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Distributions from foreign trusts to domestic trusts that

chief accounting officer, or any other corporate officer (such

have a current determination letter from the IRS recognizing

as a tax officer) who is authorized to sign.

their status as exempt from income taxation under section

The paid preparer must complete the required preparer

501(c)(3).

information at the bottom of page 1 of Form 3520 and must

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Domestic trusts that become foreign trusts to the extent

be sure to:

the trust is treated as owned by a foreign person, after

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Sign the return in the space provided for the preparer’s

application of section 672(f).

signature.

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Give a copy of the return to the filer.

Joint Returns

Two transferors or grantors of the same foreign trust, or two

Inconsistent Treatment of Items

U.S. beneficiaries of the same foreign trust, may file a joint

The U.S. beneficiary and U.S. owner’s tax return must be

Form 3520, but only if they file a joint income tax return.

consistent with the Form 3520-A, Annual Information Return

Additional Reporting Information

of Foreign Trust With a U.S. Owner, filed by the foreign trust

unless you report the inconsistency to the IRS. If you are

For more information on foreign trust reporting, including

treating items on your tax return differently from the way the

abusive foreign trust schemes, go to the IRS website at

foreign trust treated them on its return, file Form 8082,

IRS.gov.

Notice of Inconsistent Treatment or Administrative

Adjustment Request (AAR). See Form 8082 for more

When and Where To File

details.

In general, Form 3520 is due on the date that your income

tax return is due, including extensions. In the case of a Form

Penalties

3520 filed with respect to a U.S. decedent, Form 3520 is

due on the date that Form 706, United States Estate (and

Section 6677. A penalty generally applies if Form 3520 is

Generation-Skipping Transfer) Tax Return, is due (including

not timely filed or if the information is incomplete or

extensions), or would be due if the estate were required to

incorrect. Generally, the initial penalty is equal to the greater

file a return, even if the executor of the decedent’s estate

of $10,000 or:

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made the special election under section 301(c) of the Tax

35% of the gross value of any property transferred to a

Relief, Unemployment Insurance Reauthorization, and Job

foreign trust for failure by a U.S. transferor to report the

Creation Act of 2010 (2010 Tax Relief Act).

creation of or transfer to a foreign trust or

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35% of the gross value of the distributions received from a

Note. The due date for Form 706 for 2010 estates of

foreign trust for failure by a U.S. person to report receipt of

decedents who died after December 31, 2009, and before

the distribution or

December 17, 2010, is September 19, 2011. For decedents

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5% of the gross value of the portion of the trust’s assets

who died on or after December 17, 2010, the due date is

treated as owned by a U.S. person for failure by the U.S.

nine months after the date of death.

person to report the U.S. owner information.

Special election under section 301(c) of the 2010 Tax

Relief Act. The executor of an estate of a decedent dying

Additional penalties will be imposed if the noncompliance

in 2010 may make the special election under section 301(c)

continues after the IRS mails a notice of failure to comply

of the 2010 Tax Relief Act to elect out of the estate tax rules

with the required reporting. For more information, see

and instead have the modified carryover basis rules of

section 6677.

section 1022 apply to property acquired from the decedent.

Reasonable cause. No penalties will be imposed if the

The election is made on Form 8939, Allocation of Increase

taxpayer can demonstrate that the failure to comply was due

in Basis for Property Acquired From a Decedent. At the time

to reasonable cause and not willful neglect.

these instructions went to print, the IRS was still developing

Form 8939. When available, this form will be posted at

Note. The fact that a foreign country would impose

IRS.gov. For more information about making the election,

penalties for disclosing the required information is not

see the Instructions for Form 8939 and Pub. 4895, Tax

reasonable cause. Similarly, reluctance on the part of a

Treatment of Property Acquired From a Decedent Dying in

foreign fiduciary or provisions in the trust instrument that

2010, when they become available.

prevent the disclosure of required information is not

reasonable cause. See section 6677(d) for additional

Send Form 3520 to the Internal Revenue Service

information.

Center, P.O. Box 409101, Ogden, UT 84409.

Form 3520 must have all required attachments to be

Section 6039F. In the case of a failure to report foreign

considered complete.

gifts described in section 6039F, a penalty equal to 5% of

Note. If a complete Form 3520 is not filed by the due date,

the amount of such foreign gifts applies for each month for

including extensions, the time for assessment of any tax

which the failure to report continues (not to exceed a total of

imposed with respect to any event or period to which the

25%). No penalty will be imposed if the taxpayer can

demonstrate that the failure to comply was due to

information required to be reported in Parts I through III of

reasonable cause and not willful neglect. See section 6039F

such Form 3520 relates, will not expire before the date that

is 3 years after the date on which the required information is

for additional information.

reported. See section 6501(c)(8).

Section 6662(j). For tax years beginning after March 18,

2010, penalties may be imposed under new section 6662(j)

Who Must Sign

for undisclosed foreign financial asset understatements. No

If the return is filed by:

penalty will be imposed with respect to any portion of an

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An individual or a fiduciary, it must be signed and dated

underpayment if the taxpayer can demonstrate that the

by that individual or fiduciary.

failure to comply was due to reasonable cause with respect

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A partnership, it must be signed and dated by a general

to such portion of the underpayment and the taxpayer acted

partner or limited liability company member.

in good faith with respect to such portion of the

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A corporation, it must be signed and dated by the

underpayment. See section 6662(j) and section 6664(c) for

president, vice president, treasurer, assistant treasurer,

additional information.

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Instructions For Form 3520 - Annual Return To Report Transactions With Foreign Trusts And Receipt Of Certain Foreign Gifts - 2010 Page 2

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