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Understanding Form 3520 for Foreign Trusts and Gifts & Penalties - YouTube
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hello this is prog Patel the tax
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attorney here to talk to you about form
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thirty five twenty a and the receipt of
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foreign gifts this is a very
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misunderstood form being many climbing
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queries on this often the story is I
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received a farm request or a foreign
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gift from a parent abroad and I have
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failed to report it or how do I report
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it form thirty five twenty eight is
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generally the answer generally speaking
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this form is required only when a person
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gets more than a hundred thousand
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dollars of foreign asset in any one
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calendar year the first part of form
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thirty five twenty means completed
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specifically the top half where you have
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to identify the relevant tax your
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initial return individual and you can be
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checking here you are a person during
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the current tax received a gift the
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quest from a farm person in which case
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you complete Roman numeral part four of
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the form so you really don't have to
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complete a lot of this you complete the
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name and address and all that but
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basically you can skip everything else
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you would go then jump to page six of
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the form and you're gonna go to Roman
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numeral part four and you're going to
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disclose check this box say that you did
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receive a gift more than hundred
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thousand dollars and then you'd complete
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the rest of the question fifty for the
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day to the request the description of
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the property received in the fair market
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value of the property received now this
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is a very important disclosure here the
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reason is because a lot of people
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perceive this particular form as a
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burden it's not it's actually an
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opportunity in my opinion you can in
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this case memorialize a step-up in basis
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if you receive a fair market a fair
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market value if you received a foreign
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asset as a result of someone passing
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away in non tax talk basically what that
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means is that when someone receives a
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foreign asset you get a step-up in basis
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that means that if you were to
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subsequently sell that that's that
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step-up in basis is the fair mark
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value on the date of the person died who
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gave it to you and this form allows you
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to disclose it to the IRS now normally
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when someone passes away there's no
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place to disclose it the fair market
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value they step up in basis especially
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if it's a farm year generally speaking
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but in this case when the recipient of a
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foreign asset gets the opportunity to
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disclose it and here's where you want to
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do it now it's very important to do it
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on an item by Anabasis be very specific
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I'd recommend legal counsel on
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discussing and how to better properly
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disclose all this because this can be
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used as an opportunity there could be
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significant income tax savings
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specifically capital gain savings if
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you're able to subsequently sell this
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and get a step-up in basis you've signed
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the bottom of this form and that takes
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care of the fairly basic reporting that
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you have here and I didn't want to cover
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one additional topic and that is the
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penalties because we have many clients
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that come that come to us and say I
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failed to follow this form in the
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relevant year so the solution for that
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first of all is to avoid penalties the
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penalties for this is on page 3 of the
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form of the instructions and
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specifically it says that in the case of
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a failure to report foreign gift the
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penalty equals a 5% of the foreign gift
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received for each month up to a total of
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25% this is an extremely high penalty
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now note that there is a opportunity to
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get this abated where no penalty would
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be imposed at the taxpayer can
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demonstrate that the failure was due to
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reasonable cause and I will fo connect
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this is a legal standard legal argument
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that we made I would encourage people to
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get proper legal counsel on this on what
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would constitute reasonable cause and
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how to argue it I you know fact by fact
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legal analysis basis to make sure that
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you prevail with that and you're
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persuasive in that now also I would
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strongly recommend that people who do
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not file this form they not only file it
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with reasonable cause but they filed
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through the delinquent international
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information return submission procedure
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program which is a zero penalty program
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that the IRS offers
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so you're basically going in through
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referee referencing this particular
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program this need to be very careful
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because you want to make sure you get
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the proper advice to get into this
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program but it is a program available to
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you for this type of a situation where
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you do not file form 35:20 you want to
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do so you have good reason to do so you
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go through the form you go through the
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program and I expect you know for most
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cases most taxpayers for there to be no
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problem at all so that's it for today I
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just wanted to make sure that we cover
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this very important topic again the
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topic is form thirty five twenty and
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specifically the receipt of certain
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foreign gifts thank you
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