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When and Where To File

only be imposed to the extent that the transaction is not

reported. For example, if a U.S. person transfers property

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

worth $1 million to a foreign trust but only reports

income tax return is due, including extensions. Send

$400,000 of that amount, penalties could only be

Form 3520 to the Internal Revenue Service Center,

imposed on the unreported $600,000.

Philadelphia, PA 19255.

For more information, see section 6677.

Form 3520 must have all required attachments to be

Reasonable cause. No penalties will be imposed if

considered complete.

the taxpayer can demonstrate that the failure to comply

Note: If a complete Form 3520 is not filed by the due

was due to reasonable cause and not willful neglect.

date, including extensions, the time for assessment of

Note. The fact that a foreign country would impose

any tax imposed with respect to any event or period to

penalties for disclosing the required information is not

which the information required to be reported in Parts I

reasonable cause. Similarly, reluctance on the part of a

through III of such Form 3520 relates, will not expire

foreign fiduciary or provisions in the trust instrument that

before the date that is 3 years after the date on which the

prevent the disclosure of required information is not

required information is reported. See section 6501(c)(8).

reasonable cause.

Who Must Sign

Definitions

If the return is filed by:

•

An individual or a fiduciary, it must be signed and

Distribution

dated by that individual or fiduciary.

•

A distribution is any gratuitous transfer of money or

A partnership, it must be signed and dated by a

other property from a trust, whether or not the trust is

general partner or limited liability company member.

•

treated as owned by another person under the grantor

A corporation, it must be signed and dated by the

trust rules, and without regard to whether the recipient is

president, vice president, treasurer, assistant treasurer,

designated as a beneficiary by the terms of the trust. A

chief accounting officer, or any other corporate officer

distribution includes the receipt of trust corpus and the

(such as a tax officer) who is authorized to sign.

receipt of a gift or bequest described in section 663(a).

The paid preparer must complete the required

preparer information and:

A distribution also includes constructive transfers from

•

Sign the return, by hand, in the space provided for the

a trust. For example, if charges you make on a credit

preparer’s signature (signature stamps are not

card are paid by a foreign trust or guaranteed or secured

acceptable).

by the assets of a foreign trust, the amount charged will

•

Give a copy of the return to the filer.

be treated as a distribution to you by the foreign trust.

Similarly, if you write checks on a foreign trust’s bank

Inconsistent Treatment of Items

account, the amount will be treated as a distribution.

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

Also, if you receive a payment from a foreign trust in

consistent with the Form 3520-A, Annual Information

exchange for property transferred to the trust or services

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

rendered to the trust, and the FMV of the payment

foreign trust unless you report the inconsistency to the

received exceeds the FMV of the property transferred or

IRS. If you are treating items on your tax return differently

services rendered, the excess will be treated as a

from the way the foreign trust treated them on its return,

distribution to you.

file Form 8082, Notice of Inconsistent Treatment or

Examples

Amended Return (Administrative Adjustment Request

1. If you sell stock with an FMV of $100 to a foreign

(AAR)). See Form 8082 for more details.

trust and receive $150 in exchange, you have received a

Penalties

distribution of $50.

2. If you receive $100 from the trust for services

A penalty generally applies if Form 3520 is not timely

performed by you for the trust, and the services have an

filed or if the information is incomplete or incorrect.

FMV of $20, you have received a distribution of $80.

Generally, the penalty is:

See the instructions for Part III, line 25, for another

1. 35% of the gross value of any property transferred

example of a distribution from a foreign trust.

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

the transfer,

Foreign Trust and Domestic Trust

2. 35% of the gross value of the distributions received

A foreign trust is any trust other than a domestic trust.

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

receipt of the distribution, or

A domestic trust is any trust if:

3. 5% of the amount of certain foreign gifts for each

1. A court within the United States is able to exercise

month for which the failure to report continues (not to

primary supervision over the administration of the trust

exceed a total of 25%). See section 6039F(c).

and

2. One or more U.S. persons have the authority to

If a foreign trust has a U.S. owner and the trust fails to

control all substantial decisions of the trust.

file the required annual reports on trust activities and

income, the U.S. owner is subject to a penalty equal to

Grantor

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

treated as owned by the U.S. person (the gross

A grantor includes any person who creates a trust or

reportable amount). See Form 3520-A.

directly or indirectly makes a gratuitous transfer of cash

Additional penalties may be imposed if noncompliance

or other property to a trust. A grantor includes any person

continues after the IRS mails a notice of failure to comply

treated as the owner of any part of a foreign trust’s

with required reporting. However, this penalty may not

assets under sections 671 through 679, excluding section

exceed the gross reportable amount. Also, penalties will

678.

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Instructions For Form 3520 - Annual Return To Report Transactions With Foreign Trusts And Receipt Of Certain Foreign Gifts - 2001 Page 2

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