Form 3520 Married Filing Jointly: What You Need to Know

The IRS requires certain U.S. taxpayers to file Form 3520 when they receive large foreign gifts, inheritances, or have transactions with foreign trusts. This form is not a tax return but an informational filing that helps track potential tax obligations related to foreign assets. Failing to comply can lead to significant penalties, making it essential to understand the requirements.

When Joint Filing Applies

Married couples often assume that filing jointly for income tax purposes allows them to do the same for informational forms like Form 3520. However, the IRS treats this form differently. Form 3520 is an individual reporting requirement, meaning each spouse must file separately if both have reportable transactions.

If a foreign gift or inheritance is received in only one spouse’s name, the responsibility to file falls solely on that individual. For example, if a U.S. citizen inherits $200,000 from a non-U.S. relative and deposits it into a personal account, only that person needs to file Form 3520. The other spouse has no obligation to report it, even if they file a joint tax return. However, if the funds are deposited into a jointly owned account, the IRS may consider both spouses as recipients, potentially requiring both to file.

Foreign trust transactions add complexity. If both spouses are beneficiaries of a foreign trust and receive distributions, each must file a separate Form 3520 to report their respective amounts. The same applies if both contribute assets to a foreign trust—each must disclose contributions individually. The IRS does not allow a single joint filing in these cases, even if the couple shares financial accounts or assets.

Key Reporting Sections

Form 3520 consists of multiple sections addressing different types of foreign transactions. The specific parts that need to be completed depend on whether the filer has dealings with a foreign trust, received a large gift or bequest, or inherited assets from a non-U.S. person.

Foreign Trust Disclosures

U.S. taxpayers must report transactions with foreign trusts, including creating, transferring assets to, or receiving distributions from one. The IRS requires details such as the trust’s name, country of establishment, and nature of the transaction.

For example, if a U.S. resident contributes $100,000 to a foreign trust, they must report the transfer, specifying whether it was a loan or a gift. If the trust provides a distribution, the recipient must disclose the amount and any accumulated income. The IRS also requires attaching a Foreign Grantor Trust Beneficiary Statement or a Foreign Non-Grantor Trust Beneficiary Statement, depending on the trust’s classification.

Failure to report foreign trust transactions can lead to scrutiny, as the IRS closely monitors these arrangements for potential tax avoidance. The agency may also require the filing of Form 3520-A, the annual information return for foreign trusts with U.S. owners.

Gifts or Bequests

U.S. persons receiving large gifts or bequests from foreign individuals or entities must report them if they exceed certain thresholds. As of 2024, gifts from non-U.S. individuals must be reported if they total more than $100,000 in a calendar year. Gifts from foreign corporations or partnerships have a lower reporting threshold—$18,567 for 2024.

The IRS requires a breakdown of the amounts received, including the date and nature of each transfer. If multiple gifts are received from the same foreign donor, they must be aggregated to determine if the reporting threshold is met. For instance, if a U.S. taxpayer receives $60,000 in June and another $50,000 in December from the same foreign relative, the total of $110,000 exceeds the threshold, requiring Form 3520 to be filed.

Reporting a foreign gift does not mean it is taxable. The IRS uses this information to track potential income sources and ensure compliance with anti-money laundering regulations. However, failure to report can result in penalties.

Inherited Assets

When a U.S. taxpayer inherits assets from a foreign estate, Form 3520 may be required if the inheritance meets the same reporting thresholds as foreign gifts. This applies whether the inheritance consists of cash, securities, or real estate.

If the inherited assets include foreign financial accounts, additional reporting may be necessary under the Foreign Bank Account Report (FBAR) or Form 8938 (Statement of Specified Foreign Financial Assets). For example, if a U.S. citizen inherits a Swiss bank account with a balance of $500,000, they may need to report it separately under FBAR rules in addition to filing Form 3520.

The IRS does not impose an inheritance tax at the federal level, but state-level estate taxes may apply depending on where the taxpayer resides. Additionally, if the inherited assets generate income, such as rental income from foreign property, that income must be reported on the taxpayer’s U.S. tax return.

Penalties and Consequences

Failing to file Form 3520 properly can result in steep penalties. The baseline penalty for failing to report a foreign gift or inheritance is the greater of $10,000 or 5% of the unreported amount for each month the form remains unfiled, up to a maximum of 25%. If a taxpayer neglects to disclose a $500,000 foreign gift, they could face penalties reaching $125,000 if the form is not submitted within five months.

For foreign trust transactions, the penalties are even more severe. If a taxpayer fails to report ownership of a foreign trust or contributions to one, the IRS imposes a minimum fine of $10,000 or 35% of the amount transferred, whichever is greater. Receiving a distribution from a foreign trust without reporting it carries a penalty of 35% of the unreported amount.

The IRS does not always issue penalties immediately, but once assessed, they can be difficult to remove. While taxpayers may request penalty abatement by demonstrating reasonable cause, the IRS has strict criteria for granting relief. Simply claiming ignorance of the requirement is not sufficient. Instead, taxpayers must provide documented evidence of unforeseen circumstances, such as a serious illness or a natural disaster, that prevented timely filing.

Failure to file Form 3520 can also trigger additional scrutiny of a taxpayer’s financial activity. The IRS may conduct an audit or require further documentation to verify the legitimacy of foreign transactions. If the agency suspects willful tax evasion, it can refer cases for criminal investigation, potentially leading to prosecution, fines, or imprisonment. While most penalties are civil, repeated or egregious noncompliance increases the risk of more serious legal consequences.

Separate vs. Combined Submissions

The IRS does not allow a blanket rule for joint submissions of Form 3520, meaning each case must be assessed individually.

If a couple jointly owns foreign property and later sells it, the tax treatment depends on ownership structure, residency status, and source of funds. If a U.S. couple sells a foreign rental property held in both names and receives proceeds exceeding reporting thresholds, each spouse may need to file separately, even if the sale is reported on a joint tax return.

Ownership structures such as foreign corporations, partnerships, or nominee arrangements further complicate reporting requirements. If spouses hold shares in a foreign entity that distributes dividends or liquidates assets, each individual’s proportional interest determines their filing obligation. Certain tax treaties may influence whether a transaction is classified as a gift, income, or capital gain, affecting disclosure requirements. Additionally, if one spouse is a U.S. citizen and the other a nonresident alien, the reporting rules differ significantly, particularly regarding foreign-sourced income and gift exclusions under U.S. tax law.