Connect each receipt to the records supporting its source and character.
The short version
Your father says he sent a gift. The deposit names your uncle, and the funding account belongs to a family company. Before deciding whether Form 3520 applies, you need to explain those three different names. A useful foreign gift file connects the person who gave the money, the person who transmitted it, and the account that funded it.
Start with the person behind the payment
IRC 102 generally excludes the value of an ordinary gift from the recipient’s gross income. It does not exclude income subsequently earned on that property, and a payment does not qualify simply because someone labels it a gift. Separately, IRC 6039F requires information reporting for certain gifts from foreign persons.
That distinction makes donor identity consequential. Under IRC 7701(a)(30), a U.S. citizen is a U.S. person even while living abroad. A foreign bank address therefore does not establish that a payment came from a foreign donor. Establish the recipient’s status and the donor’s citizenship and U.S. tax residency for the relevant period.
The sender field is also incomplete evidence. Notice 97-34, section VI, addresses donors acting as nominees or intermediaries, meaning people transmitting property for someone else. A remittance company or relative may be carrying out another person’s instructions. Conversely, a parent’s control of a business does not establish that money leaving its account was the parent’s personal property.
Build one record trail for each receipt
I recommend assigning each transfer a short reference, such as T01. Keep the incoming statement, outgoing statement, remittance receipt and gift explanation under that reference. Record which document and page establish each fact. This is a practical organizer, not an IRS-mandated document format.
Separate the actual donor from the payment sender and source-account owner. Then record the recipient, receipt date, original currency, supported U.S. dollar value, and the relationship among the people involved. Where one amount passes through a remitter, connect the funding and receipt records without counting the same transfer twice.
The current Form 3520, Part IV, asks for transaction dates, property descriptions and fair market values, with additional donor information for entity gifts. Preserve the underlying records even if every identity does not appear in every form field. Notice 97-34 explains that the IRS may request additional donor information.
A gift letter belongs in this file, but conflicting bank evidence still needs an explanation. Ask who owned the money before the transfer, in what capacity the sender acted, and whether anyone expects repayment. Preserve the original letter alongside the explanation; do not rewrite the evidence to make the names agree.
A hypothetical transfer file with one unresolved entry
Assume a U.S.-citizen recipient uses the calendar year. Her parents are married to each other and are established nonresident aliens. All amounts below are stipulated U.S. dollar values at receipt, without currency or fee complications. These are invented teaching facts, not client results.
| Receipt | Amount | What the records establish | What still needs explanation |
|---|---|---|---|
| January 15, 2026, T01 | $42,000 | A remitter appears as sender; matching funding records trace the gift to father’s personal account. | None under the stated assumptions. |
| June 1, 2026, T02 | $38,000 | Mother’s personal account funds her documented gift. | None under the stated assumptions. |
| September 30, 2026, T03 | $27,000 | Uncle appears as sender; the source account is a family company’s; father’s letter calls it his gift. | Who owned the funds, uncle’s role, and whether the receipt is a gift, loan or trust distribution. |
T01 and T02 support $80,000 of parental gifts. T03 cannot be assigned to father solely from his letter. Request the source-account record, the company’s explanation and supporting records for the payment, and uncle’s instructions. Link each response to T03 so the unresolved question remains visible.
If the completed evidence establishes that T03 was father’s personal gift transmitted through an intermediary, parental gifts total $107,000. The Form 3520 instructions, line 54, require aggregation when the recipient knows or has reason to know that donors are related to each other, or one acts as the other’s nominee or intermediary. The assumed parents therefore belong in the same threshold calculation.
If the company actually made the purported gift, use the entity rules instead. If a foreign trust distributed the money, investigate trust reporting. These are conclusions the evidence must support, not classifications the recipient can choose.
The numbers apply after classification
These are reporting rules for the recipient, not the ordinary annual gift-tax exclusion available to some donors.
| Reporting question | Applicable amount | Authority |
|---|---|---|
| Gifts or bequests from a nonresident alien individual or foreign estate, with required related-person aggregation | More than $100,000 during the recipient’s taxable year | Notice 97-34, VI.B.1 and VI.B.3 |
| Separate identification of individual gifts after that threshold is exceeded | Each gift exceeding $5,000; this is not a separate filing threshold | IRS foreign-gift guidance, Reporting requirements |
| Purported gifts from all foreign corporations and partnerships, plus applicable related foreign persons | More than $20,573 for taxable years beginning in 2026 | Rev. Proc. 2025-32, section 4.47, applied with IRS reporting guidance |
The entity threshold is not a separate allowance for each corporation. The IRS also warns that purported corporate or partnership gifts may be recharacterized. Do not combine every foreign receipt into one undifferentiated total or assume the personal-gift threshold governs a company payment.
Close the classification and calendar gaps
For the hypothetical calendar-year recipient, keep one January-through-December schedule covering all relevant receipts. Reconcile repeated transfers, different sender names and supporting statements to that schedule. A promise of future support does not establish when money was received; investigate any year-end timing discrepancy before assigning the year.
A loan explanation calls for its own evidence: contemporaneous terms, repayment obligations, payment history and the parties’ conduct. A family member’s later description alone does not settle the character of the original receipt.
Foreign-trust distributions have a separate statutory reporting framework under IRC 6048(c). The Form 3520 instructions generally place them in Part III rather than treating them as ordinary Part IV gifts. Trust classification and applicable exceptions need review; the $100,000 individual-gift threshold does not resolve them.
Keep an explicit list of open issues, including possible entity ownership, trust involvement, repayment terms or a donor’s former U.S. citizenship or long-term resident status. The latter can raise separate covered-expatriate questions. A conclusion that an ordinary gift is excluded from income does not settle every reporting obligation.
Related reading
The Nomad Audit File expands the recordkeeping approach to account ownership and other cross-border evidence. You Probably Owe Nothing, But Silence Still Costs You provides background on the distinction between income tax and international information returns.
How Sheepdog Tax can help
I am Noah Green, CPA, CFE, and Sheepdog Tax is a veteran-owned practice. To discuss a review of your donor records, transfer schedule and unresolved reporting questions, contact noah@sheepdogtax.com. The appropriate scope depends on the documents and the people or entities involved.
This article provides general U.S. federal tax information. It does not determine ownership under foreign law or the treatment of a particular transfer.
Sources
- IRC 102, Gifts and inheritances, subsections (a) through (c).
- IRC 6039F, Notice of large gifts received from foreign persons, subsections (a), (b) and (d).
- IRC 7701, Definitions, subsections (a)(30) and (b).
- IRC 6048, Information with respect to certain foreign trusts, subsection (c).
- Notice 97-34, Internal Revenue Bulletin 1997-25, section VI, printed pages 30 to 31.
- Rev. Proc. 2025-32, Internal Revenue Bulletin 2025-45, sections 4.47 and 5.02.
- Instructions for Form 3520, revision December 2025, Who Must File and Parts III and IV.
- IRS, Gifts from foreign person, General rule and Reporting requirements.
- Form 3520, revision December 2023, Part IV, lines 54 through 56.
Prepared by Noah Green, CPA, CFE.