Tax Penalty Nightmare - Jan 6, 2025
How a $400k gift from his parents almost gave Dr. Cardio a $200k heart attack!
Dr. Cardio, fresh out of residency and ready to conquer the heart world, received a generous graduation gift from his parents, who live in Iran.
The gift amount? $400k!
Excited, he put the $400k toward the down payment on a 1,000-square-foot fixer-upper cottage in Bellevue, WA.
The price tag? A cool $2 million.
Fast forward three years, and Dr. Cardio’s mailbox brought an unwelcome surprise:
a CP15 Notice from the IRS.
The message?
Dr. Cardio owes the IRS a jaw-dropping $200k penalty for failing to file Form 3520 to report the $400k foreign gift he received from his parents.
Dr. Cardio went into paroxysmal SVT that persisted for months—right up until he hired a smart tax professional who convinced the IRS to waive the penalty by demonstrating reasonable cause.
The moral of the story?
If you receive a large gift from a foreign person totaling over $100k,
File Form 3520 by your tax due date (April 15 or with an extension, October 15) to avoid this scary penalty equal to 5% of the gift amount per month (up to a maximum of 25%).
The more tax rules you understand, the more financial heartache you can avoid!
Disclaimer
One of my heroes, Mel Herbert, MD, founder of EM-RAP, may have once said:
“Don’t just do something, stand there.”
That would be my advice to you after reading my blog—stand there (for now) and don’t do anything (yet).
Why?
While I am a tax professional, I am not your tax professional. I do not know your particular situation, and tax matters can be complex. What works for one person may not work for another.
Before taking action, assess your situation and consult with your tax professional to ensure any strategy aligns with your specific circumstances.