What is the Form 3520?

Form 3520 is an informational return used by U.S. taxpayers to report transactions with certain foreign trusts, ownership of foreign trusts, and receipts of large gifts from foreign entities. In this article, we'll provide the exact steps for filling out Form 3520 and other important information you need to know.

• Type of information included in Form 3520:
• Identifying information about the filer and the foreign trust or donor.
• Details of transactions with foreign trusts, including transfers to the trust, ownership of the trust, and distributions received from the trust.
• Information on large gifts or bequests received from foreign persons, including the amount and the donor's details.
• Financial information related to the foreign trust, such as the value of assets transferred to or distributed from the trust.
• Legal and financial documentation supporting the reported transactions and ownership structures.

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Who needs to file the Form 3520?

Form 3520 is generally required to be filed by U.S. taxpayers who have transactions with foreign trusts, own foreign trusts, or receive large gifts from foreign entities. This includes U.S. citizens, resident aliens, trusts, estates, and domestic entities that are considered owners of a foreign trust under the Internal Revenue Code. However, there are certain exceptions to this filing requirement, as outlined below:

• Small gifts: If the aggregate value of gifts received from a nonresident alien individual or foreign estate is less than $100,000 during the tax year, the taxpayer is not required to file Form 3520.
• Gifts from foreign corporations or partnerships: Taxpayers are not required to report gifts from foreign corporations or partnerships if the total value of gifts received from all sources is less than $16,815 for the tax year 2021 (adjusted annually for inflation).
• Qualified obligations: Certain loans from foreign trusts that meet the requirements of a "qualified obligation" are not required to be reported on Form 3520, provided that the U.S. person reports the loan's interest income.
• Transfers to foreign trusts by reason of death: Transfers to a foreign trust by reason of the taxpayer's death are not required to be reported on Form 3520 if the property transferred is reported on a timely filed U.S. estate tax return.
• Foreign trusts with a U.S. owner: A foreign trust with a U.S. owner that files Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner, is not required to file Form 3520 for the same tax year.

Essential updates to the Form 3520

For the most recent updates to Form 3520, taxpayers should be aware of the following changes:

• Annual exclusion for gifts: The annual exclusion for gifts from foreign corporations or partnerships has been adjusted for inflation. For the tax year 2021, the exclusion amount is $16,815, up from the previous year's limit.
• Form 3520 instructions: The IRS periodically updates the instructions for Form 3520 to provide clarification and guidance on reporting requirements.
• Penalty relief: In some cases, the IRS may provide penalty relief for taxpayers who fail to timely file Form 3520 or who make an incomplete or incorrect filing.

It is important for taxpayers to stay informed about any changes to Form 3520 and its reporting requirements. The IRS website is a valuable resource for obtaining the most up-to-date information on tax forms and instructions.

2024 Form 3520 filing deadlines

Form 3520 is generally due on the 15th day of the 4th month following the end of the U.S. person's tax year. If an extension is granted for filing the income tax return, the form's due date is extended to the 15th day of the 10th month following the end of the tax year. Special rules apply for individuals living outside the United States and Puerto Rico, as well as for U.S. decedents and their estates.

Exact deadline dates for 2024

• General due date: 15th day of the 4th month following the end of the U.S. person's tax year (usually April 15th for individuals).
• Extended due date: 15th day of the 10th month following the end of the U.S. person's tax year (if an extension is granted for filing the income tax return).
• Special rules for individuals living outside the United States and Puerto Rico, or those in military or naval service outside the U.S. and Puerto Rico: potentially extended to the 15th day of the 6th month following the end of the tax year.

Form 3520 late payment penalty

Failure to file Form 3520 on time or underreporting the required information can result in IRS penalties. The typical fine is whichever is greater — $10,000 or 5% – 35% of the gross value of all the property, assets, and distributions that weren't reported. To avoid these penalties, ensure you give yourself enough time to complete and file Form 3520 by the appropriate deadline, which is generally the 15th day of the 4th month following the end of the U.S. person's tax year. For more information on filing deadlines and penalties.

Step-by-Step Instructions for IRS Form 3520

General Information

This form requires all information to be provided in English and all amounts in U.S. dollars. Separate forms must be filed for each foreign trust.

Part I: Information on the Filer

• Name and Address: Provide the full name and address of the U.S. person filing the form.
• Taxpayer Identification Number (TIN): Enter the TIN of the filer.
• Spouse’s TIN: If filing jointly, include the spouse’s TIN.
• Check Boxes: Indicate whether this is an initial, final, or amended return.

Part II: Transfers to Foreign Trusts

• Transfers by U.S. Persons to Foreign Trust During the Tax Year:
  • Line 1-3: Provide details of any transfers of money or property to foreign trusts.
  • Line 4-5: Describe any transactions involving foreign trusts that could lead to potential tax obligations.

Part III: Distributions from Foreign Trusts

• Distributions to U.S. Persons:
  • Line 6-8: Report any distributions received from foreign trusts.
  • Line 9-10: Detail the nature of the distributions and the relationship of the foreign trust to the U.S. recipient.

Part IV: Receipt of Foreign Gifts

• Gifts or Bequests from Foreign Persons:
  • Line 11-14: Report gifts or bequests valued at more than the specified threshold from foreign persons.
  • Line 15-16: Provide details of the donor and the nature of the gifts or bequests.

Schedules

• Schedule A (Obligations of a Related Foreign Trust): Report transactions involving obligations to or from related foreign trusts.
• Schedule B (Gratuitous Transfers): Detail transfers where less than fair market value was received in return.
• Schedule C (Qualified Obligations Outstanding): List any obligations considered "qualified" and still outstanding.

Additional Requirements

• Attachments: Attach any required documents such as trust instruments, transfer documents, or previous Form 3520 filings.
• Signatures: The form must be signed by the filer, declaring under penalty of perjury that the information is correct and complete.

How to file Form 3520

The primary method for filing Form 3520 is by mailing the completed form to the Internal Revenue Service Center at P.O. Box 409101, Ogden, UT 84409. The instructions do not mention an option for online filing, suggesting that postal mail is the primary method for submitting this form. When mailing Form 3520, ensure that all required attachments are included to avoid penalties for incomplete or late submissions.

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