Form 3520 and 3520-A are forms required to be filed to report certain transactions with foreign trusts, ownership of foreign trusts and the receipt of large gifts from foreign persons. A foreign gift is money or other property received by a U.S. person from a foreign person that the recipient treats as a gift or bequest and excludes from gross income. Foreign gifts must be reported if they exceed:
· More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate)
· More than $15,797 from foreign corporations or foreign partnerships (including foreign persons related to such foreign corporations or foreign partnerships)
Taxpayers who cannot demonstrate reasonable cause for failing to file on time or reporting incorrect information may be subject to an initial penalty equal to the greater of $10,000 or the following (if applicable):
· 35 percent of the gross value of any property transferred to a foreign trust for failure by a U.S. transferor to report the creation of or transfer to a foreign trust.
· 35 percent of the gross value of the distributions received from a foreign trust for failure by a U.S. person to report receipt of the distribution.
· 5 percent of the gross value of the portion of the foreign trust’s assets treated as owned by a U.S. person for failure by the U.S. person to report the U.S. owner information. Such U.S. person is subject to an additional separate 5 percent penalty (or $10,000 if greater), if the foreign trust (a) fails to file a timely Form 3520-A, or (b) does not furnish all required information or includes incorrect information.
Additional penalties may be imposed if the owner continues noncompliance after being notified by the IRS.