Form 3520 Explained: Foreign Trusts, Gifts, and Inheritances
Who files, what it reports, the US$100,000 foreign gift threshold, and the penalties that make it worth getting right
Reviewed by the Fairlight Accounting cross-border tax team — U.S. & Canadian Tax Desks
Form 3520 is the information return a U.S. person files to report transactions with foreign trusts, ownership of a foreign trust under the grantor trust rules, and large gifts or inheritances from foreign persons. It rarely creates tax, but missing it can cost up to 25 percent of a gift or 35 percent of a trust distribution.
On this page
Who has to file?
| Situation | Filing trigger | Penalty for failure |
|---|---|---|
| Distribution received from a foreign trust | Any distribution to a U.S. person | Greater of US$10,000 or 35 percent of the distribution |
| Transfer of property to a foreign trust | A U.S. person creates or funds a foreign trust | Greater of US$10,000 or 35 percent of the amount transferred |
| U.S. owner of a foreign grantor trust | Treated as owner under the grantor trust rules (the trust also files Form 3520-A) | Greater of US$10,000 or 5 percent of the trust's assets |
| Gifts or bequests from a nonresident alien or foreign estate | More than US$100,000 in the year (aggregated from related persons) | 5 percent of the gift per month, up to 25 percent |
| Gifts from foreign corporations or partnerships | More than US$20,573 in 2026 (indexed yearly) | 5 percent per month, up to 25 percent |
A U.S. person is a citizen, a green card holder, or a resident under the substantial presence test — including a Canadian who has become a U.S. resident.
When is it due?
With the U.S. person's income tax return — April 15 for most individuals, extended to October 15 with the return's extension (June 15 automatically for U.S. persons living abroad). It's filed separately from the return, on paper, to the IRS in Ogden, Utah — it can't be e-filed, though electronic signatures are accepted.
What it doesn't do
A foreign gift or inheritance reported on Part IV is not taxable income — the form only reports it. The U.S. heir of a Canadian parent pays no U.S. tax on the inheritance (the inheritance guide); the form exists so the IRS can see the money arrive. Distributions from foreign trusts are different — they can be taxable, and accumulated income triggers the throwback tax (the Canadian trust guide).
Which Canadian accounts don't require it?
Canadian RRSPs, RRIFs, and certain other tax-favored foreign retirement and non-retirement savings trusts are exempt from Form 3520 and 3520-A reporting under Revenue Procedure 2020-17 if they meet its conditions (a TFSA doesn't fit: the procedure's non-retirement category covers only medical, disability, or education savings with withdrawals tied to those purposes, and the IRS hasn't said whether a TFSA is a foreign trust at all — the TFSA vs Roth guide). They still go on the FBAR and Form 8938.
Penalty relief
Since late 2024 the IRS reviews a reasonable-cause statement attached to a late Form 3520 or 3520-A before assessing a penalty, instead of assessing automatically. First-time abatement isn't available for these forms (IRM 20.1.1.3.3.2.1), so reasonable cause is the route to relief. The delinquent international information return submission procedures are open to anyone not under examination or already contacted by the IRS about the returns; where income also went unreported, the streamlined procedures fit instead.
Frequently asked questions
Do I have to pay tax on an inheritance from Canada?
No — a gift or bequest from a foreign person isn't U.S. taxable income. You report it on Form 3520 if it exceeds US$100,000 in the year.
What is the penalty for not filing Form 3520?
For foreign gifts and bequests, 5 percent of the amount per month late, up to 25 percent. For foreign trust distributions, the greater of US$10,000 or 35 percent of the distribution.
Does my RRSP need Form 3520?
Not if it qualifies under Revenue Procedure 2020-17 — most RRSPs and RRIFs do. It still belongs on the FBAR and Form 8938.
When is Form 3520 due?
With your income tax return, including extensions — April 15, or October 15 if you extend.
Official sources
The IRS explains: “U.S. persons (and executors of estates of U.S. decedents) file Form 3520 to report: Certain transactions with foreign trusts. Ownership of foreign trusts under the rules of sections Internal Revenue Code 671 through 679. Receipt of certain large gifts or bequests from certain foreign persons.” — Internal Revenue Service, About Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, https://www.irs.gov/forms-pubs/about-form-3520
Next step
Fairlight Accounting is a cross-border accounting and tax practice with a U.S. Tax Desk and a Canadian Tax Desk. Our U.S. Tax Desk and Canadian Tax Desk handle Form 3520 compliance for foreign gifts, inheritances, and trust distributions, Form 3520-A for foreign grantor trusts, Revenue Procedure 2020-17 exemption analysis, and penalty abatement requests. See pricing or book a call.
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U.S. and Canadian filings prepared together by our U.S. and Canadian Tax Desks.
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