Form 3520 Foreign Gifts and Foreign Trusts: Reporting Large China Family Support

Author: Gloria Liu, CPA ｜ YCL Tax, Accounting & Advisory

Bottom line in one breath

If you are a U.S. tax resident in Cary / RTP and, during the year, you receive more than $100,000 in aggregate from nonresident-alien parents or relatives (or a foreign estate)—treated as gifts/bequests—you generally must file Form 3520 Part IV. Purported gifts from foreign corporations/partnerships use a lower inflation-adjusted §6039F threshold ($20,116 for 2025; $20,573 for 2026). Creating/funding a foreign trust or receiving trust distributions can pull in other Form 3520 parts and Form 3520-A. Form 3520 is generally filed separately (not simply tucked inside the 1040), due on the income-tax timetable (often April 15; with a Form 4868 extension, Form 3520 generally no later than October 15). Reporting a gift is not the same as treating it as wages—but failing to report can mean a 5% per month / 25% max penalty on gift amounts (and heavier frames for trust items). Plan compliance, do not improvise after the fact.

Background

The IRS “Gifts from foreign person” page and Form 3520 instructions (including the December 2025 revision) require U.S. persons to report large foreign gifts/bequests and certain foreign-trust transactions. A common Chinese-American fact pattern is parental support for a Cary down payment or living costs via bank or third-party transfers. “It isn’t taxable income” is often misunderstood as “no form at all.” Income inclusion and information reporting are different layers. Trust wrappers, company conduits, or “loan” labels can change which part of Form 3520 applies.

Old vs. new (gift vs trust; threshold map)

1. NRA / foreign-estate gifts: aggregate >$100,000 in the tax year (including related foreign persons you know or have reason to know) → Part IV; separately identify each gift >$5,000.

2. Foreign corporation/partnership purported gifts: over $20,116 (2025) / $20,573 (2026) → identify each gift and donor; IRS may recharacterize.

3. Qualified tuition / medical payments paid on your behalf are generally excluded from the foreign-gift definition (follow the IRS page).

4. Foreign trusts: transfers, distributions, U.S. ownership → Parts I–III and possible Form 3520-A; penalties often described as the greater of $10,000 or 35% / 5% frameworks.

5. Due dates: generally April 15 for calendar-year individuals; June 15 if living abroad (unextended); with Form 4868, Form 3520 generally extends to October 15—but not to a discretionary December 15 income-tax date.

6. Part IV penalties: 5% per month, capped at 25%, unless reasonable cause; IRS may also determine income-tax consequences of the receipt.

7. Vs FBAR / 8938: account disclosures remain separate after funds move.

Self-check: does this affect you?

1. PRC family transfers to you may exceed about $100,000 in a year (including multiple related remitters).

2. Funds supported a Triangle home down payment or large living costs and were understood as gifts.

3. Multiple relatives require aggregation analysis.

4. Money arrived from a “family company,” as a “loan,” or through a trust-like arrangement.

5. You have never mailed a standalone Form 3520.

Simplified example (illustration only)

Assume Ms. Liu in Cary is a U.S. tax resident:

1. In 2025 her PRC parents send three transfers totaling $180,000 for a home purchase, treated as gifts → generally a 2025 Form 3520 Part IV in the 2026 filing season, listing gifts over $5,000.

2. If $30,000 was paid directly as qualified U.S. tuition, that piece may be excluded from the foreign-gift total—test the remainder against $100,000.

3. If amounts are foreign-trust distributions, Part III (and related rules) may apply instead of a pure “family gift” story.

“Not taxable as wages” ≠ “no Form 3520.”

Action timeline

1. Now: year-by-year transfer log—remitter relationship, purpose, bank evidence.

2. Characterize: gift / compensation / loan / trust distribution.

3. Test thresholds: $100k NRA vs inflation-adjusted entity thresholds; related-party aggregation.

4. File Form 3520 per current mailing instructions; if the income-tax return was extended, complete the form’s extension indicators.

5. 2026: for 2025 receipts, watch 2026-04-15 or extended 2026-10-15. Prior-year gaps need a remediation plan—no penalty-waiver guarantee.

What YCL can do

1. Part IV threshold modeling and gift-detail workpapers for China family support.

2. Help distinguish gift vs trust distribution vs other characterizations.

3. Cross-checks with FBAR / Form 8938.

4. Delinquent Form 3520 pathway discussion (reasonable-cause notes; no guaranteed outcome).

5. Cary (RTP) + Shanghai bilingual compliance planning with CPA Chenchen Liu and Gloria; Free Consultation.

FAQ

Q: If parental gifts are not income, do I skip Form 3520?

A: Not necessarily. Large foreign gifts can still trigger information reporting, with separate penalties for failures.

Q: Is the $100,000 threshold per person or combined across relatives?

A: For NRA/foreign-estate gifts, aggregate gifts from that person and related foreign persons you know or have reason to know. Near relatives often must be combined for testing.

Q: Do I e-file Form 3520 with my 1040?

A: Generally file Form 3520 separately per the instructions (commonly mailed to the Ogden address shown on the current IRS page). Do not assume a checkbox on the 1040 replaces it.

Book a consult

YCL Tax, Accounting & Advisory

Web: yclcpa.com ｜ Email: info@yclcpa.com

Phone: 919-802-8376 / 980-202-0666 ｜ WeChat: YCLUSA

U.S. office: 1140 Kildaire Farm Rd. STE 208, Cary, NC 27511

Shanghai office: 2-516, Zhongye Xiangteng Plaza, Lane 31, Jiatong Road, Shanghai

Free Consultation available by appointment.

Disclaimer

This article is general tax information only and is not tax, legal, or investment advice for any person or business. Application depends on the character of funds, related-party facts, trust arrangements, and current IRS rules. Items marked 待核 require pre-filing verification. Consult a licensed professional for advice specific to you.