Form 3520 – Fighting the Penalties

If you received a cash gift or inheritance from a foreign relative, you might have some important reporting with the IRS. Given the severity of the penalties associated with unreported foreign gifts, Form 3520 may be one of the most important forms you ever file. However, if you have missed filing the report, you may be able to abate or remove a large portion of the penalty with the right tax team in your corner.

A U.S. taxpayer must file Form 3520 whenever they: (1) receive a foreign gift or inheritance and (2) the amount received over a calendar year exceeds $100,000 from the same person. Form 3520 has the same filing deadline as your U.S. income tax return, including extension, but has a separate mailing address. The penalty for failing to file Form 3520 is 5% of the unreported gift or inheritance’s value for each month that passes and remains unreported with a maximum penalty of 25% of the value. Unfortunately, the tax code provides very few ways to avoid this penalty if the form is late or to remove it once it is assessed. One avenue you can use to seek relief from this stiff penalty is abatement, which is done after the IRS has already assessed the penalty.

Penalty abatement is available to those who can show reasonable cause for not reporting or disclosing the gift or inheritance timely. In order to meet the reasonable cause threshold for penalty abatement, you have to submit a letter to the IRS thoroughly explaining the situation and why your specific facts and circumstances establish reasonable cause for the late filing of Form 3520. Examples of possible reasonable causes include death or severe illness in the family, natural disasters, or any other occurrence that would render the taxpayer unable to obtain their records or file timely. Sometime simply not knowing about the reporting requirement does not meet the reasonable cause standard for abatement of the penalty; however, depending on the facts, it could mitigate the penalty. With the right international tax law specialist in your corner, you can effectively show that you meet the reasonable cause standard and present a strong case for penalty abatement to the IRS. Once the penalty is assessed, the road to possible penalty abatement is long and one can easily get side-tracked, which makes it important to consult an international tax law expert before tackling the IRS on your own.
If you have any questions regarding the reporting requirements for foreign gifts or foreign inheritance or were previously penalized for the late filing of Form 3520, please don’t hesitate to call the experienced attorneys at Hone Maxwell to discuss your situation and available options. We are here to help!


Disclaimer: Hone Maxwell LLP articles and blogs are not intended as legal advice. Additional facts, facts specific to your situation or future developments may affect subjects contained herein. Seek the advice of an attorney before acting or relying upon any information herein.

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