“A penalty applies if Form 3520 is not timely filed or if the information is incomplete or incorrect (see below for an exception if there is reasonable cause). The $10,000 is in comparison to other trust transactions that may have occurred during the tax year. The penalties are sparked by the non-reporting of certain large gifts from foreign persons and foreign trusts. If you file the form late, you may be penalized, but you may be able to avoid, reduce, or abate the penalties with reasonable cause or revenue procedure 2020-17 if applicable. As noted above, the definition of US person is not limited to US Citizen. For example, a taxpayer who was required to but failed to file six Forms 5471 with a tax return would face a $60,000 penalty. For one thing, many individuals will only have to file the form 3520 once or twice in a lifetime. In the last three years, we have seen the IRS begin to be assess aggressive penalties - so aggressive many taxpayers and tax professionals find themselves shocked and stunned. No penalty will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect.”. A penalty applies if Form 3520 is not timely filed or if the information is incomplete or incorrect (see below for an exception if there is reasonable cause). If the IRS can determine the gross reportable amount (defined later), then the penalties will be reduced as necessary to assure that the aggregate amount of such penalties does not exceed the gross reportable amount. The penalty for failing to file a Form 3520 that should have reported a foreign gift or bequest, or for filing an incorrect or incomplete form with respect to a gift or bequest, is 5% of the … If these other transactions result in values that are higher than the $10,000, then the penalty is the greater of the values (unless and exception, exclusion, or limitations applies). Similarly, the penalty for incorrectly or late filing Form 3520-A is the higher of 5% of the value of the trust assets or USD $10,000. 35% of the gross value of any property transferred to a foreign trust if a … For more information, see section 6677.”. (b) does not furnish all of the information required by section 6048(b) or includes incorrect information. Rather, it includes US citizens, legal permanent residents, and foreign national who meets the substantial presence test. The U.S. person is unaware that the gift must be reported to the IRS, so the form 3520 is never filed. That is because technically an inheritance is a gift. 35% of the gross value of any property transferred to a foreign trust (Part I), 35% of the gross value of the distributions received from a foreign trust (Part III), If the trust does not file the necessary forms, the, Form 3520 Example: (New) Examples Explained, Reporting Gifts from Foreign Persons on Form 3520 (2021). But, you may be able to abate the penalty by using form 3520 abatement procedures. Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure, including help clients with late reporting of Forms 3520 and 3520-A and Form 3520 Penalty & Relief Procedures. Form 3520 is an annual report disclosing distributions from a foreign trust, with different requirements for trust grantors/owners and trust beneficiaries. For example, if you receive a gift in the amount of $900,000 and you filed the form 3520 8-months late, your penalty will be $225,000. 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