mailed in, including all of the attachments.

The 3520 form should be sufficient by itself as long as the gifts have been reported on the form. You may wish to click on the link in my opening paragraph just to see if there are additional requirements. Pay particular attention to the section entitled When and Where To File.

Let us know if you have additional questions.

@sunnyritz14 

[sunnyritz14]

Thanks for the reply.  It helps.

On item #2 posted earlier, we don't have a trust and per line B) on form 3520, we fall under "individual".  Given that, do we leave line A) blank?  or check "initial"?

on item #3, how does IRS reconcile form 3520 with one's tax return - as one is e-filed and other is mailed to IRS?

See screenshot from Turbotax.  Does one show 1 in the box against form 3520 (appears to be per instructions on screen in turbotax)?  Or leave it blank in Turbotax and just mail form 3520?  

[sunnyritz14]

Thanks for the reply.  It has clarified my concerns. 

I just posted a few follow-up Qs together with a screenshot in other reply (from msalem06611) to my queries.  Can you give your views on the follow-up Qs?

[msalem06611]

Yes you should check initial and if you don’t expect to file in the future then you can also check final.  If you have to file again in the future, don’t worry about what you checked in 2022.  What’s most important is that you file this form.

Yes put the #1 next to 3520. This is an entry on Form 8938 (which is a form filed with your 1040).  You are letting the IRS know that you have filed Form 3520. 

please note that any tax forms related to foreign activity is essential to file, as the IRS imposes very large penalties for not filing.  Always better to over report when it comes to foreign activity. When in doubt, File.

[sunnyritz14]

Thanks

[clairechiang91ntu]

@DaveF1006 

Hello Dave, 

I hope it's ok that I ask a relevant question on form 3520. My spouse and I will file 2022 tax jointly. He received money gifts wired from his family outside of the US. One was wired in 2022 from his dad(neither US citizen nor US permanent resident) and the amount is lower than $100k. The other one was wired in 2022 from his grandma (neither US citizen nor US permanent resident) and the amount is lower than $100k. Both money gifts were wried from the foreign bank. The total of these two gifts exceeds $100k.

For the case, should we still file form 3520? These two gifts were from two individuals separately, and each of money gift is lower than $100k. My understanding to IRS' webpage form 3520 is that we don't need to file.However, the sum is over $100k. So, I'd like to check again with the expertise to confirm if my understanding is correct. Thank you! 

[erlozoppel]

you need to file

[tschapira]

Hi @msalem06611 

My family is in a same situation. In 2023, my mother inheritated a pension, savings bank account and apartment from my grandmother. I assume, I need to do the following:

-  form 8938 declaring foreign assets, done annually

-  Form 3520 for each account? Done 1-time...

Anything else I'm missing?

[DaveF1006]

Yes, there is a FBAR reporting requirement to report foreign accounts that exceed $10,000 at any time during a calendar year. Turbo Tax does not handle this reporting for you but you would report your FBAR here.

For the FBAR, you would only report the amount that is in the bank account but not the apartment. Same goes for 8938 but the inheritance of the apartment does need to be reported on 3520.

If the apartment is sold, the sale of the apartment does need to be reported.  Also if the apartment is rented, rental income would need to be reported also on your mother's return.

@tschapira 

[cblegen]

msalem06611

I have a question about Form 3520, C 'Check if any excepted specified foreign financial assets are reported on this form...'.  

Do I only check this box if we've received a distribution from our foreign trust? 

The back story is that both my husband and I worked for the same company and both owned company stock. When our company was sold, the company stock was sold and the proceeds were put into a foreign (Canadian) trust. The first year (2021) the trust distributed the majority of the money to us and over 3000 other employees, but the trust kept some money for admin costs until the sale of the company makes it way through Canadian courts.  Each year since (2022 & 2023) we both file a Form 3520 saying we have assets in a foreign trust but haven't received any distribution since 2021.  Is Box C to indicate a distribution only?

Each year we also file the FBAR form since our employee foreign trust owns foreign bank accounts.

Thanks!

[DaveF1006]

According to the instructions for 3520, you would check this box if you also need file Form 8938 for the same tax year and include this form in the total number of Forms 3520 reported on line 15 of Part IV, Excepted Specified Foreign Financial Assets, of Form 8938. 

You have a 8938 filing requirement value of these assets exceeds $100,000 on the last day of the tax year or $150,000 at any time during the tax year.

To summarize, if you have a 8938 filing requirement, you will check Box C.

Instructions For Filing 3520

instruction for Filing Form 8938

[cblegen]

Thank you! I was looking at the wrong part of the instructions...it was late. 😉

[czekchik]

do i fill the 3520 every year for one time real estate inheritance in 2023 or every year starting this year?