Reporting Large Gifts from Korea (Form 3520)
한국으로부터의 대규모 증여 신고 — 관련자 합산 규정이 핵심 2026
The $100,000 threshold applies on an AGGREGATE basis across related foreign donors — not separately per donor. A father, mother, and grandmother are all related parties; their gifts in the same year must be combined when testing the threshold.
Overview — Tax-Free, But Reportable 비과세지만 신고는 의무
A U.S. person receiving a gift from Korean parents, relatives, or friends owes no U.S. gift tax and no U.S. income tax on the receipt itself — the U.S. taxes the donor, not the recipient, and the donor here isn't a U.S. person. But large foreign gifts trigger a separate, mandatory reporting obligation under Form 3520, with penalties that bear no relationship to any actual tax owed (which is typically zero).
The Aggregation Rule — Related Parties Combine 합산 규정 — 관련자는 합산해야 함
"The $100,000 threshold applies per donor per year. KRW 150M from father + KRW 80M from mother = two separate donors, so only the father's larger gift needs to be tested against $100,000 individually."
"Father and mother are related parties. Their gifts in the same year are combined: KRW 150M + KRW 80M = KRW 230M aggregate. Test the combined total against the $100,000 threshold — not each gift separately."
Worked Example — Three Related Donors
Result: Form 3520 IS required — the combined $182,481 exceeds $100,000, even though no single individual's gift did. Each gift over $5,000 must be separately identified by donor once the aggregate threshold is crossed.
Penalty Mechanics — 5% Per Month, Capped at 25% 패널티 구조 — 매월 5%, 최대 25%
- 5% of the unreported gift amount for each month the failure continues, not to exceed a total of 25% — reached at month 5.
- Calculated on the FULL aggregate amount received, not just any portion deposited into or transferred to the U.S.
- Reasonable cause exception exists under §6039F(c)(2), but the standard is demanding — generally requiring circumstances beyond the taxpayer's control despite exercising ordinary care.
| Aggregate Korean gift received: KRW 300,000,000 (≈$230,000 at 1,300 KRW/$1) | |
| Form 3520 not filed; discovered/corrected after 6+ months | Penalty capped at 25% (reached at month 5, doesn't increase further) |
| Maximum penalty: $230,000 × 25% | $57,500 |
Form 3520 Is Not a Tax Return Form 3520은 세금신고서가 아님
- It is an informational reporting form, mailed separately from Form 1040 to the IRS (Ogden, Utah) — it cannot be e-filed.
- No tax is calculated or owed on the form itself — Part IV simply identifies the donor, the amount, and the nature of the gift/bequest.
- The due date generally tracks the income tax return's due date(including the standard extension), but a discretionary additional extension for the 1040 does not automatically extend Form 3520's deadline — these can diverge.
Foreign Corporations vs. Foreign Trusts — Different Thresholds 외국법인 vs. 외국신탁 — 서로 다른 기준
| Source | 2026 Threshold | Inflation-Adjusted? |
|---|---|---|
| Foreign individuals / foreign estates | $100,000 aggregate (related parties combined) | NO — fixed by statute |
| Foreign corporations / foreign partnerships | $20,573 (2026) | YES — adjusted annually for inflation |
| Distributions from a foreign trust | NO minimum — any amount must be reported | N/A |
Separate From FBAR/FATCA FBAR·FATCA와는 별개
Filing Form 3520 does not satisfy or replace FBAR or FATCA obligations. If the gifted funds are deposited into (or already sit in) a Korean bank account, that account is independently subject to FBAR ($10,000 aggregate threshold) and FATCA (Form 8938, threshold varies by filing status) — both must be filed alongside, not instead of, Form 3520.
Korean Gift Tax — A Separate, Uncredited Matter 한국 증여세 — 별개의, 공제 불가능한 문제
- Korea taxes the recipient (donee), not the donor — the opposite of the U.S. system.
- Gifts of Korean-situs assets(Korean real estate, Korean stocks, Korean business interests) to anyone trigger Korean 증여세, regardless of the recipient's own residency.
- Cash gifts from a parent's Korean bank account may or may not trigger Korean gift tax depending on Korean domestic rules and any available relationship-based deductions — this requires Korean-side analysis independent of the U.S. Form 3520 question.
- No U.S. foreign tax credit exists for Korean gift tax — FTC under §901 applies only to income taxes, and Korean gift tax is a transfer tax, not an income tax.
No Step-Up Basis for Lifetime Gifts 생전 증여는 기준가액 상향 조정(Step-Up) 없음
Step-by-Step Process 단계별 절차
- Step 1 — Identify ALL gifts received during the year from Korean individuals, corporations, partnerships, or trusts — including from multiple family members.
- Step 2 — Determine which donors are related to each other. Parents, grandparents, siblings of parents, and similar family relationships generally count as related parties for aggregation purposes.
- Step 3 — Aggregate gifts from each related-party group and test against the applicable threshold ($100,000 for individuals/estates; $20,573 for corporations/partnerships; any amount for trust distributions).
- Step 4 — Convert KRW amounts to USD using a consistent, documented exchange rate method.
- Step 5 — File Form 3520 (Part IV) if any group's aggregate exceeds its threshold, separately identifying each gift over $5,000 by donor.
- Step 6 — File FBAR/FATCA if the gifted funds are held in or deposited into Korean accounts exceeding the applicable thresholds.
- Step 7 — Document the donor's original basis for any gifted asset (not cash) to support future U.S. capital gains calculations.
5 Fully Computed Examples 실제 계산 사례 5개
| KRW 200,000,000 ÷ 1,300 | $153,846 |
| Exceeds $100,000 → Form 3520 required | No U.S. tax; Korean gift tax analysis separate |
| If deposited into a Korean account | FBAR/FATCA also required |
Korean parent gifts an apartment (parent's original purchase price: KRW 200,000,000 in 2005) to a U.S. citizen child. FMV at the time of the gift: KRW 700,000,000.
| U.S. recipient's basis = donor's original basis (KRW 200,000,000, converted at the 2005 purchase-date rate) | NOT the KRW 700,000,000 value at the time of the gift |
| Form 3520 required (FMV at gift, KRW 700M ÷ rate, exceeds $100,000) | Korean gift tax likely applies to the recipient on the Korean side |
| If later sold, the gain is calculated from the LOW carryover basis | Larger taxable gain than if this had been inherited instead (which would have stepped up to the FMV at the date of death) |
| $15,000 "gift" from a Korean corporation in which the recipient's family has an ownership interest | Exceeds the $20,573 corporate threshold? NO in this case — but close enough to warrant careful characterization review |
| If the amount were $25,000 instead | Exceeds $20,573 → Form 3520 required; IRS may scrutinize whether this is a genuine gift or a disguised dividend/compensation |
Father sends KRW 120,000,000, mother sends KRW 80,000,000, and grandmother sends KRW 50,000,000 — all in the same calendar year, all to the same U.S.-person recipient.
| Father: 120,000,000 ÷ 1,370 | $87,591 |
| Mother: 80,000,000 ÷ 1,370 | $58,394 |
| Grandmother: 50,000,000 ÷ 1,370 | $36,496 |
| Aggregate (father + mother + grandmother, all related): $87,591 + $58,394 + $36,496 | $182,481 — EXCEEDS $100,000 |
| Form 3520 IS required | This is the opposite of "no single gift exceeds $100,000, so nothing to file" |
| Korean parent gifts $150,000 of Korean stock to a U.S. citizen child (donor's original basis: $40,000) | No U.S. gift tax (donor not a U.S. person); Form 3520 required ($150,000 > $100,000) |
| U.S. recipient's basis: $40,000 (carryover from donor) — NOT $150,000 | Future sale gain calculated from the $40,000 basis |
| Dividends and any future gains: taxable going forward; account subject to FBAR/FATCA | Korean withholding on dividends creditable, passive basket |
Common Mistakes 자주 발생하는 오류
- 1 Testing each family member's gift separately against the $100,000 threshold. Related parties (parents, grandparents, and similar family relationships) must be aggregated — multiple gifts that individually stay under $100,000 can collectively trigger the filing requirement.
- 2 Using outdated foreign corporation/partnership threshold figures. The 2026 threshold is $20,573, adjusted annually for inflation — verify the current-year figure rather than relying on a prior year's number.
- 3 Treating foreign trust distributions as subject to the same dollar threshold as corporate gifts. Trust distributions have no minimum threshold at all — any amount received from a foreign trust must be reported.
- 4 Assuming a gifted asset receives a stepped-up basis like an inherited asset would. Lifetime gifts carry over the donor's original basis — this is a materially different (and often less favorable) result than the step-up basis inherited assets receive.
- 5 Believing Form 3520 calculates or assesses any tax. It is purely an informational return — the only consequence of non-filing is the penalty, not a tax assessment on the gift itself.
- 6 Not separately filing FBAR/FATCA when gifted funds are deposited into a Korean account. Form 3520 addresses the gift reporting; the account itself remains independently subject to FBAR/FATCA thresholds.
- 7 Assuming Korean gift tax is creditable against any U.S. tax. It is a transfer tax, not an income tax, and is never creditable via Form 1116 — it is a separate, uncoordinated cost on the Korean side.
- 8 Treating a "gift" from a family-owned Korean corporation as automatically a genuine gift. The IRS scrutinizes these transfers closely and may recharacterize them as disguised dividends or compensation, triggering full income tax consequences beyond the Form 3520 reporting failure.
Hanmi CPA Insight
The aggregation rule is the single detail most likely to be gotten backwards in casual explanations of Form 3520, and getting it backwards has real consequences. The intuitive read — "each family member's gift is tested on its own against $100,000" — feels reasonable and is exactly wrong. The statute combines gifts from related foreign persons, which means a Korean-American family that thoughtfully splits a large transfer across both parents and a grandparent specifically to keep each individual gift under $100,000 has not avoided the filing requirement at all — they've simply created three smaller gifts that still aggregate above the threshold. Any family considering how to structure gifts from multiple Korean relatives in the same year should run the combined total first, not the individual amounts.
The carryover basis rule for lifetime gifts deserves equal attention because it cuts against the common assumption that "getting an asset for free" is unambiguously the best outcome. A Korean parent who gifts long-held, highly appreciated stock or real estate during their lifetime passes along their own low original basis — meaning the recipient inherits not just the asset, but also the entire built-in gain, taxable in full whenever they eventually sell. The same asset, left to the same recipient through inheritance instead, would receive a fresh basis at the date-of-death fair market value, erasing that built-in gain for U.S. tax purposes entirely. This is a genuine, quantifiable reason why timing — gift now versus inherit later — can matter enormously for highly appreciated Korean assets, and it's a conversation worth having explicitly with Korean parents who are actively deciding how and when to transfer wealth to U.S.-based children.
Because the underlying U.S. tax on a foreign gift is virtually always zero, every dollar of Form 3520 penalty exposure is a pure compliance-failure cost with no offsetting benefit. This makes Form 3520 one of the rare areas of international tax where getting the mechanics exactly right — the aggregation rule, the correct threshold for the source type, the independent FBAR/FATCA obligation — has no tax-planning trade-off at all. There is no scenario where understanding these rules correctly costs a Korean-American family more tax; it only ever protects against an entirely avoidable penalty.