Indian Gifts & Inheritance for U.S. Persons: Form 3520, Basis & U.S. Tax Records

1. Classify the transfer before looking at any threshold

A bank description saying “family transfer” is not enough.

For U.S. reporting, four transactions that feel similar inside a family can lead to different forms:

What actually happened	Main U.S. question
Parent in India gives cash or shares directly while alive	Is this a foreign gift reportable in Form 3520 Part IV?
Foreign estate distributes an inheritance	Does the $100,000 Part IV threshold apply?
Indian family trust distributes cash or property	Is this a foreign-trust distribution reportable in Part III?
Donor or decedent is a covered expatriate	Does section 2801 and Form 708 apply?

The classification should come from the legal source of the transfer, not from the recipient’s description of it.

A distribution from an estate can be a bequest. A distribution from a foreign trust can be a trust distribution. Money wired by a parent can be a gift, repayment of a genuine loan, reimbursement or the recipient’s own funds coming back.

Before filing, create a one-page memo that identifies:

• donor, decedent, estate or trust;
• relationship to the recipient;
• U.S. or foreign status of the transferor;
• legal document supporting the transfer;
• date received;
• property received;
• fair market value when relevant; and
• where the asset was held before and after the transfer.

That memo becomes the bridge between the Indian paperwork and the U.S. form.

2. The main Form 3520 rule: more than $100,000 from foreign individuals or estates

The December 2025 Form 3520 instructions remain the current IRS instructions in 2026.

They require a U.S. person to complete Part IV when the person receives more than $100,000 during the tax year from a nonresident alien individual or foreign estate and treats the amounts as gifts or bequests.

The threshold is not always tested donor by donor.

The instructions require aggregation when the recipient knows, or has reason to know, that different foreign donors are related to each other or one is acting as a nominee or intermediary for another.

Example: two parents, one reporting test

Suppose a U.S. resident receives the equivalent of:

• $68,000 from an Indian father; and
• $47,000 from an Indian mother.

Neither transfer alone exceeds $100,000.

But the parents are related foreign persons. The recipient should test the combined amount for the Form 3520 threshold rather than treating the two wires as unrelated events.

Once the aggregate threshold is crossed, the form instructions also require specified detail about reportable gifts or bequests.

The important distinction is:

threshold crossed → information reporting not automatically threshold crossed → ordinary income tax on the full receipt

3. 2026 has a different threshold for foreign corporations and partnerships

Do not apply the $100,000 individual-donor threshold to every foreign transferor.

The IRS publishes a separate, inflation-adjusted section 6039F threshold for purported gifts from foreign corporations or foreign partnerships.

For tax year 2026, that threshold is $20,573.

If a U.S. person receives purported gifts above the applicable aggregate threshold from foreign corporations, foreign partnerships, or related foreign persons, Form 3520 Part IV can be required.

This is not the normal parent-to-child India scenario, but it matters in family businesses.

For example, if a private Indian company controlled by relatives transfers money directly to a U.S. family member and calls it a “gift,” the recipient should not casually treat it as the same fact pattern as a personal gift from a parent. The IRS can also recharacterize purported corporate or partnership gifts.

The practical rule is simple:

individual/estate source → $100,000 test foreign corporation/partnership source → separate annual threshold

4. A foreign-trust distribution is not an ordinary foreign gift

This is one of the most important corrections to make before filing.

The current Form 3520 instructions say that if a U.S. person receives a distribution from a foreign trust, the amount is reported under Part III, not as an ordinary gift in Part IV.

That means the $100,000 Part IV threshold is not the rule to rely on for a trust distribution.

A foreign-trust distribution can also carry much more demanding information requirements. The recipient may need to determine:

• whether the arrangement is a foreign trust for U.S. purposes;
• whether the recipient is treated as an owner;
• whether the trust is grantor or nongrantor;
• what portion is income versus corpus;
• whether a Foreign Grantor Trust Beneficiary Statement is available;
• whether accumulated distributions are involved; and
• whether Form 3520-A responsibilities arise.

Family terminology can hide this issue.

“The family trust sent me my inheritance” is not enough to decide the U.S. form.

If a foreign trust is in the chain, treat that as a specialist U.S. tax matter before the filing deadline.

5. Covered expatriates now require a Form 708 check

The 2026 article also needs one edge case that older inheritance guides often omit.

Section 2801 imposes a separate tax regime on certain gifts and bequests received by U.S. citizens or residents from covered expatriates. The IRS issued final regulations effective in 2025 and now uses Form 708 for this reporting and tax.

A covered expatriate can be a former U.S. citizen or certain former long-term resident who met the statutory expatriation tests.

This will not apply to an ordinary Indian parent who was never a covered expatriate.

But if the donor or decedent previously gave up U.S. citizenship or long-term residency, the recipient should not assume Form 3520 is the whole answer.

The correct question becomes:

> Was the donor or decedent a covered expatriate when the gift or bequest was made?

If yes, Form 708 and section 2801 need separate review.

6. Receiving the asset is one event; basis is the next one

The inheritance may not be ordinary income when received, but the asset still needs a U.S. tax basis.

That basis determines future gain or loss.

The two most important rules are not the same.

Inherited property

IRS Publications 551, 550 and 559 state that inherited property generally takes a basis equal to fair market value at the date of the decedent’s death.

There are exceptions, including alternate valuation, special-use valuation, consistent-basis rules where applicable, and the special rule for certain appreciated property gifted back to the donor within one year before death.

For a normal inherited Indian shareholding, the permanent file should therefore preserve:

• date of death;
• asset and quantity;
• defensible fair market value at that date;
• valuation source;
• estate/succession document;
• date of eventual transmission; and
• corporate actions after death.

Do not assume the date the shares finally appear in the beneficiary’s Demat account is the valuation date for U.S. basis.

Gifted property

Gift basis works differently.

IRS guidance says the recipient needs:

• the donor’s adjusted basis immediately before the gift;
• fair market value on the gift date;
• the gift date; and
• information about any gift tax paid when relevant.

If fair market value was below donor basis at the time of the gift, the gain and loss basis rules can diverge.

That makes donor records essential.

Inheritance often starts with a death-date valuation. A lifetime gift often requires the donor’s older basis history.

Those are different record-keeping jobs.

7. Indian shares need two cost histories, not one blended number

Indian tax and U.S. tax can start from different basis rules.

RegalTicker’s core Nomination, Gifting & Inheritance guide explains that India can preserve previous-owner cost and holding history for qualifying gifts and inheritances when a later Indian capital-gain calculation is made.

The U.S. beneficiary may meanwhile use the U.S. inherited-basis rule.

Do not force one calculation into the other.

For inherited or gifted Indian company shares, keep:

1. original holder’s purchase records where available;
2. gift or succession documents;
3. gift-date or death-date valuation evidence;
4. bonus, split, rights, merger and demerger records;
5. Demat transmission/transfer statement;
6. dividends received after ownership changes;
7. later sale contract note;
8. Indian capital-gain/TDS work; and
9. separate U.S. basis work.

The NRI Demat Account guide is the better page for holding and account mechanics.

If the inherited shareholding later undergoes a demerger, the Demerger Cost Basis Calculator can organise the India-side company allocation. Keep that calculation alongside the U.S. basis file rather than assuming the Indian allocation automatically answers every U.S. question.

8. Indian mutual funds can create a second U.S. reporting problem

Receiving Indian mutual-fund units can create two separate U.S. questions.

First:

> Was the receipt itself a reportable gift, bequest or trust distribution?

Second:

> What is the U.S. tax classification of the fund now owned by the U.S. person?

Foreign pooled investments can fall into the Passive Foreign Investment Company regime and create Form 8621 obligations.

That means Form 3520 does not finish the job.

Preserve:

• legal fund/scheme name;
• folio;
• units received;
• date received;
• value when received;
• predecessor records where relevant;
• subsequent distributions;
• switches;
• redemptions; and
• year-end values.

For India-side fund mechanics, use the NRI Mutual Fund Investing guide.

A later redemption can require an Indian gain calculation and a separate U.S. PFIC analysis. The numbers should not be assumed to match.

9. Cash inheritance is easy to value but easy to misreport

Cash removes the valuation problem of shares, but not the reporting problem.

Assume a U.S. person receives $175,000 equivalent from an Indian parent’s foreign estate.

The receipt can exceed the Form 3520 threshold even if the inheritance itself is not ordinary U.S. income.

The file should contain:

• will or succession evidence;
• death certificate;
• executor/estate statement;
• beneficiary entitlement;
• amount distributed;
• transfer date;
• U.S.-dollar value used for reporting;
• estate bank statement;
• receiving bank statement; and
• later remittance documentation where relevant.

If the cash first remains in an Indian account owned by the U.S. person, separate FBAR or Form 8938 questions can arise from the account.

A later wire from India to the United States is a remittance event, not a second inheritance.

For the India-side transfer trail, use RegalTicker’s NRI Repatriation from India guide.

10. India’s receipt rules are separate from U.S. reporting

The Income-tax Act, 2025 now carries India’s current deemed-income rule for certain money and property received without or for inadequate consideration.

Section 92 contains important exceptions.

The deemed-income provision does not apply to qualifying money or property received:

• from a specified relative;
• under a will or by way of inheritance;
• on the occasion of marriage;
• in contemplation of death; and
• in certain other statutory situations.

For an individual, the statutory relative definition includes close family categories such as spouse, siblings, specified relatives of the spouse or parents, lineal ascendants and descendants, and specified spouses of those relatives.

That is why an inheritance or a genuine gift from parents can be treated differently in India from a gift from an unrelated person.

But Indian income-tax treatment does not decide Form 3520.

A transfer can be exempt from the Indian deemed-income rule and still require U.S. information reporting.

11. FEMA determines how inherited Indian assets can be held and moved

For securities, the current RBI foreign-investment Master Direction says a person resident outside India may hold Indian securities inherited from a person resident in India.

The inherited investment is held on a non-repatriation basis under that framework.

That point matters later when the securities are sold.

It does not mean the proceeds can never leave India. It means the correct NRO/remittance-of-assets route and supporting documents need to be used rather than treating the holding as automatically freely repatriable NRE money.

For immovable property, RBI regulations allow NRI/OCI inheritance subject to the foreign-exchange framework, while lifetime gifts can have additional restrictions depending on the property and parties.

The details belong in the core Nomination, Gifting & Inheritance guide. This U.S. article only needs the handoff:

ownership/transmission under India rules → U.S. reporting and basis → later tax/remittance

12. A later sale creates a new two-country tax calculation

The original inheritance and the eventual sale should never be merged into one event.

When a U.S. person later sells inherited Indian shares or property, the file can require:

• U.S. inherited basis;
• U.S.-dollar proceeds;
• U.S. holding-period treatment;
• Indian acquisition-cost rules;
• Indian capital-gain calculation;
• Indian tax paid or withheld;
• U.S. source/foreign-tax-credit analysis; and
• remittance records.

Inherited capital assets are generally treated as long-term for U.S. federal capital-gain purposes regardless of the beneficiary’s actual holding period, subject to special exceptions.

The Indian result can still differ because India can use a different cost and holding-period framework.

For the India-side share-sale calculation, use RegalTicker’s NRI Capital Gains & TDS guide.

The same principle applies to property.

inheritance → later rent → later sale → later remittance

Those are four possible events, not one.

13. Form 3520 deadlines and penalties are not a minor footnote

For a calendar-year U.S. person, Form 3520 is generally due on the 15th day of the fourth month after year-end.

The current instructions also provide the June 15 timing for qualifying U.S. citizens or residents living and working outside the United States, subject to the stated conditions.

If an extension of time to file the income-tax return is granted, Form 3520 is generally due no later than the 15th day of the tenth month after year-end.

Form 3520 is filed separately under its own instructions rather than simply buried in the supporting schedules of Form 1040.

For foreign gifts reportable under section 6039F, the penalty for late reporting is 5% of the amount of the foreign gift for each month the failure continues, up to 25%, unless the taxpayer establishes reasonable cause and absence of willful neglect.

Foreign-trust penalties can be different and materially harsher.

This is why a transaction with no immediate U.S. income-tax bill can still create a very expensive compliance problem.

14. Build the permanent inheritance file before the first sale

A useful file is organised around evidence, not around forms.

For a lifetime gift

Keep:

• signed gift deed or written statement;
• donor identity and relationship;
• donor’s U.S./foreign status;
• donor’s historic basis;
• gift-date fair market value;
• transfer date;
• bank/Demat transfer evidence;
• India-side tax/FEMA records; and
• Form 3520 filing evidence where required.

For an inheritance

Keep:

• will or succession documents;
• death certificate;
• probate, estate or legal-heir papers where relevant;
• executor/estate statement;
• death-date valuation;
• transmission statement;
• predecessor cost records for the India-side calculation;
• later income/sale records; and
• Form 3520 filing evidence where required.

For a foreign-trust distribution

Keep the trust deed, trustee details, beneficiary statement and distribution records needed to determine the trust classification and Part III treatment.

For a covered expatriate

Preserve the donor/decedent’s expatriation information and obtain advice on Form 708 rather than treating the transfer as an ordinary foreign gift.

The strongest cross-border file lets another adviser reconstruct the whole story without guessing.

A clean record turns a complicated inheritance into a manageable file

The practical lesson is not that every inheritance from India is taxable in the United States.

It is that receipt, reporting, basis, ownership and later taxation are separate layers.

For an ordinary gift or bequest from a nonresident Indian parent, the first U.S. question is usually Form 3520 and its threshold. For a foreign trust, the reporting route changes. For a covered expatriate, Form 708 can enter the picture. Once the asset is owned, inherited and gifted property can carry very different basis rules.

On the India side, the inheritance or qualifying family gift can be outside the deemed-income rule, while FEMA still controls how an NRI or other nonresident holds and later remits Indian assets.

Treat each layer separately and the file becomes understandable.