I am a u.s. permanent resident. In 2013, I received $200K from a friend who is not a u.s. citizen or permanent resident. I know the donor need to pay gift tax or report it, so I did not do anything. Until recently, I realize that I need to report these gifts on Form 3520. It also said that there are significant penalties for failure to file Form 3520 when it is required.
Per the IRS:
No penalties will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect.
The fact that a foreign country would impose penalties for disclosing the required information is not reasonable cause. Similarly, reluctance on the part of a foreign fiduciary or provisions in the trust instrument that prevent the disclosure of required information is not reasonable cause. See section 6677(d) for additional information.
Section 6039F. In the case of a failure to report foreign gifts described in section 6039F, a penalty equal to 5% of the amount of such foreign gifts applies for each month for which the failure to report continues (not to exceed a total of 25%). No penalty will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect. See section 6039F for additional information.
Section 6662(j). Penalties may be imposed under section 6662(j) for undisclosed foreign financial asset understatements. No penalty will be imposed with respect to any portion of an underpayment if the taxpayer can demonstrate that the failure to comply was due to reasonable cause with respect to such portion of the underpayment and the taxpayer acted in good faith with respect to such portion of the underpayment. See section 6662(j) and section 6664(c) for additional information.
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See the link to the IRS info on delinquent international information filing. According to the instructions, a taxpayer needs to attach a reasonable cause statement to each delinquent information return filed for which reasonable cause is being requested. No penalties will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect. What constitutes "reasonable cause" is depends on your specific facts and circumstances. You should consult an a tax attorney to help you articulate the statement.
Unless you are a client of Yuan Law Firm, APC, under a current and signed representation agreement, you should not rely upon any information provided in this Q&A as legal advice. There is no attorney-client relationship between you and the attorney or the law firm. Circular 230 Advice: Pursuant to U.S. Treasury Department Regulations, we are required to advise you that, unless otherwise expressly indicated, any federal tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.
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