“You have been charged a penalty for failure to file Form 3520 to Report Receipt of Certain Foreign Gifts”
As many of you know, gifts are non-taxable for the recipient.
However, there are still a few important rules to follow.
If you receive a gift that fits one of the following descriptions, you MUST report it to the IRS by completing an information report:
a. More than $100,000 from a nonresident alien individual that you treated as gifts or bequests; or
b. More than $16,388 from foreign corporations or foreign partnerships that you treated as gifts.
The filing due date is the same as the income tax return, including extensions.
If you fail to report the gift, 5% of the gift value will be penalized every month, up to 25%.
For example, suppose that you received a money transfer of $120,000 from your parents in India in 2019. Unless you filed for an extension for your personal taxes, the due date for reporting this gift would be April 15, 2020. If you failed to file Form 3520 up until today, you would currently owe the IRS $30,000 + interest.
Most people rely on their accountants’ professional advice, and most accountants will assure their client that gift money is non-taxable and therefore not reportable by the recipient. Alas, this is only partially true.
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