Form 3520
IRS, Foreign Trusts and Receipt of Certain Foreign Gifts
Reporting for US persons who receive large gifts or inheritances from abroad or who deal with a foreign trust.
What is Form 3520?
Form 3520 has two jobs. It reports transactions with foreign trusts, including creating one, funding one and receiving money from one. It also reports large gifts and inheritances from people outside the US, which are not taxable to the recipient but must still be disclosed.
Gifts from British family and UK trusts
An American who receives gifts or bequests from a foreign individual or estate totalling more than $100,000 in a year reports them on Form 3520.
Gifts from related people are aggregated. A lower threshold applies to gifts from foreign corporations and partnerships, and those can be recharacterised as income. The recipient pays no US tax on a true gift, but the penalty for not reporting is 5% of the gift for each month it goes unreported, capped at 25%.
The trust side is heavier. Creating or transferring property to a foreign trust, receiving a distribution from one, and being treated as the owner of one all require reporting. UK discretionary trusts, interest in possession trusts and some bare arrangements can all be foreign trusts for US purposes. Distributions of accumulated income can bring the throwback rules into play. The penalty for unreported trust transfers and distributions is the greater of $10,000 or 35% of the gross reportable amount.
Many UK pension arrangements are trusts in legal form, which once created an awkward overlap. Rev. Proc. 2020-17 exempts certain tax-favoured foreign retirement trusts from Form 3520 and Form 3520-A reporting where its conditions are met. Whether a particular scheme qualifies depends on its terms, so each pension still needs checking. Form 3520 is filed separately from the income tax return, although its due date follows that return, including extensions.
At a glance
- More than $100,000 from foreign individuals or estates
- Gift threshold
- The IRS, separately from Form 1040
- Filed with
- Follows the income tax return, including extensions
- Due
- Proportional to the amount unreported
- Penalty exposure
Figures are for the tax year stated in the official instructions linked below.
How we handle it
- Estate & Trust Planning
Wills, trusts and estate planning for families with US and UK connections, including foreign trust reporting and the inheritance tax position.
- Private Client
Ongoing tax advice for wealthy families with US and UK ties, covering residence, investments, trusts, gifts and the estate position together.
- Gift Tax Returns
Form 709 for US donors and Form 3520 for US recipients of foreign gifts, with the UK inheritance tax position on the same transfer.
- US/UK Pensions
How workplace pensions, SIPPs, 401(k)s and IRAs are taxed and reported when the saver and the scheme are in different countries.
Where people go wrong
The Form 3520 errors we correct most often.
Who files it
- Americans inheriting from a British parent or grandparent
- US citizens receiving large lifetime gifts from UK family
- US beneficiaries receiving distributions from a UK family trust
- US persons who settle or add property to a trust outside the US
01
Reporting an inheritance as income instead of disclosing it on Form 3520
02
Missing that several gifts from related people are added together
03
Treating a UK family trust as irrelevant because the settlor is British
04
Assuming every UK pension falls within Rev. Proc. 2020-17 without checking
Why US UK Tax Returns
Every form is prepared against the official instructions, and every position on it is one we can point to in the Code, the treaty or HMRC's guidance.
One File
US and UK returns prepared in the same engagement and reconciled line by line.
Primary Sources
Every position traced to the Code, the treaty, IRS instructions or HMRC guidance.
Scope First
Returns, forms, years and fee agreed in writing before work begins.
The Same People
The team that files this year carries the elections and credits into the next.
Questions we are asked
My mother in England left me money. Do I owe US tax on it?
Generally not. A US person does not pay US income tax on an inheritance from a non-US person. If the total from foreign individuals or estates in the year exceeds $100,000, it must be reported on Form 3520. Income earned on the money after you receive it is taxable in the normal way, and inheriting shares in UK funds can raise PFIC questions.
Is my UK workplace pension a foreign trust that needs Form 3520?
Many UK pensions are trusts in legal form, but Rev. Proc. 2020-17 exempts certain tax-favoured foreign retirement trusts from Form 3520 reporting where its conditions are met. Most mainstream UK schemes are commonly reviewed under it, but the answer depends on the scheme's terms and your position in it. Contributions and growth are a separate treaty question, dealt with on the income tax return.
I filed Form 3520 late. Will the penalty be automatic?
Penalties on late Forms 3520 have often been assessed automatically when the form arrives. They can be challenged on reasonable cause grounds, and a clear account of why the form was late matters. The amount is proportional to what went unreported rather than a flat charge. The outcome depends on the facts, the documentation and how the late filing was made.
Primary sources
What this page says is drawn from the official material below. Read it yourself; we would rather be checked than trusted.
Last reviewed
From the Blog
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