The direct answer
Money "from your parents" can reach you in two very different ways, and Form 3520 treats them as different categories:
- A gift from your parent personally (a nonresident alien individual) is a foreign gift, reported in Part IV only if your related total for the year is more than $100,000. It is generally not taxable income.
- A distribution from a foreign trust — even a family trust your parent created — is reported in Part III, has no $100,000 threshold, carries a much larger penalty if missed, and may be taxable.
Calling a trust distribution a "gift" does not move it into Part IV. If a foreign trust is involved at all, get professional help.
| Gift from a nonresident individual | Distribution from a foreign trust | |
|---|---|---|
| Form 3520 part | Part IV | Part III |
| Reporting threshold | More than $100,000 for the year from related foreign persons | No gift threshold — Part III applies to distributions received |
| Income tax | Generally not income to you | May be taxable, depending on the trust and the distribution |
| Penalty for not reporting (per the instructions) | 5% of the gift per month, up to 25% | Greater of $10,000 or 35% of the gross value of the distributions |
| Complexity | Usually manageable | High — professional review strongly recommended |
Why the IRS separates them
A gift is a transfer from a person. A trust is an arrangement that holds assets for beneficiaries, and its distributions can carry out income the trust earned — sometimes income accumulated over many years. The tax code has special rules so that U.S. beneficiaries cannot receive a foreign trust's income tax-free just because it is paid out as a "gift." That is why:
- The IRS's foreign gift guidance says distributions from a foreign trust are reported in Part III, and that if an amount would be reportable in both Parts III and IV, you report it only in Part III.
- The tax code's definition of a foreign gift excludes distributions properly disclosed as foreign trust distributions.
- Part III asks for more information — including, for some trusts, figures for distributions from earlier years.
How the tax result can differ
This guide does not explain how to calculate the tax on a foreign trust distribution. At a high level, the Form 3520 instructions show that the answer depends on the trust's type and the information the trust provides:
- Foreign grantor trust: if you receive a complete Foreign Grantor Trust Beneficiary Statement (part of Form 3520-A), the instructions say you treat the distribution for income tax purposes as if it came directly from the trust's owner. For example, if the distribution is a gift from the owner, you do not include it in gross income. You attach the statement.
- Foreign nongrantor trust: Part III asks whether you received a Foreign Nongrantor Trust Beneficiary Statement. Without adequate information from the trust, a default calculation based on distributions in prior years can apply, and part of a distribution may be treated as an accumulation distribution with special tax consequences.
These are exactly the questions a tax professional experienced with foreign trusts should answer.
How to tell which one you have
- Whose account did the money come from? A parent's personal account points to a gift. An account in the name of a trust, foundation, trustee, or similar structure points to a trust distribution.
- Are there trust documents? A trust deed, a list of beneficiaries, or a trustee (often a bank or trust company) are strong signs.
- Did anyone send you a beneficiary statement? That is a clear sign you are dealing with a foreign trust.
- Did the money come through an estate or a trust after a death? A bequest from a foreign estate is Part IV; a distribution from a trust is Part III.
Foreign trust reporting involves classification questions, information you must obtain from the trust, possible tax on distributions, and penalties that start at $10,000. Don't file Part III — or decide that Part IV covers a trust payment — without help from a CPA or tax attorney experienced with foreign trusts.
A worked example
Sophia, a U.S. citizen, receives two transfers in 2025:
- $60,000 from her mother's personal account in Hong Kong. Her mother is a nonresident alien. This is a foreign gift. Because it is not more than $100,000 (and there are no other related gifts), Part IV is not required for it, and it is generally not income.
- $60,000 from a family trust her grandfather set up in Singapore, paid by the trustee. This is a foreign trust distribution. It goes in Part III of Form 3520 regardless of the $100,000 gift threshold, and whether any of it is taxable depends on the trust. Sophia gets professional help.
Same amount, same family, two completely different answers.
Records to request and keep
- The source account name for every transfer
- Trust documents and the trustee's contact information
- Any Foreign Grantor or Nongrantor Trust Beneficiary Statement
- A history of distributions you received in earlier years
- For ordinary gifts, evidence that the money came from the individual personally