Foreign Inheritance on Form 3520: Is it Required?

Foreign Inheritance & Form 3520

Foreign Inheritance & Form 3520

Foreign Inheritance & Form 3520:The IRS Form 3520 is used to report certain foreign transactions involving gifts and trusts. So, why are Foreign Inheritances included in the filing requirements? That is because technically an inheritance is a gift. Despite the fact that the IRS has promulgated many, many laws detailing the difference between a gift and inheritance (for example, “Step-Up Basis”), for Form 3520, they all mush together. Therefore, if you are a U.S. person who receives a gift or inheritance from a Foreign Person, you must report it to the IRS.

Unreported Foreign Inheritance?

If you do not report a foreign inheritance timely or accurately on Form 3520, you may be subject to fines and penalties. The main code section for penalties fall under IRC (Internal Revenue Code) section 6039F.

As provided by the IRS:

Section 6039F.

• • In the case of a failure to timely report foreign gifts described in section 6039F, the IRS will determine the income tax consequences of the receipt of such gift, and a penalty equal to 5% of the amount of such foreign gifts applies for each month for which the failure to report continues (not to exceed a total of 25%).
  • No penalty will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect. See section 6039F for additional information.”

Foreign Inheritance and CP15 Notices

If you receive a CP15 Notice for a Foreign Gift or Inheritance, you only have a limited to respond. If you miss the time for response, your options for getting into compliance and disputing the penalty are limited.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, and specifically IRS offshore disclosure. 

Contact our firm today for assistance with getting compliant.