Is the Offshore Voluntary Disclosure (OVDI) Required for a missing Form 3520?
As we have been mentioning, here and here, the 2012 Offshore Voluntary Disclosure Initiative is not just for taxpayers who had unreported income and unfiled FBAR forms. But rather, there are lesser-known foreign informational forms that US taxpayers are just as at a substantial risk similar significant penalties both criminal and civil for having unreported income and an unfiled Form 3520.
What is Form 3520?
Form 3520 is an information return used to report
- Ownership of a foreign trust
- Certain transactions with foreign trust
- Receipt of large gifts/bequests from foreign persons
What is a foreign trust?
A foreign trust is any trust that is not under the jurisdiction of a United States Court to supervise its administration OR a trust that is not supervised and administrated primarily by at least one U.S. person. Any trust controlled entirely by foreign individuals or persons or which is administered under the jurisdiction of a foreign court is a foreign trust.
A U.S. person must use Form 3520 to report their ownership of such a trust or received a distribution from/made a transfer of money or property to such a trust.
What is a Gift that must be reported by Form 3250?
The types of gifts/bequests covered by Form 3520 are:
- More than $100,000 from a foreign individual or estate
- More than $14,723 from a foreign corporation or partnership.
A U.S. person receiving one of these gifts or bequests must file Form 3520 to report the receipt.
I Didn’t File Form 3520 for a Gift I Received, do I have to use the IRS 2012 OVDI?
The good news, is generally not. True gifts are not taxable events for the recipients — it is the donor who is responsible for taxes. So for the recipient there is no under-reporting of income (a key fact for requirement into entry into the 2012 OVDI/OVDP).
However, the IRS may still impose on non-filers of Form 3520 steep penalties for the failure to file. In these cases it is possible to prepare a Form 3520 and file it attached to an amended income tax return, Form 1040X, while seeking an abatement of penalties. The IRS has stated its willingness to waive penalties for those taxpayers filing previous returns due to a lack of willful failure to file.
Yet if there is unreported income AND a missing unfiled Form 3250, then it may be a good idea to speak with an OVDI professional about whether or not you would benefit from the 2012 OVDI/OVDP.