Forgot to File Form 3520 for a Foreign Gift? What to Do: Reasonable Cause, DIIRSP and SFOP/SDOP

Forgot to File Form 3520 for a Foreign Gift? Reasonable Cause and Your Paths to Catch Up (2026)

This article is for U.S. tax residents who received large gifts from parents or relatives abroad but did not file Form 3520 on time. Related reading: Form 3520 for foreign gifts https://yclcpa.com/en/insights/form-3520-foreign-gifts | tax Q&A on sending money to parents in China https://yclcpa.com/en/insights/family-remittance-gift-tax-faq | Form 3520 penalty assessments https://yclcpa.com/en/insights/form-3520-penalty-assessment | DIIRSP for late international information returns https://yclcpa.com/en/insights/diirsp-delinquent-intl-returns | SFOP vs. SDOP streamlined procedures https://yclcpa.com/en/insights/streamlined-sfop-sdop-offshore-compliance-2026

Bottom Line

If you received gifts from foreign individuals totaling more than $100,000 in a year and did not file Form 3520, the gift itself is usually not subject to income tax, but the missed filing can carry a penalty of 5% of the gift amount per month, up to 25%. Since October 2024, the IRS no longer assesses penalties at the time a late Form 3520 Part IV (gifts) is filed; it first reviews the attached reasonable cause statement. So file through the right procedure: explain the facts honestly and attach a reasonable cause statement. A late filing without a statement, or without a clear explanation of the facts, can still be penalized.

Background

Form 3520 is an information return, not a tax payment form. According to the IRS "Gifts from foreign person" page, a U.S. person who receives gifts or bequests from a nonresident alien individual or foreign estate totaling more than $100,000 in a tax year must report them in Part IV of Form 3520; once over the threshold, each gift of more than $5,000 must be identified separately.

For roughly a decade, the IRS assessed penalties as soon as a late Form 3520 was filed, and many families who came forward voluntarily received large penalty notices. According to an October 2024 blog post from the National Taxpayer Advocate (TAS), the IRS has ended its practice of assessing penalties at the time of filing for late Part IV filings and now reviews reasonable cause statements before deciding whether to assess. This change makes coming forward voluntarily and honestly a more workable path, but it does not mean there will be no penalty.

Old vs. New

- How penalties are assessed: Old practice: a penalty was assessed when a late Form 3520 Part IV was filed, and taxpayers then had to seek abatement. New practice (since October 2024): the IRS first reviews the attached reasonable cause statement, then decides whether to assess a penalty.

- Threshold for gifts from foreign individuals/estates: more than $100,000 in total in a year (this amount is not adjusted for inflation); gifts from related donors (such as both parents) are aggregated; each gift over $5,000 must be listed separately.

- Threshold for gifts from foreign corporations/partnerships: $20,116 for 2025 and $20,573 for 2026 (adjusted annually for inflation); these "gifts" may be recharacterized by the IRS as income.

- Penalty: 5% of the gift amount per month, up to 25%; no penalty if the failure is due to reasonable cause and not willful neglect.

- First-time abatement (FTA): does not apply to this Form 3520 penalty; relief depends on reasonable cause.

Self-Check Checklist

- If gifts you received in a year from your parents or other foreign individuals totaled more than $100,000: check whether you filed Form 3520 Part IV for that year.

- If each parent sent money separately and each amount was under $100,000: gifts from related donors are aggregated, so you must still report if the total exceeds the threshold.

- If the money came from a foreign corporation or partnership: the threshold is much lower ($20,573 for 2026), and you need to assess whether it may be treated as income.

- If only Form 3520 is missing and no income was underreported: the Delinquent International Information Return Submission Procedures (DIIRSP) are usually the path to consider.

- If you also have unreported foreign account income or missed FBARs and the failure was non-willful: evaluate SFOP (living abroad) or SDOP (living in the U.S.).

Simplified Example

Hypothetical example; all numbers are assumptions for illustration only.

A green card holder received gifts of $150,000 from the father and $250,000 from the mother in 2024, totaling $400,000, used to buy a home in the U.S., and did not file Form 3520 that year. The funds were moved into a U.S. account, and all income was properly reported.

- Aggregation: the parents are related donors, so the total is $400,000, above the $100,000 threshold; both gifts exceed $5,000 and must be listed separately.

- Penalty ceiling: at 5% per month up to 25%, the maximum could be $100,000.

- Possible path: only Form 3520 is missing, no income was underreported, and the taxpayer is not under IRS examination and has not been contacted by the IRS, so DIIRSP is usually worth considering: file Form 3520 late, attach a reasonable cause statement, and write "Reasonable Cause Statement attached" at the top of the first page.

- Outcome: the IRS reviews the statement first; if reasonable cause and the absence of willful neglect can be shown, there may be no penalty, subject to the IRS's determination.

Action Plan and Timeline

- From October 21, 2026: gather records of past gifts: donors, dates, amounts, transfer receipts, gift letters, and the status of any foreign accounts.

- Choose the path: only Form 3520 missing → DIIRSP; also unreported foreign income and non-willful → SFOP (living abroad) or SDOP (living in the U.S., plus a 5% miscellaneous offshore penalty), filing Form 3520 along with it.

- Prepare the statement: a reasonable cause statement should set out the facts clearly: why you did not know about the filing requirement, when you found out, and what you did after finding out.

- Eligibility: DIIRSP is available only if you are not under IRS civil examination or criminal investigation and the IRS has not already contacted you about the delinquent returns.

- April 15, 2027: for gifts received in 2026, Form 3520 is generally due on the same date as your individual income tax return; if you extended with Form 4868, it is extended to October 15, 2027.

How YCL Can Help

- Reviewing past gifts and foreign accounts to determine whether the reporting threshold was met and how related donors are aggregated.

- Determining whether DIIRSP, SFOP or SDOP fits, and assessing the risk that gifts from foreign entities are recharacterized as income.

- Preparing Form 3520, the reasonable cause statement, and, when needed, FBARs, Form 8938 and Form 14653/14654.

- YCL has handled many late-filing cases over the years; we are a multi-state CPA firm serving clients nationwide, offering compliance planning in English and Chinese.

FAQ

Q: If I file Form 3520 late now, will I definitely be penalized?

A: Not necessarily. Since October 2024, the IRS first reviews the reasonable cause statement attached to a late Part IV filing. If there is reasonable cause and no willful neglect, there may be no penalty; but a late filing without a statement, or without a clear explanation of the facts, can still be penalized.

Q: Can first-time abatement (FTA) be used for Form 3520?

A: No. Relief from this Form 3520 penalty depends mainly on reasonable cause.

Q: My parents each gave me $60,000. Do I need to report?

A: Your parents are related donors, so their gifts are aggregated. The $120,000 total exceeds the $100,000 threshold, so you need to report and separately list each gift over $5,000.

Book a Consultation and Disclaimer

Book a consultation: https://yclcpa.com/en/book . Email: info@yclcpa.com | YCL Tax, Accounting & Advisory · multi-state CPA serving clients nationwide

Disclaimer: This article is general information only and is not individualized tax or legal advice. Whether a penalty is waived depends on your specific facts and the IRS's review; this article does not guarantee any outcome.

Sources: IRS Gifts from foreign person https://www.irs.gov/businesses/gifts-from-foreign-person | IRS Instructions for Form 3520 https://www.irs.gov/instructions/i3520 | IRS Delinquent International Information Return Submission Procedures https://www.irs.gov/individuals/international-taxpayers/delinquent-international-information-return-submission-procedures | TAS blog (October 2024) https://www.taxpayeradvocate.irs.gov/news/nta-blog/irs-hears-concerns-from-tas-and-practitioners-makes-favorable-changes-to-foreign-gifts-and-inheritance-filing-penalties/2024/10/