Form 3520: Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts

Form 3520 is the IRS's primary information return for tracking money moving between U.S. persons and foreign trusts, gifts, and bequests. It has separate parts for foreign-trust transactions, ownership, and distributions (Part III) and certain foreign gifts and bequests (Part IV). The donor category, amount, relationship to related parties, and transfer path determine whether and how Form 3520 applies. Form 3520 is filed separately from the income-tax return and is not attached to Form 1040.

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 or Bequests Over the Part IV Threshold

You received gifts or bequests from a nonresident alien individual or foreign estate during the tax year, and the amount from a donor and parties known or reasonably known to be related to that donor exceeds the Part IV threshold. The current instructions identify $100,000 as the starting threshold for the nonresident-alien-individual and foreign-estate donor category; gifts over $5,000 are separately identified on the form.

Important: Aggregation follows the related-person rules in the current instructions. Gifts from unrelated foreign individuals are not automatically pooled into one universal $100,000 test. A transfer from your aunt in Germany and a separate transfer from an unrelated colleague in France are evaluated against the rules for their respective donors, not summed as a universal aggregate.

5. Receipt of Gifts Treated as from Foreign Corporations or Partnerships

You received transfers that may be treated as gifts from foreign corporations or foreign partnerships and that exceed the filing-year section 6039F threshold. The IRS publishes $20,573 for tax year 2026; the figure is annually indexed and is not frozen here. Recharacterization rules can apply, so the issuer, transfer terms, and consideration matter.

Foreign Gifts and Inheritances

The most common Form 3520 filing for ordinary expats is reporting large foreign gifts or inheritances.

Is the Gift Taxable?

Generally, no — but the label is not the conclusion. IRC section 102 generally excludes the value of property acquired by gift, bequest, devise, or inheritance from gross income. However, the exclusion does not cover income in respect of a decedent, estate or trust income, covered-expatriate gifts and bequests under section 2801 and Form 708, or later income produced by the property. Form 3520 is an information return, not a tax return, and is filed separately from Form 1040. Additionally:

• The donor may owe US gift tax if they are a US citizen or resident; donor-side U.S. transfer-tax analysis is separate from recipient reporting.
• Foreign estate or inheritance tax may apply in the decedent's country and is generally an estate-level, not a recipient-level, obligation.
• Future income generated by the gifted assets (interest, dividends, rent, gain) is taxable under the normal rules.

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 it fails either the court test or the control test. A trust is domestic only when both tests are met:

1. Court test: A US court can exercise primary supervision over the trust's administration.
2. Control test: One or more US persons have the authority to control all substantial decisions of the trust.

If either test fails, the trust is foreign. Many common structures are foreign trusts, but the conclusion depends on the governing instrument, trustees, protector powers, and applicable law:

• UK discretionary trusts
• Australian testamentary trusts
• Canadian family trusts
• Offshore asset protection trusts
• Some foreign pension or foundation structures (depends on plan and governing law)

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, Insurance, and Foundation Plans

A foreign pension, insurance wrapper, or foundation label does not, by itself, decide the U.S. classification or form. The current Form 3520 instructions include exceptions for qualifying Canadian retirement plans, qualifying tax-favored foreign trusts, eligible individuals, and arrangements meeting the May 2024 proposed-regulation reliance rule. Review the plan, governing law, contributions, distributions, and filing-year instructions before selecting a form. See our Foreign Pensions Guide and the foreign pension consultation for a classification-first review.

An assurance-vie is an insurance contract, not a pension or foreign trust by default. Its contract, ownership, and any actual trust wrapper must be analyzed before selecting Form 3520, Form 8621, or another reporting path. Use the foreign life insurance consultation when the policy itself is the unresolved issue.

Filing Deadlines and Penalties

When to File

Form 3520 is filed separately from the income-tax return — it is not attached to Form 1040. The general due date is the 15th day of the fourth month after year-end, subject to current Form 3520 instructions. Taxpayers who qualify for the qualifying-abroad extension have an additional two months (the 15th day of the sixth month after year-end). A properly obtained income-tax return extension also extends Form 3520, within the outer limits described in the current instructions.

Penalties

The penalties for Form 3520 and Form 3520-A depend on the part and the type of failure. The framework is not a single dollar amount that applies uniformly:

The "$10,000 minimum" or "35% blanket rule" that appears in summaries belongs to foreign-trust provisions under § 6048/§ 6677, not Part IV gifts and bequests under § 6039F.

Reasonable Cause Relief

Reasonable cause may abate penalties when the taxpayer exercised ordinary business care and prudence. Filing a form is not a substitute for correctly characterizing the transfer. Obtain specialist advice before asserting reasonable cause for a late or missing Form 3520; the standard is fact-specific.

Special Situations

Gifts from Multiple Foreign Persons

The Part IV test aggregates gifts from a single donor with persons known or reasonably known to be related to that donor. Gifts from unrelated foreign individuals are not automatically pooled into one universal aggregate. If you receive $60,000 from a German aunt and a separate $60,000 from an unrelated French colleague, evaluate each donor's category against the current instructions rather than treating the total as a single threshold. Identify every donor and the relationship chain.

Inheritance from a Foreign Estate

A direct bequest from a foreign estate is reported on Part IV once the threshold and related-party aggregation rules are met for the foreign-estate donor category. Date of death, date of distribution, date received, the Form 3520 receipt value, the section 1014 basis, income in respect of a decedent, any section 2801 covered-bequest obligation, and trust-versus-estate classification are separate questions. If the estate is still in probate and distributions span multiple years, each year's distributions are evaluated against the rules for that filing year.

Married Couples

Each spouse generally must file their own Form 3520 for gifts or bequests received individually. Community-property laws and applicable treaties can change which spouse is treated as receiving a transfer; preserve the documents that determine the result.

How to Analyze a Foreign Gift or Inheritance

The threshold is only the starting point. First identify the transferor, recipient, date of transfer, property transferred, and whether the transfer was a gift, bequest, loan, trust distribution, compensation payment, or purchase. A wire transfer may be easy to see on a bank statement but difficult to classify without the deed, estate documents, loan agreement, or correspondence explaining why it was paid. Keep a short written narrative for each significant transfer.

Threshold and aggregation questions

Review transfers from all foreign individuals during the year and separately track transfers from foreign corporations or partnerships. The identity of the transferor matters, as does whether several payments are parts of one arrangement. Property is generally measured using its value when received, not simply the amount later deposited into a US account. If the transfer is real estate, securities, a business interest, or cryptocurrency, preserve the valuation method and supporting records.

Trust distributions need their own analysis

A distribution from a foreign trust is not analyzed like a personal gift. Obtain the trust agreement, trustee statements, distribution notice, accounting, and information about the trust’s income and principal. The beneficiary may need to report the distribution and may also face throwback or accumulation-distribution questions if the trust does not provide adequate information. Determine whether the transfer also involves Form 3520-A, Form 8938, FBAR, or another information return.

Inheritances and estate administration

An inheritance can arrive in stages: a distribution from an estate, an asset transferred directly by a probate court, or a later sale of inherited property. Separate the reportable receipt from later income, such as rent, interest, dividends, or gain on sale. Keep the will, probate order, executor statement, valuation date, transfer records, and any foreign tax paid. The US reporting answer can change when the recipient receives property through a trust rather than directly from the estate.

A defensible records checklist

Retain donor or estate identification, signed gift letters, trust and probate documents, bank confirmations, property valuations, exchange-rate calculations, prior correspondence with tax advisers, and proof of any foreign tax. If a filing is late, document when the taxpayer learned of the requirement and what steps were taken to correct it. Reasonable-cause arguments are fact-specific; a clean file is more useful than a generic statement that the taxpayer did not know.

When to Get Help

Form 3520 questions separate into three distinct reporting paths. Identify which path fits your facts before choosing a consultation:

• Lifetime Foreign Gift — Money or property received from a foreign individual, foreign corporation, foreign partnership, or foreign estate during the donor's life. Use the foreign gift consultation to map the donor, related persons, intermediaries, dates, values, covered-expatriate history, basis records, later activity, and prior filings.
• Direct Foreign Inheritance — A bequest from a foreign decedent or foreign estate, including the date-of-death valuation, basis, post-death income, and any section 2801 / Form 708 issue. Use the foreign inheritance consultation when death, succession, valuation, basis, or inherited assets are primary.
• Foreign Trust — A trust that fails either the court test or the control test, including distributions, ownership, contributions, and Form 3520-A. Use the foreign trust consultation when the governing arrangement and trust transactions are primary.

You should consult a specialist if:

• You received a foreign gift or bequest that meets or is close to the applicable Part IV threshold or related-person aggregate.
• You are the beneficiary, owner, contributor, or trustee of a foreign trust or received a foreign-trust distribution, loan, or use of property.
• You have a foreign pension or foundation arrangement whose U.S. classification is unresolved.
• You failed to file Form 3520 or 3520-A in prior years, or received an IRS notice, CP15 notice, or examination contact.
• You are in Streamlined Filing or another correction procedure and need to address foreign gifts, bequests, or trust reporting.

FileAbroad's Complex Expat Return includes Form 3520 and 3520-A preparation, foreign trust analysis, and foreign gift or bequest reporting within a separately accepted scope. The starting point for each path is the consultation above; FileAbroad does not promise that the call will result in accepted preparation or a particular filing outcome.

Official IRS sources

• About Form 3520
• Instructions for Form 3520