10 Facts About Form 3520-A All Taxpayers Should Know

Foreign Trust Form 3520-A Filing Requirements & Reporting

Form 3520-A Filing Requirements & Reporting Rules

While the U.S. tax and reporting of foreign accounts, assets, and investments in general can be very complicated, the rules involving the filing and reporting of foreign trusts can be overwhelmingly complex for many tax filers. Foreign trusts are reported to the IRS on multiple international information reporting forms, including Form 3520-A, the Annual Information Return of Foreign Trust With a U.S. Owner. 

Some key issues involving foreign trust reporting include:

• • • What is a foreign trust?

    • When is a foreign trust taxable?

    • When is a foreign trust reportable?

    • Is there a trustee reporting the trust on Form 3520/3520-A?

    • Does the foreign trust qualify for any exceptions (Revenue Procedure 2020-17)?

    • What are the new foreign trust Proposed Regulations?

    • Were there any distributions?

    • Are there late forms that need to be filed?

*Golding & Golding previously published the 5 Facts About IRS Form 3520/3520-A You Should Know article back in 2020 and has since updated and expanded the list.

First, The IRS Does Not Like Foreign Trusts

The United States Government is not a big fan of foreign trusts. As a result, the IRS has significantly increased enforcement protocols designed to challenge the legitimacy of many different types of foreign trusts. Some recent examples of foreign trusts the IRS has targeted for investigation include the IRC 643(b) trusts (which seek to redefine the concept of Distributable Net Income) and Malta Pension Plans. 

When is Form 3520-A Due?

Unlike most international reporting forms such as Form 3520, the IRS Form 3520-A is typically due on March 15th and not April 15th. Therefore, it is important for taxpayers who have ownership of a foreign trust to be aware of this filing requirement date — since the Form 3520-A filing date may be different than the remainder of the forms the Taxpayer must file during the tax year.

Can You Apply for an Extension?

Yes, but to apply for an extension for Form 3520-A, the taxpayer files an IRS Form 7004 instead of Form 4868. Form 7004 is used to request an extension for several types of reporting forms, including Form 3520-A.

Appointing a U.S. Agent and Form 3520-A

Most Taxpayers do not want to provide full copies of their trust documents to the IRS if they can avoid doing so. Therefore, if the taxpayer appoints a U.S. agent, they may be able to avoid having to submit certain documentation to the IRS such as copies of the underlying trust.

Foreign Grantor Trust Owner Statements

In addition to having to report the income statement and balance sheet as pa, Foreign Grantor Trust Owners must also prepare and submit a Foreign Grantor Trust owner statement for each owner of the trust.

• • • “Trustee (or U.S. owner if a substitute Form 3520-A) must prepare a separate statement for each U.S. owner and include a copy of each statement with Form 3520-A. Trustee is also required to send to each U.S. owner a copy of the owner’s statement. U.S. owner must attach a copy of its statement to Form 3520.”

Foreign Grantor Trust Beneficiary Statements

In addition to Foreign Grantor Trust Owner Statements, the taxpayer must also file foreign grantor trust beneficiary statements as well. 

• • • “Trustee (or U.S. owner if a substitute Form 3520-A) must prepare a separate statement for each U.S. beneficiary that received a distribution from the trust during the tax year and include a copy of each statement with Form 3520-A. Trustee is also required to send to each such beneficiary a copy of the beneficiary’s statement. Each U.S. beneficiary must attach a copy of its statement to its Form 3520.”

Foreign Pension Plans as Foreign Trusts

From a technical perspective, a pension plan meets all the requirements to be considered a foreign trust. Therefore, a foreign retirement plan may be reportable on Form 3520 as a foreign trust depending on the specific facts, circumstances, and ownership parameters of the pension. Luckily, there are various exceptions, exclusions, and limitations for certain foreign retirement plans. Thus, taxpayers who may be considering filing Form 3520-A. to report their foreign retirement plan should consider all the exceptions/exclusions before filing.

Is a Canadian RRSP or RRIF Reported on Form 3520/3520-A?

Even though technically a Canadian Registered Retirement Savings Plan or Registered Retirement Investment Fund can be considered a trust, the IRS does not require the filing of Form 3520-A and instead, the taxpayer can file the FBAR and Form 8938. Further information can be found in Revenue Procedure 2014-55.

What is the Revenue Procedure 2020-17 Exception?

In 2020, Revenue Procedure 2020-17 was published. This specific regulation can be used by certain taxpayers to avoid filing form 3520-A in situations in which their foreign investment qualifies as a tax-deferred retirement or non-retirement savings plan. The general concept is that the IRS wants to minimize the amount of reporting for these types of deferred retirement trusts (other reporting is still required on the FBAR and Form 8938. Noting, there are many requirements that the foreign pension plan must meet to qualify under this revenue procedure.

Treaty Election and Form 3520-A (Proposed Regulations)

When a taxpayer makes a treaty election to be treated as a non-resident for tax purposes, they can typically avoid having to pay US tax on their worldwide income and instead only pay US tax on their US-sourced income. In general, the rule does not apply to international information reporting forms, but in the recently proposed regulations issued in 2024, the U.S. government floated the idea of eliminating the form 3520-A filing requirements for taxpayers who qualify under a non-resident alien treaty election.

Penalties for Non-Compliance

The penalties for non-compliance with filing Form 3520-A can be significant and may result in significant fines. In general, the taxpayer would be penalized a 5% value of the trust, although there is a $10,000 minimum penalty so that even if the 5% value of the trust is below $10,000 come with the taxpayer would still have to pay $10,000 in penalties.

Avoiding or Abaiting Form 3520-A Penalties

For Taxpayers who did not timely file their Form 3520-A, FBAR, and other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

*This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.