Form 3520-A Foreign Trust Reporting

Form 3520-A is the annual information return for a foreign trust with at least one U.S. owner. The U.S. owner is responsible for ensuring that the foreign trust files a complete Form 3520-A and provides the required statements to U.S. owners and U.S. beneficiaries.

If the foreign trust does not file Form 3520-A, the U.S. owner may need to prepare a substitute Form 3520-A and attach it to the owner’s Form 3520 to avoid the Form 3520-A failure-to-file penalty.

Colorado Legal assists U.S. owners of foreign trusts with Form 3520-A, substitute Forms 3520-A, Form 3520, delinquent filings, foreign trust EIN issues, reasonable-cause submissions, penalty notices, and related international reporting. Philip M. Falco is both a Colorado attorney and Certified Public Accountant.

What Is Form 3520-A?

Form 3520-A is formally titled Annual Information Return of Foreign Trust With a U.S. Owner.

It reports information concerning:

• the foreign trust;
• the trust’s income and expenses;
• the trust’s assets and liabilities;
• U.S. persons treated as owners of portions of the trust;
• U.S. beneficiaries; and
• certain distributions and ownership information.

Who Is Responsible for Filing Form 3520-A?

A foreign trust with a U.S. owner generally must file Form 3520-A to satisfy the annual information-reporting requirements of Section 6048(b).

However, each U.S. person treated as an owner of any portion of the foreign trust under the grantor-trust rules is responsible for ensuring that the trust files the return and furnishes the required statements.

This means the U.S. owner can face penalties even when the foreign trustee, rather than the U.S. owner personally, failed to prepare or submit the form.

What Is a U.S. Owner of a Foreign Trust?

Ownership for Form 3520-A purposes is determined under the U.S. grantor-trust rules, principally Sections 671 through 679.

A person can be treated as the owner of all or part of a foreign trust even though legal title to the trust assets is held by the foreign trustee.

Foreign trust ownership can arise through:

• creation or funding of a foreign trust;
• specified powers retained by a grantor;
• beneficial interests involving U.S. persons;
• certain transfers to foreign trusts with U.S. beneficiaries; and
• other grantor-trust provisions.

Form 3520-A vs. Form 3520

Form	General Purpose
Form 3520-A	Annual information return of a foreign trust with at least one U.S. owner
Form 3520	Reports U.S. ownership, transactions with foreign trusts, distributions, and certain foreign gifts and inheritances

A U.S. owner frequently has obligations involving both forms.

See our Form 3520 — Foreign Gifts, Inheritances & Trusts guide for the related Form 3520 rules.

When Is Form 3520-A Due?

Form 3520-A generally is due by the 15th day of the third month after the end of the foreign trust’s tax year.

For a calendar-year foreign trust, this generally means March 15.

The due date is based on the foreign trust’s tax year rather than the U.S. owner’s individual income-tax return due date.

How Do You Extend Form 3520-A?

An automatic six-month extension generally can be requested by timely filing Form 7004.

The Form 7004 must:

• identify the foreign trust;
• use the foreign trust’s Employer Identification Number;
• be filed by the normal Form 3520-A due date; and
• otherwise satisfy the Form 7004 filing requirements.

An Income Tax Extension Does Not Extend Form 3520-A

This is a common filing trap.

An extension of Form 1040, Form 1041, or another income-tax return does not automatically extend Form 3520-A.

The foreign trust generally must file Form 7004 using its own EIN to obtain the Form 3520-A extension.

The Foreign Trust Needs an EIN

The IRS requires the foreign trust to be identified using an Employer Identification Number on Form 3520-A.

The U.S. owner’s Social Security number or ITIN should not be substituted for the trust’s EIN in the field used to identify the foreign trust.

If the foreign trust does not already have an EIN, an EIN generally must be obtained before the Form 3520-A or Form 7004 filing can be completed correctly.

What Statements Are Included With Form 3520-A?

A complete Form 3520-A includes important annual statements for U.S. owners and beneficiaries.

These generally include:

• Foreign Grantor Trust Owner Statement; and
• Foreign Grantor Trust Beneficiary Statement.

The trust must provide the applicable statements to U.S. owners and beneficiaries as required by the Form 3520-A instructions.

Only a Complete Form 3520-A Is Timely

The IRS instructions state that only a complete Form 3520-A is considered timely filed.

Missing schedules, statements, attachments, or required information can therefore create a penalty issue even where a partially completed form was physically submitted before the deadline.

What Is a Substitute Form 3520-A?

If the foreign trust does not timely file Form 3520-A, the U.S. owner can be required to prepare a substitute Form 3520-A.

The substitute is completed to the best of the U.S. owner’s ability and attached to the U.S. owner’s Form 3520.

The U.S. owner also generally must complete Part II of Form 3520.

When Is a Substitute Form 3520-A Due?

A substitute Form 3520-A follows the due date of the U.S. owner’s Form 3520—not the ordinary March 15-style Form 3520-A due date.

For a calendar-year individual, Form 3520 generally is due April 15, or October 15 when a proper extension applies.

This distinction is important because the substitute procedure is designed to protect the U.S. owner when the foreign trust itself has not fulfilled the normal Form 3520-A filing requirement.

Do Not File a Duplicate Form 3520-A

If the U.S. owner files a substitute Form 3520-A attached to Form 3520, the IRS cautions against separately filing a duplicate Form 3520-A for the same trust and period.

The substitute procedure should therefore be implemented consistently rather than by sending multiple competing copies of the same return.

What Is Reported on Form 3520-A?

Depending on the trust, the form can require information concerning:

• trust identification and formation;
• trustee information;
• U.S. owners;
• U.S. beneficiaries;
• foreign grantors;
• income;
• capital gains and losses;
• deductions;
• trust assets;
• trust liabilities;
• distributions;
• ownership percentages; and
• income attributable to U.S. owners.

Foreign Currency and Language Requirements

The IRS requires Form 3520-A information to be provided in English and amounts to be reported in U.S. currency.

This often means foreign trust statements and accounting records need to be translated and converted before the U.S. reporting package can be prepared.

Foreign Trust Accounting Records

Preparation of Form 3520-A can require much more than copying values from a foreign trust statement.

Useful records can include:

• trust deed and amendments;
• trustee statements;
• bank statements;
• brokerage statements;
• asset valuations;
• foreign financial statements;
• income and expense ledgers;
• distribution records;
• beneficiary records;
• grantor information;
• prior Forms 3520-A;
• prior Forms 3520; and
• foreign tax records.

Form 3520-A Penalty

If a foreign trust fails to timely file a complete and accurate Form 3520-A, the U.S. owner can be subject to an initial penalty equal to the greater of:

• $10,000; or
• 5% of the gross value of the portion of the trust’s assets treated as owned by the U.S. person at the close of the tax year.

This can create significant exposure for a trust holding substantial assets even when the trust generated little taxable income.

Additional Penalties After IRS Notice

If the failure continues after the IRS mails notice and the applicable 90-day period expires, additional continuation penalties can apply.

Current IRS guidance describes additional penalties of $10,000 for each 30-day period or part of a period during which the failure continues after that period.

The continuation rules make prompt response to a Form 3520-A penalty notice particularly important.

Can Reasonable Cause Eliminate a Form 3520-A Penalty?

Potentially.

Section 6677 contains reasonable-cause relief when the taxpayer establishes the applicable statutory standard.

Reasonable cause depends on the complete facts and circumstances.

Relevant facts can include:

• whether the taxpayer knew of the foreign trust;
• whether the taxpayer understood that U.S. grantor-trust rules treated the person as an owner;
• professional advice received;
• information supplied to prior preparers;
• cooperation or noncooperation of the foreign trustee;
• the taxpayer’s compliance history;
• when the taxpayer learned of the filing failure;
• efforts to obtain trust records;
• steps taken to correct the failure; and
• other circumstances affecting compliance.

Current IRS Treatment of Reasonable-Cause Statements

Current IRS delinquent-information-return guidance provides special treatment for Forms 3520 and 3520-A.

When a reasonable-cause statement is attached to a delinquent Form 3520-A, the IRS currently states that the reasonable-cause statement will be considered before a penalty is assessed.

The IRS instructs taxpayers attaching such a statement to write ␜Reasonable Cause Statement attached␝ at the top of the first page of the form.

What If Form 3520-A Was Never Filed?

The first step is identifying the filing obligation and the missing years.

Relevant questions include:

• Was the arrangement a foreign trust for U.S. tax purposes?
• Was the taxpayer treated as an owner?
• What portion of the trust was treated as owned?
• What was the gross value of the owned portion?
• Were Forms 3520 also required?
• Were distributions made to U.S. beneficiaries?
• Were FBARs required?
• Was Form 8938 required?
• Did the trust qualify for a reporting exception?
• Has the IRS already contacted the taxpayer?
• Does reasonable cause exist?
• Was the failure non-willful?
• Would Streamlined treatment be appropriate?

Form 3520-A and Streamlined Filing Compliance

A missing Form 3520-A can be part of a larger offshore-compliance problem involving foreign accounts, trust income, distributions, Forms 3520, Form 8938, and FBARs.

Where the failures resulted from non-willful conduct, the Streamlined Filing Compliance Procedures may need to be evaluated.

Form 3520-A and Form 8938

Foreign trust ownership can also create Form 8938 issues.

The filing requirements are separate, and reporting a trust on Form 3520-A does not automatically eliminate another international reporting requirement.

Form 3520-A and FBAR

A foreign trust can also hold foreign bank or investment accounts relevant to FBAR reporting.

FBAR ownership and signature-authority rules should be analyzed separately from the foreign trust filing requirements.

Exceptions for Certain Foreign Retirement and Tax-Favored Trusts

Not every foreign pension or savings arrangement requires Form 3520-A.

IRS guidance provides exceptions for certain arrangements, including qualifying Canadian RRSPs and RRIFs and certain tax-favored foreign retirement, medical, disability, and educational trusts meeting applicable requirements.

The availability of a Form 3520-A exception does not necessarily eliminate Form 8938 or FBAR reporting.

Frequently Asked Questions

When is Form 3520-A due?

Generally, by the 15th day of the third month after the end of the foreign trust’s tax year. For a calendar-year trust, that generally means March 15.

Can Form 3520-A be extended?

Yes. A six-month extension generally can be requested using Form 7004 filed by the normal Form 3520-A due date.

Does my Form 1040 extension extend Form 3520-A?

No. Form 3520-A has a separate extension procedure using Form 7004 and the foreign trust’s EIN.

What if the foreign trustee refuses to file Form 3520-A?

The U.S. owner can have an obligation to prepare a substitute Form 3520-A and attach it to Form 3520 by the applicable Form 3520 deadline.

What is the basic Form 3520-A penalty?

The initial penalty can be the greater of $10,000 or 5% of the gross value of the portion of the trust’s assets treated as owned by the U.S. person at year-end.

Can reasonable cause provide penalty relief?

Potentially. Reasonable cause is fact dependent and should be supported by a detailed explanation and documentation when available.

Does the foreign trust need an EIN?

Yes. The IRS instructs filers to identify the foreign trust on Form 3520-A using the trust’s EIN rather than the U.S. owner’s SSN or ITIN.

Do I need both Form 3520 and Form 3520-A?

Often, yes. A U.S. owner commonly has Form 3520 reporting obligations in addition to the foreign trust’s Form 3520-A filing requirement.

Late Form 3520-A and Broader Offshore Compliance

A late or incomplete Form 3520-A may be part of a larger international filing problem. Review the delinquent international information return procedures together with the related Form 3520 reporting rules.

When omitted foreign trust reporting is connected with broader foreign income or account issues, the appropriate correction path depends on the facts, including whether the conduct was non-willful or raises potential willfulness concerns. See the Streamlined Filing Compliance Procedures and IRS Voluntary Disclosure Practice.

Official IRS Resources

• IRS — About Form 3520-A
• IRS — Instructions for Form 3520-A
• IRS — Reminder to U.S. Owners of a Foreign Trust
• IRS — International Information Reporting Penalties
• IRS — Delinquent International Information Return Procedures