Gift Tax Reporting for US Expats: Complete 2025 Guide to Form 3520 and Foreign Assets

You get a wire transfer notification for your gift. An amount of €120,000 deposited to your U.S. account. Your parents in Germany sold their vacation home and sent you your inheritance early as a gift to help with your house down payment. You're thrilled. You deposit the funds, close on your house, and move in. You never mention the €120,000 gift anywhere on your tax return—it's a gift, gifts aren't taxable, so why report it? Wrong.

Understanding IRS tax form 3520 and foreign gift reporting determines when you must report foreign gifts even though they're not taxable income, how to aggregate gifts from related foreign persons to determine reporting thresholds, which transactions with foreign trusts trigger Form 3520 and Form 3520-A requirements. It also helps you know how to avoid penalties of $10,000 to 35% of gift value for non-filing. Getting Gift Tax Reporting wrong costs tens of thousands in penalties on gifts that were never taxable to begin with.

In this article you'll learn exactly when you must file Form 3520 to report foreign gifts received, how the $100,000 and $20,116 thresholds work and when to aggregate amounts, what transactions with foreign trusts require IRS tax form 3520 and Form 3520-A, the severe penalties for failing to file and recent IRS changes to penalty procedures, and how to properly report foreign inheritances, gifts, and trust transactions.

What is Form 3520?

Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts) is an information return—not a tax return—filed by U.S. persons who receive large gifts from foreign persons or have transactions with foreign trusts.

Foreign gifts are not subject to U.S. income tax. You don't owe tax on money your parents in France gave you or your inheritance from your grandmother in Italy. These are gifts/inheritances, which are never taxable income to the recipient in the U.S.

However, even though foreign gifts aren't taxable, they must be reported on IRS tax form 3520 if they exceed certain thresholds. Think of Form 3520 as an information report telling the IRS "I received this large gift from a foreign person" so they can verify the gift is legitimate and not disguised income.

Three situations requiring Form 3520

IRS tax form 3520 must be filed when:

Part I: You received gifts or bequests from foreign persons exceeding threshold amounts ($100,000 from foreign individuals, $20,116 from foreign entities for 2025)

Part II: You are a U.S. person treated as owner of any portion of a foreign trust under grantor trust rules

Part III: You received distributions from a foreign trust

Who must file Form 3520

U.S. citizens, U.S. resident aliens (green card holders), and certain nonresident aliens with U.S. filing obligations must file Form 3520 when the reporting thresholds are met.

This includes Americans living abroad. If you're a U.S. expat living in London and receive a £150,000 gift from your UK-citizen parents, you must file IRS tax form 3520.

Threshold for reporting gifts from foreign individuals 

If you receive gifts or bequests from a foreign person who is a nonresident alien individual or foreign estate, you must file Form 3520 foreign gift reporting when the aggregate amount received during the tax year exceeds $100,000.

The $100,000 threshold applies per foreign person

The $100,000 threshold applies separately to each foreign person. If you receive $80,000 from your mother in Germany and $80,000 from your friend in France (unrelated parties), you don't need to file Form 3520 because neither individual gift exceeds $100,000.

Must aggregate gifts from related parties

If the foreign persons are related to each other, you must aggregate the gifts to determine if the $100,000 foreign gift reporting threshold is met. Related parties are defined under IRC Section 267(b).

Example: You receive $60,000 from your father in Italy and $50,000 from your mother in Italy (same country, married, clearly related). Aggregate: $110,000. You must file Form 3520 foreign gift reporting both gifts because the aggregate from related parties exceeds $100,000.

Related parties include family members and controlled entities

Related parties include:

• Family members (siblings, spouses, ancestors, lineal descendants)
• Corporations/entities you control or that are controlled by family members
• Trusts where you or family members are beneficiaries
• Partnerships involving family members

Example: You receive $70,000 from your sister in Japan and $40,000 from your brother in Australia. Your siblings are related parties. Aggregate: $110,000. You must file Form 3520.

Detailed reporting for gifts over $5,000

If the aggregate from a foreign person (or group of related persons) exceeds $100,000, you must specifically identify each gift exceeding $5,000 on Form 3520 foreign gift reporting. Smaller gifts can be aggregated without individual identification.

Foreign bequests and inheritances count toward threshold

Inheritances from foreign estates count toward the $100,000 Gift Tax Reporting threshold. If your grandmother in France left you €150,000, this inheritance must be reported on IRS tax form 3520.

Threshold for reporting gifts from foreign corporations/partnerships 

If you receive gifts or distributions from foreign corporations or foreign partnerships, you must file Form 3520 when the aggregate amount from all foreign entities during the year exceeds $20,116 for 2025.

Aggregate ALL foreign corporations and partnerships

Unlike gifts from individuals (where you apply $100,000 per person), gifts from foreign entities use a single aggregate threshold combining all foreign corporations and partnerships for foreign gift reporting.

Example: You receive $12,000 from a foreign corporation you partially own and $10,000 from a foreign partnership—total $22,000. You must file Form 3520 because the aggregate from all foreign entities exceeds $20,116.

What qualifies as a "gift" from a foreign corporation

Distributions from foreign corporations that are not clearly dividends may be treated as gifts requiring Form 3520 foreign gift reporting. This includes:

• Return of capital distributions
• Liquidating distributions
• Gifts from foreign corporations where you're a shareholder

If you're uncertain whether a distribution is a dividend, capital gain, or gift, err on the side of caution and report it on IRS tax form 3520.

The $20,116 threshold adjusts annually for inflation

For 2025, the threshold is $20,116 (adjusted from $19,570 in 2024). For 2026, the IRS will announce the inflation-adjusted amount.

What is a "foreign person" for Form 3520 purposes?

The term "foreign person" determines whether gifts require Gift Tax Reporting.

Foreign person includes

• Nonresident alien individuals: Foreign citizens who don't have U.S. green cards and don't meet the substantial presence test
• Foreign estates: Estates of foreign individuals
• Foreign corporations: Corporations organized under foreign law
• Foreign partnerships: Partnerships organized under foreign law
• Foreign trusts: Trusts that don't meet the U.S. court test and U.S. control test

Foreign person does NOT include

• U.S. citizens: Even if they live abroad, gifts from U.S. citizens never require Form 3520 reporting
• U.S. resident aliens: Green card holders or individuals meeting substantial presence test
• U.S. estates: Estates of U.S. citizens or residents

Critical distinction: Gift from U.S. person living abroad vs foreign person

Scenario 1: Your sister (U.S. citizen) lives in Germany and sends you $150,000. This is NOT a foreign gift because your sister is a U.S. person. No IRS tax form 3520 required.

Scenario 2: Your sister is a German citizen (never lived in U.S., no green card) and sends you $150,000 from Germany. This IS a foreign gift. Form 3520 required.

The donor's citizenship and residency status matter—not where they physically live or where the money comes from.

What are Form 3520 penalties?  

Form 3520 penalties are among the harshest in the tax code—often exceeding the gift value itself when violations span multiple years.

Standard penalty: Greater of $10,000 or 35% of gross reportable amount

For failures to file Form 3520 for foreign gift reporting (Parts I and III), the penalty is the greater of $10,000 or 35% of the gross reportable amount.

Scenario 1: You failed to report a $25,000 foreign gift. Penalty: $10,000 (the $10,000 minimum exceeds 35% of $25,000 = $8,750).

Scenario 2: You failed to report a $150,000 foreign gift. Penalty: $52,500 (35% of $150,000 exceeds the $10,000 minimum).

Continuation penalty: $10,000 per 30 days

If you don't file IRS tax form 3520 after receiving IRS notice of the failure, an additional $10,000 penalty accrues for each 30-day period (or fraction thereof) the form remains unfiled, starting 90 days after the IRS notice.

Maximum continuation penalty is the gross reportable amount.

Example: You receive IRS notice about unfiled Form 3520 for $200,000 foreign gift. You ignore it for 180 days after the 90-day grace period. Continuation penalty: $60,000 ($10,000 × 6 thirty-day periods), capped at $200,000 (the gift amount).

Penalty even when gift is completely legitimate

The penalties apply regardless of whether the gift was legitimate, whether you owed any tax, or whether you reported the gift elsewhere (like in FBAR or FATCA Form 8938). Form 3520 foreign gift reporting is separately required.

2024 IRS announcement: Stopping automatic penalties

In October 2024, IRS Commissioner Daniel Werfel announced the IRS will stop automatically assessing penalties for late-filed Forms 3520/3520-A. Previously, penalties were assessed immediately upon late filing.

What this means: The IRS will review late-filed IRS tax form 3520 on a case-by-case basis before assessing penalties, considering reasonable cause. This is a significant policy change making penalties less automatic but not eliminating them entirely.

However: Penalties still apply for willful violations, fraudulent returns, or situations where reasonable cause doesn't exist. The IRS retains full authority to assess penalties—they're just not doing it automatically anymore.

Form 3520-A: Foreign trusts with U.S. owners

Form 3520-A (Annual Information Return of Foreign Trust With a U.S. Owner) is a separate form that foreign trusts must file when they have U.S. owners.

Who must file Form 3520-A

A foreign trust with a U.S. owner must file Form 3520-A annually. The foreign trust itself—not the U.S. beneficiary—is responsible for filing.

What is a U.S. owner of a foreign trust

You're treated as a U.S. owner if you're treated as the owner of any portion of the foreign trust under U.S. grantor trust rules (IRC Sections 671-679). This typically includes:

• You created the trust (grantor)
• You have power to revoke the trust
• You have certain administrative powers over the trust
• You can control beneficial enjoyment

Many foreign trusts established by U.S. expats are grantor trusts for U.S. tax purposes, triggering Form 3520-A requirements.

Form 3520-A filing deadline

Form 3520-A is due on the 15th day of the 3rd month after the trust's tax year ends. For calendar year trusts, this is March 15, 2026 for the 2025 trust year.

Extension: File Form 7004 by March 15 to extend the Form 3520-A deadline to September 15.

Form 3520-A penalties

Penalty for failing to file Form 3520-A: Greater of $10,000 or 5% of the gross value of trust assets considered owned by U.S. persons.

Continuation penalty: $10,000 per 30 days after IRS notice, capped at the gross reportable amount.

Example: Foreign trust with $500,000 in assets fails to file Form 3520-A. Penalty: $25,000 (5% of $500,000 exceeds $10,000 minimum).

U.S. owner must also file Form 3520

If you're the U.S. owner of a foreign trust, you must file Form 3520 (in addition to the trust filing Form 3520-A) reporting your ownership interest. Both forms are required—filing one doesn't satisfy the other for proper Gift Tax Reporting.

Distributions from foreign trusts (Form 3520 Part III)

If you receive a distribution from a foreign trust, you must report it on Form 3520 Part III.

You must report distributions from foreign trusts regardless of amount. There's no threshold—even a $5,000 distribution requires IRS tax form 3520 filing.

Foreign trust distributions may be taxable

Unlike gifts (which are not taxable), distributions from foreign trusts may be partially or fully taxable depending on the trust's income and previous distributions.

Complex rules apply to determine how much of a foreign trust distribution is taxable income, how much is tax-free return of principal, and whether interest charges (the "throwback tax") apply.

Form 3520 required even for non-taxable distributions

Even if the distribution is not taxable (return of your own contributions to the trust), you must still file Form 3520reporting the distribution for proper Gift Tax Reporting.

Currency conversion for Form 3520

All foreign currency amounts must be converted to U.S. dollars on Form 3520 foreign gift reporting.

Use the exchange rate on the date of gift

Convert foreign gifts to USD using the exchange rate on the date you received the gift. The IRS accepts rates from financial institutions or the U.S. Treasury Bureau of Fiscal Service.

Example: You received €110,000 from your parents in France on June 15, 2025. The exchange rate on June 15, 2025 was 1 EUR = 1.08 USD. Convert: €110,000 × 1.08 = $118,800. You must file IRS tax form 3520 because $118,800 exceeds the $100,000 threshold.

Exchange rate fluctuations don't change reporting requirement

If the gift exceeded the threshold in foreign currency on the date received, you must file Form 3520 even if subsequent exchange rate changes would drop it below the threshold.

Form 3520 filing deadline and extensions

Form 3520 is due by the due date of your income tax return (including extensions).

Standard deadline: April 15, 2026 (for 2025 gifts)

For most individuals, Form 3520 foreign gift reporting for gifts received in 2025 is due April 15, 2026.

Automatic extension for expats: June 15, 2026

U.S. citizens and residents living abroad on April 15 receive an automatic 2-month extension to June 15, 2026. This extension applies to both Form 1040 and IRS tax form 3520.

Further extension: October 15, 2026

File Form 4868 (extension request) by June 15, 2026 to extend both your tax return and Form 3520 to October 15, 2026.

Form 3520 files with your tax return

File Form 3520 as an attachment to your Form 1040 (if filing a tax return) or file Form 3520 separately if you have no filing requirement for Form 1040.

What Form 3520 requires you to report

IRS tax form 3520 requires detailed information about the gifts received.

Part I: Foreign gifts and bequests

For each foreign person or group of related foreign persons from whom you received aggregate gifts exceeding $100,000 (or $20,116 from foreign entities), report:

• Name, address, and country of residence of donor
• Description of each gift exceeding $5,000
• Date each gift was received
• Fair market value in U.S. dollars
• Relationship between you and the donor
• Certification that the gift was not taxable compensation

Part II: Foreign trust ownership

If you're treated as owner of a foreign trust, report:

• Trust identification information
• Description of trust assets and income
• Explanation of why you're treated as owner under grantor trust rules
• Attach Foreign Grantor Trust Owner Statement (provided by trust with Form 3520-A)

Part III: Foreign trust distributions

For distributions from foreign trusts, report:

• Trust identification information
• Amount and date of each distribution
• Character of distribution (income, corpus, etc.)
• Calculation of taxable portion

Common Form 3520 mistakes

Mistake #1: Not filing because "gifts aren't taxable"

Many people assume that because foreign gifts aren't subject to income tax, they don't need to be reported anywhere for Gift Tax Reporting. Wrong—Form 3520 is an information return required even though gifts aren't taxable.

Consequence: Penalties of $10,000 to 35% of gift value despite owing zero tax on the gift.

Mistake #2: Not aggregating gifts from related parties

You receive $60,000 from your father in Spain, $50,000 from your mother in Spain, and $30,000 from your brother in Spain. You think each gift is under $100,000 so no reporting required. Wrong—you must aggregate gifts from related parties: $140,000 total requires foreign gift reporting.

Consequence: Penalty of $49,000 (35% of $140,000 unreported amount).

Mistake #3: Thinking gifts from U.S. citizens abroad are foreign gifts

Your brother (U.S. citizen) lives in Tokyo and sends you $150,000. You file Form 3520 thinking this is a foreign gift because it came from Japan. Wrong—gifts from U.S. citizens are never foreign gifts regardless of where they live.

Consequence: Unnecessary filing (no penalty, but wasted effort). More commonly, people make the opposite mistake—assuming gifts from foreign citizens living in the U.S. don't require reporting, when they actually do if the donor is a nonresident alien.

Mistake #4: Not filing Form 3520 when trust distributions exceed thresholds

You receive a $75,000 distribution from a foreign trust your parents established. You think it's under the $100,000 threshold so no Gift Tax Reporting required. Wrong—distributions from foreign trusts must be reported regardless of amount.

Consequence: $10,000 minimum penalty for failing to report foreign trust distribution.

Mistake #5: Only the trust files Form 3520-A, not realizing U.S. owner must also file Form 3520

The foreign trust filed Form 3520-A as required. You assume this satisfies all foreign gift reporting requirements. Wrong—you as the U.S. owner must also file IRS tax form 3520 reporting your ownership interest.

Consequence: Penalties on both forms—trust owes penalties for late Form 3520-A, and you owe penalties for failing to file Form 3520.

 

Form 3520 Reporting Thresholds (2025)

Gift Source	Threshold	Aggregation Rule	Example Requiring Filing
Foreign individual (nonresident alien)	$100,000	Per person; must aggregate related parties	$60K from mother + $50K from father = $110K (must file)
Foreign estate	$100,000	Per estate; must aggregate related estates	€120K inheritance from grandmother's estate
Foreign corporations/partnerships	$20,116 (2025)	Aggregate ALL foreign entities	$12K from Foreign Corp A + $10K from Foreign Corp B = $22K (must file)
U.S. citizens living abroad	N/A - not foreign gifts	Never requires Form 3520	$200K from your U.S. citizen sister in London = No Form 3520
Foreign trust distributions	No threshold - all amounts	Each distribution reported separately	$15K distribution from foreign trust (must file)
Foreign trust ownership	N/A - different reporting	U.S. owner files Form 3520, trust files 3520-A	You're grantor of foreign trust (must file)

Reasonable cause penalty relief for Form 3520

Given the severe penalties, requesting reasonable cause relief is critical if you missed filing Gift Tax Reporting requirements.

Reasonable cause standard

The IRS may waive penalties if you demonstrate reasonable cause for not filing and show you acted in good faith. Factors the IRS considers include:

• Whether you were unaware of the filing requirement
• Whether the circumstances were beyond your control
• Whether you took reasonable steps to comply once aware
• Whether you have a history of compliance
• Whether you received incorrect professional advice

Most common reasonable cause arguments for Form 3520

• First-time receipt of large foreign gift: You've never received large foreign gifts before and weren't aware of Form 3520 requirement.
• Gift from family member in foreign country: The gift was from a close family member and clearly not disguised income—you had no reason to know it required separate reporting.
• Reliance on professional: Your CPA or tax preparer didn't mention IRS tax form 3520—you reasonably relied on professional advice.
• IRS hasn't publicized Form 3520 broadly: Unlike FBAR (which has received significant publicity), Form 3520requirements are not widely known.

How to request reasonable cause relief

Attach a statement to your late-filed Form 3520 explaining:

1. When and how you became aware of the filing requirement
2. Why you didn't file timely
3. What steps you took once aware
4. Why the late filing should be excused

Alternatively, file Form 843 (Claim for Refund and Request for Abatement) if the IRS already assessed penalties.

2024 policy change improves relief chances

The October 2024 IRS announcement that they'll stop automatically assessing penalties significantly improves your chances of reasonable cause relief. The IRS will now review late filings individually before imposing penalties.

Streamlined Filing Compliance Procedures for missed Form 3520

If you missed multiple years of foreign gift reporting, the IRS Streamlined Filing Compliance Procedures may help you catch up with reduced or zero penalties.

Streamlined Foreign Offshore Procedures

If you're a U.S. expat living abroad and failed to file Form 3520 due to non-willful conduct, you may qualify for Streamlined Foreign Offshore Procedures offering zero penalty.

Requirements:

• File last 3 years of tax returns (including Form 3520)
• File last 6 years of FBARs
• Certify the failure to file was non-willful
• Meet the non-residency requirement (outside U.S. 330+ days in one of last 3 years)

Penalty: 0% for qualifying foreign-residing taxpayers.

Streamlined Domestic Offshore Procedures

If you're a U.S. resident who failed to file Form 3520, Streamlined Domestic Offshore Procedures offer a 5% penalty (much lower than the standard 35%).

How NSKT Global can help with Form 3520 and foreign gift reporting

NSKT Global specializes in complex international tax compliance including Form 3520 preparation, foreign gift reporting, and penalty defense for late filings.

We offer comprehensive Gift Tax Reporting services including foreign gift analysis determining whether gifts received require IRS tax form 3520 reporting and proper threshold calculations. We also help with related party aggregation identifying when gifts from multiple family members must be aggregated, currency conversion calculating USD values using proper exchange rates on gift dates. We provide complete Form 3520 preparation with all required parts with detailed gift descriptions and donor information, and coordination with FBAR/FATCA ensuring consistent reporting across all international information returns.

Whether you received a large gift from foreign family members and need to determine reporting requirements, or missed IRS tax form 3520 filings for multiple years and want to catch up with minimal penalties. Our expertise ensures you properly determine Form 3520 filing requirements for all foreign gifts and trusts, complete complex forms with accurate information and proper aggregation. We help you avoid or minimize harsh penalties through timely filing or reasonable cause relief, and maintain full compliance with all foreign gift reporting and trust reporting obligations.