Form 3520

IRS form for US persons reporting transactions with foreign trusts and certain foreign gifts.

Definition

Form 3520 reports US persons transactions with foreign trusts, large foreign gifts, and inheritances. Filed separately from Form 1040.

Context

Relevant for US-person LLC owners receiving foreign-trust distributions or large foreign gifts.

Example

A US-citizen LLC owner receives a $200K gift from a foreign relative. Form 3520 is filed (since gift exceeds $100K threshold).

Common pitfalls

Penalty for failure to file: 5% per month of unreported gift, up to 25%.
Streamlined procedures available for non-willful past failures.

Where Form 3520 Sits in the US Reporting System

Form 3520 is an information return rather than a tax return, and that distinction matters far more than it first appears. A tax return calculates how much money is owed to the government and produces a payment or a refund. An information return does something different. It tells the IRS about a transaction or a relationship so that the agency can decide whether tax consequences follow somewhere else, and so that it has a record on file should questions arise later. Form 3520 belongs squarely to the second category. It does not, by itself, generate a tax bill in the ordinary case. Instead it surfaces three categories of activity that the IRS wants visibility into: ownership of or transactions with foreign trusts, distributions received from those foreign trusts, and large gifts or bequests received from foreign individuals, foreign estates, foreign corporations, or foreign partnerships. For a non-resident founder of a Delaware LLC, the form usually enters the picture only at the edges of the structure, because the obligation attaches to US persons specifically, and many single-member foreign-owned LLCs are owned by people who are not US persons at all. Recognizing the form as a disclosure mechanism rather than a tax computation reframes the whole conversation around it.

Understanding that placement helps a founder avoid two opposite mistakes that frequently appear in cross-border planning. The first mistake is assuming that Form 3520 applies to the LLC itself simply because the LLC is a US entity registered in Delaware. It does not work that way at all. The reporting duty follows the person rather than the company, and it is triggered by foreign trusts and foreign gifts rather than by ordinary business revenue or operating activity. The Delaware filing, the company bank account, and the day-to-day invoicing of customers have nothing to do with it. The second mistake is the reverse, assuming the form is permanently irrelevant simply because the owner happens to live abroad. If the owner later becomes a US person through relocation or a green card, or if a US co-owner is brought into the business, the analysis can shift in ways that are easy to miss. Form 3520 is therefore most usefully understood as a quiet watch item that sits in the background of a foreign-owned structure and becomes active only when a few specific personal facts appear. Keeping it on the radar without overstating its reach is the balanced posture for most founders.

Who Counts as a US Person for This Form

The phrase US person carries a precise and consequential meaning in this context, and the entire question of whether Form 3520 applies turns on it. A US person generally includes US citizens wherever they live in the world, lawful permanent residents who hold a green card, and individuals who meet the substantial presence test by spending enough days physically inside the United States measured across a rolling three-year window using a weighted formula. The category also reaches domestic trusts and domestic estates, which can matter when a founder's affairs are held through such structures. A non-resident founder who has never held a green card, has no citizenship claim through birth or parentage, and visits the United States only briefly for conferences or meetings is typically not a US person, and therefore typically has no Form 3520 obligation of their own. The existing glossary framing built around US-person LLC owners reflects exactly this logic, and it is the reason the form is so often a non-event for genuinely foreign founders who keep their physical presence in the country limited. It is also worth noting that the substantial presence test uses a weighting formula that counts all days in the current year, a third of the days in the prior year, and a sixth of the days in the year before that, so a pattern of regular short visits can accumulate toward US-person status in ways a founder might not intuitively predict from any single year alone.

The practical takeaway for a Delaware LLC built and operated by someone outside the United States is to track status changes carefully over time rather than assuming the initial position holds forever. A founder who relocates to the United States on a work visa, a student visa that converts, or any other long-stay arrangement, and who then accumulates enough qualifying days to satisfy the substantial presence test, can cross into US-person status without ever making a deliberate decision to do so. From that point forward, foreign gifts and foreign trust relationships that previously sat entirely outside the US reporting net may suddenly need to be reported. It is worth stressing that none of the company formation steps change this analysis in either direction. The $110 Certificate of Formation, the EIN obtained through Form SS-4, the company bank account, and the franchise tax obligation are all entity matters that proceed independently of the owner's personal residency. What actually drives the Form 3520 analysis is the tax residency of the human being who owns the business, which is precisely why this form is discussed alongside personal status questions rather than entity setup checklists.

The Foreign Gift Threshold and How It Is Measured

The foreign gift branch of Form 3520 is the one most likely to touch a founder personally, so its mechanics deserve a careful and deliberate walk-through. A US person who receives more than $100,000 in a single tax year from a nonresident alien individual or from a foreign estate generally reports the aggregate amount on Form 3520. The critical detail that catches people is that the $100,000 figure is not measured per gift. It is an annual aggregate from that donor and from anyone the IRS treats as related to that donor. So three separate transfers of $40,000 each, sent by the same foreign parent across one calendar year, add up to $120,000 and cross the reporting line, even though no single transfer on its own ever reached the threshold. The same is true of a parent and a grandparent coordinating support, because related parties are combined for this purpose. The existing glossary example, in which a US-citizen owner receives a $200,000 gift from a foreign relative, sits comfortably above this aggregate floor and would clearly require the filing. It is also worth recognizing that the timing of when the gift is treated as received can matter at year boundaries, because the aggregation is measured within a single tax year, so a transfer initiated in late December but completed in early January can land in a different reporting year than a founder expects.

A very different and much lower threshold applies to gifts received from foreign corporations or foreign partnerships rather than from individuals or estates. Those are reportable at a far smaller annual amount, and they are also subject to recharacterization rules, because the IRS is alert to the possibility that what is labeled a gift from a company is really disguised compensation for services, or a distribution of profits, or some other taxable transfer wearing the wrong clothes. For a foreign founder whose family wealth is held inside a home-country company, this distinction becomes important the moment money flows from that company rather than from a person directly. It is equally important to separate gifts from capital. Money the owner themselves contributes into the Delaware LLC as equity or as a shareholder loan is not a gift to a US person and is not a Form 3520 event at all. The form is concerned with gifts received by a US person from foreign sources, not with an owner capitalizing their own business, and conflating the two leads to unnecessary worry about ordinary funding moves that the form was never designed to capture.

Why a Pure Single-Member Foreign-Owned LLC Usually Files Form 5472 Instead

Founders frequently confuse Form 3520 with the form that actually governs most single-member foreign-owned Delaware LLCs, which is Form 5472 filed together with a pro forma 1120. These are genuinely different instruments aimed at genuinely different facts, and mixing them up is one of the more common errors in this niche. Form 5472 reports reportable transactions between a foreign-owned disregarded US entity and its foreign owner or other related parties. Those reportable transactions include capital contributions into the company, loans in either direction, distributions back out to the owner, payments for services, and similar movements of value between the LLC and the people connected to it. The penalty for failing to file Form 5472 is $25,000, and it is assessed per form and per year, which makes it one of the costliest compliance traps a non-resident founder can stumble into. Form 3520, by sharp contrast, has nothing to do with these intercompany flows. It is about foreign trusts and about large foreign gifts received by US persons, a completely separate set of triggers. Another way to hold the difference in mind is to ask who the counterparty is. Form 5472 concerns dealings between the founder and the founder's own company, an internal axis of related parties. Form 3520 concerns dealings between the founder as an individual and outside foreign trusts or donors, an external axis that has nothing to do with the company's books at all.

Keeping these two forms straight prevents both over-filing out of anxiety and under-filing out of ignorance. A non-resident owner of a single-member Delaware LLC who has no US-person status, no foreign trust in the picture, and has received no large foreign gift generally files Form 5472 and the accompanying pro forma 1120 each year and does not file Form 3520 at all. That is the typical baseline for the audience this content serves. If that same owner later becomes a US person and then receives a large foreign gift, Form 3520 can become relevant in addition to, and not instead of, the ongoing Form 5472 obligation. The two forms can comfortably coexist within a single tax year because they answer entirely different questions, one about transactions with the owner's own company and the other about gifts and trusts in the owner's personal life. Treating them as interchangeable, or assuming that filing one somehow satisfies the other, is a misunderstanding that is worth slowing down to correct, because the penalty exposure on each side is real and independent. A founder who has carefully prepared and filed an accurate Form 5472 for the company gains no protection at all on the Form 3520 side if a reportable gift or trust event was present, since the two returns are scored separately by the agency and answer to separate triggers.

Foreign Trusts and the Delaware LLC Founder

The foreign trust branch of Form 3520 is broader than the gift branch and catches several scenarios that a founder might not anticipate. A US person who creates a foreign trust, transfers property or cash into one, is treated as owning a portion of one under the grantor trust rules, or receives a distribution from one, generally has a reporting obligation tied to that activity. The term foreign trust itself has a technical definition under US rules that depends on factors such as where the trust is administered and whether a US court can exercise primary supervision over its administration, alongside a control test concerning US persons. This definition is what trips up many founders from outside the United States, because their home-country families often maintain arrangements, holding structures, succession vehicles, or estate-planning entities that satisfy the US definition of a foreign trust even though local law gives them a completely different name and treats them as something other than a trust. The label in the home jurisdiction does not control the US classification. A foundation, a stiftung, a usufruct arrangement, or a family holding vehicle that a founder has always thought of as a company or an association may turn out to meet the US definition of a trust once its terms are examined, which is why the classification step cannot be skipped on the strength of the entity's local name alone.

This is precisely where the Delaware LLC and the personal financial world of the founder can quietly intersect. Suppose a founder who has become a US person holds their interest in the Delaware LLC not directly but indirectly, through a family structure that was created abroad years earlier for inheritance or asset-protection reasons. If that overarching structure is classified as a foreign trust under US rules, then distributions flowing to the founder, and in some configurations the underlying ownership relationship itself, can pull Form 3520 into play, often alongside a related trust-level form. The important point is that the Delaware LLC operating in the United States does not create this exposure on its own. The exposure comes from the home-country structure sitting above the founder in the ownership chain. For founders who have any cross-border family entity layered into how they hold their business, the prudent and unglamorous step is to have the true nature of that entity classified under US rules by someone competent in this area, rather than assuming the company-level filings represent the entire compliance story. The classification is a one-time piece of analysis in most cases, and getting it on paper early means the founder knows in advance whether trust reporting will ride alongside their ordinary business filings each year or whether it can be set aside as inapplicable.

A Worked Example: Founder Who Stays Non-Resident

Consider a founder based in Lagos who forms a Delaware LLC to sell software subscriptions to US customers. She pays the $110 Certificate of Formation to bring the entity into existence, waits roughly eight to ten business days for an EIN obtained by faxing Form SS-4 because she has no Social Security number, opens a US business account with one of the common neobanking partners such as Mercury or Wise, and begins invoicing her American clients. She has never held a green card, is not a US citizen by birth or descent, and travels to the United States only once a year for an industry conference, which is nowhere near enough days to meet the substantial presence test under any reasonable counting. Midway through the year, her father in Lagos sends her the equivalent of $150,000 to help expand the business and hire her first employee. Because she is not a US person, this transfer is simply not a Form 3520 event for her, even though the amount comfortably exceeds the $100,000 gift threshold that would apply if she were a US person. Her non-resident status is the entire reason the form stays silent.

Her actual annual federal compliance in this scenario centers on the Form 5472 paired with a pro forma 1120 filing required of her foreign-owned single-member LLC, with the $25,000 penalty hanging over a missed or late submission. She also pays the $300 flat Delaware franchise tax due each year on June 1 to keep the entity in good standing. On the federal beneficial ownership side, her US-formed LLC is exempt from beneficial ownership information reporting following the FinCEN Interim Final Rule of March 26 2025, so that worry is off her plate as well. Throughout all of this, Form 3520 stays completely dormant, because the two facts that would activate it, namely US-person status on her part and either a reportable foreign trust or a large foreign gift received by a US person, are both absent from her situation. This example illustrates how the form so often remains a genuine non-issue for founders who are authentically non-resident, and it shows why the formation, banking, and franchise-tax steps proceed cleanly without any Form 3520 consideration entering the workflow at all. The same conclusion would hold even if her father sent considerably more, because the dollar amount of the gift is simply not the operative fact for a non-resident recipient. What governs the outcome is her status, and as long as that status remains non-resident the size of any family transfer does not pull the form into play.

A Worked Example: Founder Who Becomes a US Person

Now change one fact in that same story and watch how the analysis turns. Two years after forming the Delaware LLC, the founder relocates to Austin on a work visa, keeps the business running and growing, and over the relevant measurement period spends enough qualifying days inside the United States to meet the substantial presence test. She has become a US person for federal tax purposes, which changes her personal reporting landscape even though the company itself is unchanged. The following year, her father once again sends her the equivalent of $150,000 from Lagos to support a new product line. This time the outcome flips entirely. As a US person receiving more than $100,000 from a nonresident alien individual within a single tax year, she generally reports the gift on Form 3520, even though the money is in the end destined for her business operations and even though no income tax is actually due on the gift itself. The reporting obligation arises from her changed status, not from any change in the nature of her father's generosity. It is the same gift from the same person for the same purpose as in the earlier example, and the only variable that moved is her own tax residency, which is the whole point worth absorbing about how this branch of the form behaves.

The same relocation can drag additional items into the reporting picture beyond the single gift. If her family back home holds assets through a structure that qualifies as a foreign trust under US rules, and she receives a distribution from it during the year, that distribution becomes reportable as well, layering a trust disclosure on top of the gift disclosure. Her business filings do not vanish in the meantime. She still has the obligations connected to her foreign-owned or, depending on her ongoing status, formerly foreign-owned LLC, and her personal Form 1040 reaches her worldwide income under her changed status rather than only her US-source income. Form 3520 simply sits on top of all of this as the dedicated information return that discloses the foreign gift and any foreign trust activity. The durable lesson from comparing the two examples is that a personal move across the border, rather than any change in the company, is what activates this form. Founders who are seriously contemplating relocation to the United States benefit enormously from mapping these consequences in advance rather than discovering them under deadline pressure at filing season.

How Form 3520 Connects to Formation and Banking Steps

It helps to trace precisely where Form 3520 does and does not touch the standard build-out of a Delaware LLC, because seeing the boundaries clearly removes a lot of unnecessary anxiety. Forming the entity with the $110 Certificate of Formation is an act performed by the company and its organizer, and it creates no gift to any US person and involves no foreign trust whatsoever, so it never triggers the form under any reading. Obtaining the EIN through Form SS-4, which is a free process that typically takes roughly eight to ten business days when filed by fax for a foreign owner who lacks a Social Security number, sits entirely outside the scope of Form 3520 as well. Opening accounts at banking partners such as Mercury, Wise, Relay, Lili, or Payoneer is a routine company banking step, and capitalizing those accounts with the owner's own funds is a contribution of capital, not a gift received by a US person from a foreign source. None of these foundational moves engages the form in any way, which is reassuring for founders working methodically through a setup checklist.

The franchise-tax and federal-filing rhythm of the entity runs on its own independent track as well. The $300 flat Delaware franchise tax due June 1 each year is a pure entity obligation that has no relationship to foreign gifts or trusts. The annual Form 5472 filed with the pro forma 1120, carrying that $25,000 penalty for non-filing, is the federal information return that single-member foreign-owned LLCs typically owe, and again it concerns transactions with the owner rather than gifts or trusts. The beneficial ownership information reporting that once caused real concern among non-resident founders is, for US-formed LLCs, exempt following the FinCEN Interim Final Rule of March 26 2025, removing yet another item from the worry list. Not one of these recurring steps invokes Form 3520. The form only enters the picture when a US person somewhere in the ownership chain receives a large foreign gift or interacts with a foreign trust, and those are personal-side events that sit beside the company workflow rather than inside it. Holding that mental separation cleanly is the single most useful thing a founder can do with this topic.

Penalties, Timing, and the Cost of Getting It Wrong

The penalty structure is what makes Form 3520 worth taking seriously even when it feels like a remote possibility for a particular founder. For unreported foreign gifts, the penalty referenced in the existing glossary entry runs at 5% of the unreported amount for each month the failure to report continues, capped at 25% of the gift. On a six-figure gift, that 25% cap alone can translate into tens of thousands of dollars in exposure, all of it arising from failing to file an information return that carried no income tax in the first place. That mismatch, where the underlying transaction is tax-free but the failure to disclose it is expensive, is what makes the form so dangerous to overlook. The trust-related branches of the form carry their own substantial penalty regimes, frequently calculated as a percentage of the gross value of the trust property involved rather than as a flat figure, and those amounts can climb quickly when larger family structures are in play. The penalties are real, and they are aimed at non-disclosure rather than at any tax shortfall.

Timing aligns Form 3520 with the individual income tax return, which both helps and confuses founders. The form is generally due when the US person's Form 1040 is due, including any extension that has been validly filed, so the deadline tracks the personal return. The complication is that Form 3520 is filed separately from the 1040 and is sent to a different IRS service center rather than physically attached to the main return. That separation trips many people up, because a founder who timely and correctly files their Form 1040 may still completely miss the Form 3520 if they assume it simply travels along with the main filing. It does not. The glossary entry also notes, helpfully, that streamlined procedures exist for non-willful past failures, which gives a person who genuinely did not know about the obligation a structured route to come back into compliance without facing the full penalty exposure. None of this discussion is a substitute for individualized professional advice, and the penalty figures described here outline the general statutory framework rather than predicting the outcome of any specific case or assuming any particular result.

Form 3520 Versus Form 3520-A: Two Forms, Different Filers

A frequent and understandable point of confusion is the relationship between Form 3520 and its close relative, Form 3520-A. The two look almost identical by number, which invites people to treat them as one thing, but they are filed by different parties and serve different roles in the trust reporting scheme. Form 3520-A is the annual information return of a foreign trust that has at least one US owner. In principle the foreign trust itself is the party responsible for filing it, but in practice the burden very often falls on the US owner of the trust, who may be forced to ensure the form actually gets filed by a sometimes uncooperative foreign trustee, or to file a substitute version on the trust's behalf when the foreign trustee simply will not engage with US reporting at all. Form 3520, the subject of this entry, is by contrast the return filed by the US person who owns, transfers property to, or receives distributions from the trust, or who receives a large foreign gift unconnected to any trust. A simple way to keep the pair apart is to remember that the version with the letter A is the trust speaking about itself, while the plain version is the individual speaking about their own dealings with the trust or about a gift they received.

For a Delaware LLC founder whose ownership of the business runs through a foreign family trust after the founder has become a US person, both forms can realistically be in play within the same tax year. The trust-level reporting handled on Form 3520-A and the owner-level reporting handled on Form 3520 work together as a matched pair, each carrying its own filing deadline and its own separate penalty exposure for failure. The Form 3520-A generally falls due earlier in the year than the individual income tax return, which introduces yet another timing trap for the unwary, because a founder focused on their April or extended personal deadline may sail right past the earlier trust deadline without noticing. A founder who learns that they sit beneath or beside a foreign trust in their ownership arrangements should treat the pair of forms as a single coordinated project rather than two unrelated administrative chores, and should confirm clearly which entity bears responsibility for which filing well before any deadline actually arrives. Where a foreign trustee is unwilling to engage with US reporting, the founder may need to step into the gap and prepare a substitute trust return to protect their own position, which is one more reason to surface the issue early rather than at the last moment.

Related Information Returns: FBAR and Form 8938

Form 3520 does not stand alone in the cross-border world, and one of the more useful things a founder can absorb is that it lives in a tight cluster of information returns that tend to appear together once a person becomes a US person. The related glossary entries flag two of the most important neighbors, namely the FBAR and Form 8938. The FBAR, filed electronically with the Treasury through the BSA E-Filing system rather than with the IRS through the income tax return, reports foreign financial accounts whose combined high value crosses a specified threshold at any point during the year. Form 8938, formally the Statement of Specified Foreign Financial Assets, attaches directly to the Form 1040 and reports a broader category of foreign assets that exceed its own separate thresholds, which differ depending on filing status and on whether the person lives inside or outside the United States. A US-person founder who simultaneously holds home-country bank accounts, an interest in a foreign trust, and has received a large foreign gift in the same year could realistically touch all three of these returns at once.

The reason these forms travel together is that each one illuminates a different slice of the same underlying cross-border financial picture, and the government uses them in combination to build a complete view. The FBAR is fundamentally about accounts and their balances. Form 8938 is about a wider set of assets, with some genuine overlap against the FBAR that does not excuse filing either one. Form 3520 is about trust relationships and large gifts, a distinct angle from the other two. Because the thresholds, the filing destinations, the deadlines, and the penalty structures all differ across the three forms, a founder cannot safely reason from the conclusion on one form to the conclusion on the others. A founder who works out that they owe an FBAR should not assume that filing it resolves their Form 3520 position, and the reverse is equally true. The sensible approach for anyone whose personal facts have grown genuinely complicated is to inventory all of the foreign accounts, assets, trusts, and gifts for the year as a single exercise, and then map each individual item to whichever form or forms actually capture it.

Edge Cases That Surprise Founders

Several fact patterns sit right at the boundary of Form 3520 and routinely catch founders off guard, and naming them in advance is the strongest defense. One is the gift that arrives in installments rather than as a lump sum. Because the gift threshold is an annual aggregate measured across related foreign donors, a founder who receives a steady series of modest transfers from the same parent across a single year can quietly cross the $100,000 line without ever receiving any individual transfer that felt large or remarkable at the time. Another is the foreign inheritance. A bequest received from a foreign estate is treated under the gift branch of the form, so a US-person founder who inherits money or property from a relative abroad may have a Form 3520 obligation in the year of the bequest even though an inheritance emotionally and legally feels quite different from a gift. A third is the transfer that is dressed up as a loan but does not behave like one. A purported loan from a foreign company, lacking real repayment terms or interest, may be recharacterized by the IRS and pulled into reporting as something other than the loan it claimed to be.

A more subtle category of edge case involves the precise timing of US-person status itself, which can determine whether a given gift falls inside or outside the reporting window. Partial-year residency, dual-status years that occur when a person arrives in or departs from the United States in the middle of a calendar year, and the granular day-counting and weighting nuances of the substantial presence test can all affect whether a particular gift is captured. A gift received in January, before a person made a mid-year move and became a US person, may land on a completely different side of the line than the same gift received in December after the move. These boundary questions rarely have a clean, intuitive answer that a founder can confidently resolve from memory, which is exactly why they belong in front of a qualified cross-border tax preparer rather than being guessed at. The point for a founder reading general guidance is to develop the instinct to recognize that the boundary exists and to ask the question, not to resolve the technical answer from an introductory overview like this one.

Common Misunderstandings to Retire

Several persistent beliefs about Form 3520 are worth confronting and correcting directly, because each of them leads founders astray in a predictable way. The first is the belief that reporting a foreign gift means paying tax on that gift. In the ordinary case it does not. The recipient generally owes no US income tax on a genuine gift received from a foreign individual, and the form is a disclosure exercise rather than a taxing one. The real risk lives in non-filing, not in the gift being taxable, which is why people who fixate on a phantom tax bill sometimes overlook the actual penalty exposure entirely. The second misunderstanding is the belief that the Delaware LLC creates a Form 3520 obligation by its mere existence. It does not. The form follows the US person and the foreign trust or foreign gift, and never the entity. A founder can run a Delaware LLC successfully for many years without Form 3520 ever entering the analysis at all, provided the activating personal facts stay absent from their situation, and that is the common outcome for genuinely non-resident owners.

A third misunderstanding is the comforting but incorrect belief that timely filing the personal Form 1040 automatically covers any Form 3520 obligation. Because Form 3520 is filed separately from the income tax return and is mailed to a different service center, a perfectly clean and timely 1040 provides no protection at all against a missed 3520. The two filings are simply not linked in the way people assume. A fourth misunderstanding is the assumption that small or family-internal transfers are always safe and below any reporting radar. The aggregation rule across related donors, combined with the much lower threshold that applies to gifts coming from foreign companies rather than from individuals, means that what feels like ordinary family support can still reach a reporting line without anyone intending anything aggressive. Clearing away these four misconceptions lets a founder direct their attention to where it genuinely belongs, namely on their personal tax-residency status and on any foreign trust or large foreign gift sitting in their ownership chain or family arrangements. Everything described in this entry is general information about how the form operates and is offered as background rather than as tailored legal or tax advice for any specific person or situation.

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