Form 3520: Tips and Tricks to Reporting Foreign Trusts

Any expat who owns a foreign trust or has received foreign gifts or bequests that meet the threshold described below is going to want to get acquainted with Form 3520. Find out who needs to file and when in our guide below.

Form 3520 vs. Form 3520-A

Form 3520, otherwise known as the Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, is the form expats can use to report certain transactions with foreign trusts, ownership of foreign trusts, and receipt of large gifts or bequests from foreign persons. You must file this form if reportable events occurred during the applicable tax year, or if you are considered the owner of any part of the assets of a foreign trust, as defined by the IRS’ process for foreign grantor determination. Plus, the IRS requires this form from those who receive a distribution of more than $100,000 from a non-residential alien or foreign estate.

Keep in mind that there are exceptions to those who have to file, including most fair market value transfers by US expats into a foreign trust. And, the IRS generally considers retirement plans to be foreign trusts, so don’t forget to include those in your filing!

Form 3520-A, also known as the Annual Information Return of Foreign Trust With a US Owner, is very closely connected to the Form 3520. If there is more than one owner of the trust, each owner must separately ensure that the form is filled out correctly and filed.

Important differences between the forms exist, so you may want to check out these example scenarios of expats who needed to file in both situations. Plus, the order of operations matters a bit in this case too, since the trustee will file Form 3520-A that includes the info the grantor needs in order to complete Form 3520.

Deadlines

Beware: the deadlines for these two forms are different! Form 3520 follows the regular schedule of IRS tax return deadlines and is due April 15th (unless Tax Day falls on a different day for that specific year), with expats receiving an automatic two-month extension through June 15th. Form 3520-A is due on March 15th, so this will be yet another deadline to tuck into your file of important expat tax information!

Penalties for Failure to File

If you get behind on these forms, some penalties may apply. For Form 3520-A, the initial penalty is the greater of $10,000 or 5% of the gross value of the portion of the trust’s assets treated as owned by the US person when the tax year closes.

For failure to file Form 3520, the penalty is the greater of $10,000 or 5% of the gross value of the portion of the trust’s assets treated as owned by the US person when the tax year closes.

In addition to those, two other penalties may apply. Failure to report the creation or transfer to a foreign trust can result in a 35% penalty on the gross value of any property transferred to a foreign trust. Lastly, failure to report distributions received from a foreign trust by a US person results in a 35% penalty of the gross value of the distributions.

Greenback Can Help You Get Back on Track

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Free Guide: The 25 Things Every Expat Needs to Know About Taxes

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