Form 3520: Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts
Complete guide to Form 3520 for US expats who receive foreign gifts over $100,000, inheritances from abroad, or are beneficiaries of foreign trusts. Learn the $10,000+ failure-to-file penalty and how to avoid it.
Form 3520 is the IRS's primary tool for tracking money moving between US persons and foreign trusts or donors. If you received a large gift from a relative overseas, inherited property from a foreign estate, or are the beneficiary of a foreign trust, Form 3520 is how you report it. The penalties for getting it wrong are among the harshest in the tax code — starting at $10,000 per form per year.
Who Must File Form 3520?
Form 3520 has five distinct filing triggers. You must file if any of the following apply:
1. Creation or Funding of a Foreign Trust
You are the "responsible party" who created a foreign trust or transferred property to a foreign trust. This includes:
- Setting up an offshore trust
- Transferring assets to an existing foreign trust
- Making a gratuitous transfer to a foreign trust
2. Ownership of a Foreign Trust
You are treated as the owner of a foreign trust under the grantor trust rules (Sections 671-679). This typically applies if:
- You retained a reversionary interest
- You or your spouse can revoke the trust
- You control beneficial enjoyment
- You funded the trust and retained certain powers
3. Receipt of Foreign Trust Distributions
You received a distribution from a foreign trust, including:
- Cash distributions
- Property distributions
- Loans from the trust on below-market terms
- Use of trust property without adequate compensation
4. Receipt of Foreign Gifts Over $100,000
You received gifts or bequests from one or more foreign persons (non-resident aliens or foreign estates) with an aggregate value exceeding $100,000 in a single tax year.
Important: The $100,000 threshold is aggregate across all foreign donors. If your aunt in Germany gives you $60,000 and your uncle in France gives you $50,000 in the same year, you must report both gifts because the total exceeds $100,000.
5. Receipt of Gifts from Foreign Entities
You received gifts from foreign corporations or foreign partnerships exceeding $16,649 (for 2026, indexed for inflation).
Foreign Gifts and Inheritances
The most common Form 3520 filing for ordinary expats is reporting large foreign gifts or inheritances.
Is the Gift Taxable?
No. The United States does not impose income tax on gifts or inheritances received by the recipient. Form 3520 is an information return, not a tax return. However:
- The donor may owe US gift tax if they are a US citizen or resident
- Foreign estate tax may apply in the donor's country
- Future income generated by the gifted assets is taxable
What Counts as a Gift?
- Cash transfers from foreign relatives
- Inherited foreign property
- Forgiveness of foreign debt
- Below-market loans from foreign persons
- Transfers of foreign stock or securities
What Does Not Count?
- Compensation for services (report as income, not a gift)
- Business loans at market rates
- Gifts between US spouses (unlimited exclusion)
- Gifts from US persons (reported on Form 709 by the donor, not Form 3520 by the recipient)
Documentation Requirements
The IRS requires you to maintain records of:
- The date of each gift
- The donor's name and address
- The donor's relationship to you
- Description and fair market value of the gift
- Any foreign tax paid
Keep these records for at least 3 years after filing Form 3520.
Foreign Trusts
What Is a Foreign Trust?
A trust is "foreign" if:
- A US court cannot exercise primary supervision over its administration, and
- No US person has authority to control all substantial decisions
Many common structures are foreign trusts:
- UK discretionary trusts
- Australian testamentary trusts
- Canadian family trusts
- Offshore asset protection trusts
- Some foreign pension structures
Form 3520-A (Annual Information Return of Foreign Trust)
If you are treated as the owner of a foreign trust under grantor trust rules, you must also file Form 3520-A annually. This form reports:
- Trust income and deductions
- Distributions to beneficiaries
- Changes in trust structure
- Foreign tax credits
Penalties: Failure to file Form 3520-A carries the same $10,000 penalty as Form 3520.
Foreign Pension Plans
Many foreign pension plans are treated as trusts for US tax purposes:
| Pension Type | Likely US Treatment | Forms Required |
|---|---|---|
| UK SIPP | Trust | 3520 + 3520-A or 8621 |
| Australian Superannuation | Trust | 3520 + 3520-A |
| Canadian RRSP | Elective deferral (Form 8891) | 8891 or 3520 |
| German Riester/Rürup | Pension (not trust) | Generally none |
| French Assurance-Vie | Likely trust | 3520 + possible 8621 |
The analysis is highly fact-specific. See our Foreign Pensions Guide for details.
Filing Deadlines and Penalties
When to File
Form 3520 is filed with your personal tax return:
- April 15 (US residents)
- June 15 (automatic extension for taxpayers abroad)
- October 15 (with Form 4868 extension)
Penalties
The penalties for Form 3520 are among the most severe in the tax code:
| Violation | Penalty |
|---|---|
| Failure to file | Greater of $10,000 or 35% of gross reportable amount |
| Failure to report foreign trust distributions | 35% of distribution |
| Failure to report foreign gifts | 5% per month (up to 25%) |
| Failure to file Form 3520-A | $10,000 or 35% of reportable amount |
| Fraudulent failure to file | 75% of underpayment |
Reasonable Cause Relief
You may avoid penalties if you can demonstrate reasonable cause:
- You were unaware of the filing requirement and took reasonable steps to learn
- You relied on a qualified tax professional who missed the requirement
- The failure was due to circumstances beyond your control
Note: Reasonable cause is difficult to establish for Form 3520. The IRS takes the position that taxpayers should know about foreign reporting requirements.
Special Situations
Gifts from Multiple Foreign Persons
If you receive $60,000 from a German aunt and $60,000 from a French uncle in the same year, you must file Form 3520 because the aggregate exceeds $100,000. You must identify both donors.
Inheritance from a Foreign Estate
Inheritances from foreign estates are treated as bequests, not gifts. The same $100,000 threshold applies. If the estate is still in probate and distributions span multiple years, each year's distributions are evaluated separately.
Married Couples
Each spouse must file their own Form 3520 for gifts they receive individually. However, if community property laws apply, gifts to either spouse may be treated as received by both.
When to Get Help
You should consult a specialist if:
- You received any gift or inheritance from abroad exceeding $100,000
- You are the beneficiary of a foreign trust of any size
- You have a foreign pension that may be classified as a trust
- You failed to file Form 3520 in prior years
- You are in Streamlined Filing and need to address foreign gifts or trusts
FileAbroad's Complex Expat Return includes Form 3520 and 3520-A preparation, foreign trust analysis, and foreign gift reporting. Start your free intake to discuss your situation.
Frequently Asked Questions
Who must file Form 3520?
You must file Form 3520 if you: (1) are the responsible party for creating or funding a foreign trust, (2) transfer assets to a foreign trust, (3) receive distributions from a foreign trust, (4) receive certain loans from a foreign trust, or (5) receive gifts or bequests from foreign persons exceeding $100,000 in a tax year (or $16,649 from foreign corporations or partnerships, indexed for inflation).
What is the penalty for not filing Form 3520?
The penalty for failure to file Form 3520 is the greater of $10,000 or 35% of the gross reportable amount. For foreign trust distributions, the penalty is 35% of the distribution. For foreign gifts, the penalty is 5% of the gift per month (up to 25%). Additional penalties apply for failure to file information returns.
Do I have to pay tax on a foreign gift or inheritance?
No. The United States does not tax the recipient of gifts or inheritances. However, you must report foreign gifts over $100,000 and foreign inheritances on Form 3520. If the gift is from a foreign corporation or partnership, the threshold is $16,649 (2026, indexed). The donor may have gift tax obligations if they are a US person.
What is a foreign trust for US tax purposes?
A trust is foreign if a US court cannot exercise primary supervision over its administration and no US person has authority to control all substantial decisions. Many offshore trusts, family trusts in common-law countries, and pension structures are foreign trusts. The IRS applies a facts-and-circumstances test.
Do foreign pensions require Form 3520?
It depends on whether the foreign pension is classified as a trust under US tax principles. Many foreign pension plans (UK SIPPs, Australian superannuation, some Canadian RRSPs) are treated as trusts and may require Form 3520 or Form 3520-A. The analysis is complex and depends on the specific pension structure and whether it is employer-sponsored or individually funded.