Foreign Trusts and Gifts

For quite a few taxpayers, filing their yearly tax returns doesn’t go much beyond the trusty old Form 1040.  There are of course many other forms for reporting to the IRS and one that is especially worth noting is Form 3520, a return for reporting transactions with foreign trusts and the receipt of foreign gifts.

For 2010, foreign trust and gift reporting was changed primarily by the HIRE Act.  Specifically a number of penalties for failure to report foreign trusts and gifts have been modified and new penalties have been introduced.  In addition, the scope of individuals who are required to file Form 3520 has been expanded.  The penalties for failing to file can be severe, in general amounting to $10,000 or a percentage of the assets in questions (usually 35%), whichever is greater.

The specific requirements and nuances of foreign gift and trust reporting and compliance are complex and of course the best course of action is to consult a tax professional.  Here are the basics.

You have to file Form 3520 for a tax year if you received a gift from a foreign (meaning non-US) source of $100,000 or more from an individual or $14,165 or more from a corporation or partnership.  You must file if you are a U.S. person who received a distribution from a foreign trust.  You must also under certain conditions file if you are the owner or part owner of certain foreign assets.

For more information on foreign gift reporting, foreign trust compliance, or for help with other tax related legal concerns, contact Horowitz & Weinstein.

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