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1. An explanation of the appropriate U.S. tax treatment

You answered “Yes” to line 30,

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of any distribution or deemed distribution for U.S. tax

You attach a copy of the Foreign Nongrantor Trust

purposes, or sufficient information to enable the U.S.

Beneficiary Statement to this return, and

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beneficiary to establish the appropriate treatment of any

You have never before used Schedule A for this foreign

distribution or deemed distribution for U.S. tax purposes.

trust or this foreign trust terminated during the tax year.

2. A statement identifying whether any grantor of the

Line 40a. Enter on line 40a the amount received by you

trust is a partnership or a foreign corporation. If so, attach an

from the foreign trust that is treated as ordinary income of

explanation of the relevant facts.

the trust in the current tax year. Ordinary income is all

3. A statement that the trust will permit either the IRS or

income that is not capital gains. Report this amount on the

the U.S. beneficiary to inspect and copy the trust’s

appropriate schedule of your tax return (e.g., Schedule E

permanent books of account, records, and such other

(Form 1040), Part III).

documents that are necessary to establish the appropriate

Lines 42a through 42d. Enter on these lines the

treatment of any distribution or deemed distribution for U.S.

applicable amounts received by you from the foreign trust

tax purposes. This statement is not necessary if the trust

that are treated as capital gain income of the trust in the

has appointed a U.S. agent.

current tax year. Report these amounts on the appropriate

4. The Foreign Nongrantor Trust Beneficiary Statement

schedule of your tax return (e.g., Schedule D (Form 1040)).

must also include items 1, 4, and 6, as listed in the line 29

Line 45. Enter the foreign trust’s aggregate undistributed

instructions on page 8, as well as basic identifying

net income (UNI). For example, assume that a trust was

information (e.g., name, address, TIN, etc.) about the

created in 2004 and has made no distributions prior to 2010.

foreign trust and its trustee.

Assume the trust’s ordinary income was $0 in 2009, $60 in

2008, $124 in 2007, $87 in 2006, $54 in 2005, and $25 in

Schedule A—Default Calculation of Trust

2004. Thus, for 2010, the trust’s UNI would be $350. If the

Distributions

trust earned $100 and distributed $200 during 2010 (so that

$100 was distributed from accumulated earnings), the trust’s

If you answered “Yes” to line 30, you may complete either

2011 aggregate UNI would be $250 ($350 + $100 - $200).

Schedule A or Schedule B. Generally, however, if you

Line 46. Enter the foreign trust’s weighted undistributed net

complete Schedule A in the current year (or did so in the

income (weighted UNI). The trust’s weighted UNI is its

prior years), you must continue to complete Schedule A for

accumulated income that has not been distributed, weighted

all future years, even if you are able to answer “Yes” to line

by the years that it has accumulated income. To calculate

30 in that future year. (The only exception to this

weighted UNI, multiply the undistributed income from each

consistency rule is that you may use Schedule B in the year

of the trust’s years by the number of years since that year,

that a trust terminates, but only if you are able to answer

and then add each year’s result. Using the example from

“Yes” to line 30 in the year of termination.)

line 45, the trust’s weighted UNI in 2010 would be $1,260,

Line 32. To the best of your knowledge, state the number

calculated as follows:

of years the trust has been in existence as a foreign trust

and attach an explanation of your basis for this statement.

No. of years

Consider any portion of a year to be a complete year. If this

since that

UNI from

is the first year that the trust has been a foreign trust, do not

Year

year

each year

Weighted UNI

complete the rest of Part III (you do not have an

2009

$ 0

accumulation distribution).

2008

120

Line 33. Enter the total amount of distributions that you

2007

124

372

received during the 3 preceding tax years (or the number of

2006

348

years the trust has been a foreign trust, if less than 3). For

2005

270

example, if a trust distributed $50 in year 1, $120 in year 2,

2004

150

and $150 in year 3, the amount reported on line 33 would be

TOTAL

$350

$1,260

$320 ($50 + $120 + $150).

Line 35. Divide line 34 by 3 (or the number of years the

To calculate the trust’s weighted UNI for the following

trust has been a foreign trust if fewer than 3). Consider any

year (2011), the trust could update this calculation, or the

portion of a year to be a complete year. For example, a

weighted UNI shown on line 46 of the 2010 Form 3520

foreign trust created on July 1, 2008, would be treated on a

could simply be updated using the following steps:

2010 calendar year return as having 2 preceding years

1. Begin with the 2010 weighted UNI.

(2008 and 2009). In this case, you would calculate the

2. Add UNI at the beginning of 2010.

amount on line 35 by dividing line 34 by 2. Do not disregard

3. Add trust earnings in 2010.

tax years in which no distributions were made. The IRS will

4. Subtract trust distributions in 2010.

consider your proof of these prior distributions as adequate

5. Subtract weighted trust accumulation distributions in

records to demonstrate that any distribution up to the

2010. (Weighted trust accumulation distributions are the

amount on line 31 is not an accumulation distribution in the

trust accumulation distributions in 2010 multiplied by the

current tax year.

applicable number of years from 2010.)

Line 36. Enter this amount as ordinary income on your tax

Using the example above, the trust’s 2011 weighted UNI

return. Report this amount on the appropriate schedule of

would be $1,150, calculated as follows.

your tax return (e.g., Schedule E (Form 1040), Part III).

Note. If there is an amount on line 37, you must also

complete line 38 and Schedule C — Calculation of Interest

Charge, to determine the amount of any interest charge you

may owe.

Schedule B—Actual Calculation of Trust

Distributions

You may only use Schedule B if:

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Instructions For Form 3520 - Annual Return To Report Transactions With Foreign Trusts And Receipt Of Certain Foreign Gifts - 2010 Page 9

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