IRS Form 3520 – Reporting Transactions with Foreign Trusts and the Receipt of Foreign Gifts

Share this Article
Facebook Icon LinkedIn Icon Twitter Icon
Jason B. Freeman

Jason B. Freeman

Managing Member

214.984.3410
jason@freemanlaw.com

Mr. Freeman is the founding member of Freeman Law, PLLC. He is a dual-credentialed attorney-CPA, author, law professor, and trial attorney.

Mr. Freeman has been named by Chambers & Partners as among the leading tax and litigation attorneys in the United States and to U.S. News and World Report’s Best Lawyers in America list. He is a former recipient of the American Bar Association’s “On the Rise – Top 40 Young Lawyers” in America award. Mr. Freeman was named the “Leading Tax Controversy Litigation Attorney of the Year” for the State of Texas for 2019 and 2020 by AI.

Mr. Freeman has been recognized multiple times by D Magazine , a D Magazine Partner service, as one of the Best Lawyers in Dallas, and as a Super Lawyer by Super Lawyers, a Thomson Reuters service. He has previously been recognized by Super Lawyers as a Top 100 Up-And-Coming Attorney in Texas.

Mr. Freeman currently serves as the chairman of the Texas Society of CPAs (TXCPA). He is a former chairman of the Dallas Society of CPAs (TXCPA-Dallas). Mr. Freeman also served multiple terms as the President of the North Texas chapter of the American Academy of Attorney-CPAs. He has been previously recognized as the Young CPA of the Year in the State of Texas (an award given to only one CPA in the state of Texas under 40).

What is Form 3520?

Form 3520 is an information return used by U.S. persons, and executors of estates of U.S. decedents, to report transactions with foreign trusts, ownership of foreign trusts, creation of foreign trusts, death of certain U.S. decedents who own, or whose gross estate includes, any portion of foreign trusts, and receipt of large gifts from foreign persons. A foreign trust is a non-domestic trust—that is, a trust controlled by one or more U.S. persons whose administration is outside the supervision of U.S. courts.

Filers that transact with multiple foreign trusts must provide a separate Form 3520 for each foreign trust. The form must be filed on the 15th day of the 4th month following the end of the filer’s tax year; however, filers who live and do business outside of the U.S. and Puerto Rico, and military or naval personnel stationed outside of the U.S. and Puerto Rico, have an extra 2 months to file. Spouses can file a joint Form 3520 with a joint income tax return if the spouses received property or money from the same foreign trust.

The penalty for failure to timely file Form 3520 is 35% of the gross value of the property or distribution exchanged, 5% of the gross value of the foreign trust’s assets, or $10,000—whichever is greatest. Failure to rectify the deficiency within 90 days of notice by the IRS will result in additional penalties of an undefined amount. If the failure to comply was the result of reasonable cause, not willful neglect, then there will be no penalty.

The following U.S. persons must file Form 3520:

There are seven exceptions to this reporting requirement:

 

Follow here for Freeman Law’s comprehensive Tax Treaty Resource.

 

For other posts summarizing IRS foreign reporting forms, check out our prior posts on Form 5471 and Form 5472.

Other Related Articles:

Everything That You Need To Know About International Tax Penalties

Form 3520-A, Information Return of Foreign Trusts With a U.S. Owner

Form 8865, U.S. Persons and Foreign Partnerships

The FBAR (Report of Foreign Bank and Financial Accounts): Everything You Need to Know

Why (Nearly) Every Partnership Agreement Should be Amended

 

Expert Tax Defense Attorneys

Need help with tax issues? Contact us as soon as possible to discuss your rights and the ways we can assist in your defenseWe handle all types of cases, including complex international & offshore tax compliance.  Schedule a Consultation today!