IRS Challenges to Foreign Gifts: Forms 3520 and 3520-A

This CPE webinar will address the IRS' evolving enforcement of penalties related to the filing of Forms 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, and 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner. Our panel of astute international tax advisers will review recent procedural changes to the IRS' penalty regime, notable case law addressing the receipt of foreign gifts, and best responses to IRS penalty assessments in specific scenarios.

Under Section 6677, the IRS may assess a penalty for incomplete, inaccurate, or delinquent Forms 3520 and 3520-A. The penalty equals the greater of $10,000, 35% of the gross value of property transferred to or distributed from a foreign trust, or five percent of the gross value of a foreign trust's assets owned by a U.S. person under the grantor trust rules. An additional $10,000 penalty applies for each 30-day period a failure continues beyond 90 days after IRS notification.

The IRS announced in late 2024 that it would begin reviewing reasonable cause statements before assessing certain penalties associated with late-filed Forms 3520 and 3520-A, replacing the prior practice of automatic assessment in many cases. At the same time, courts continue to wrestle with the scope of reasonable cause relief and procedural challenges to penalties imposed for foreign gift reporting failures. Recent cases, including Huang v. United States, have highlighted how reasonable cause relief applies and strategies for seeking penalty abatement. 

Listen as our panel of international tax controversy professionals examines recent IRS enforcement initiatives, litigation involving Forms 3520 and 3520-A, and best practices for preventing, challenging, and resolving foreign gift and foreign trust reporting penalties.