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Line 25, column (e). Answer “Yes” if your obligation

Line 30. If “Yes,” attach the Foreign Nongrantor Trust

given in exchange for the loan is a qualified obligation

Beneficiary Statement from the foreign trust. A Foreign

(defined on page 3).

Nongrantor Trust Beneficiary Statement must include the

following items:

Line 26. See Lines 12 and 26 on page 5.

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

Line 27. Penalties may be imposed for failure to

treatment of any distribution or deemed distribution for

accurately report all distributions received during the

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

current tax year. See item 2 of Penalties on page 2.

U.S. beneficiary to establish the appropriate treatment of

Line 28. Provide information on the status of any

any distribution or deemed distribution for U.S. tax

outstanding obligation to the foreign trust that you

purposes.

reported as a qualified obligation in the current tax year.

2. A statement identifying whether any grantor of the

This information is required in order to retain the

trust is a foreign partnership or a foreign corporation.

obligation’s status as a qualified obligation. If relevant,

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

attach a statement describing any changes to the terms

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

of the qualified obligation. If the obligation fails to retain

permanent books of account, records, and such other

the status of a qualified obligation, you will be treated as

documents that are necessary to establish the

having received a distribution from the foreign trust,

appropriate treatment of any distribution or deemed

which must be reported as such on line 25. See Section

distribution for U.S. tax purposes. This statement is not

V(A) of Notice 97-34.

necessary if the trust has appointed a U.S. agent.

4. The Foreign Nongrantor Trust Beneficiary

Lines 29 and 30. If any of the six items required for the

Statement must also include items 1, 4, and 6, as listed

Foreign Grantor Trust Beneficiary Statement (see Line

for line 29 on page 7.

29 below) or for the Foreign Nongrantor Trust Beneficiary

Statement (see Line 30 below) is missing, you must

Schedule A—Default Calculation of Trust

check “No” on line 29 or line 30, as applicable.

Distributions

Also, if you answer “Yes” to line 29 or line 30, and the

foreign trust or U.S. agent does not produce records or

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

testimony when requested or summoned by the IRS, the

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

IRS may redetermine the tax consequences of your

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

transactions with the trust and impose appropriate

the prior years), you must continue to complete Schedule

penalties under section 6677.

A for all future years, even if you are able to answer

“Yes” to line 30 in that future year. (The only exception to

Line 29. If “Yes,” attach the Foreign Grantor Trust

this consistency rule is that you may use Schedule B in

Beneficiary Statement (page 4 of Form 3520-A) from the

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

foreign trust and do not complete the rest of Part III with

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

respect to the distribution. If a U.S. beneficiary receives a

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

complete Foreign Grantor Trust Beneficiary Statement

number of years the trust has been in existence as a

with respect to a distribution during the tax year, the

foreign trust and attach an explanation of your basis for

beneficiary should treat the distribution for income tax

this statement. Consider any portion of a year to be a

purposes as if it came directly from the owner. For

complete year. If this is the first year that the trust has

example, if the distribution is a gift, the beneficiary should

been a foreign trust, do not complete the rest of Part III

not include the distribution in gross income.

(you do not have an accumulation distribution).

In addition to basic identifying information (i.e., name,

Line 33. Enter the total amount of distributions that you

address, TIN, etc.) about the foreign trust and its trustee,

received during the 3 preceding tax years (or the number

this statement must contain these items:

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

1. The first and last day of the tax year of the foreign

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

trust to which this statement applies.

year 2, and $150 in year 3, the amount reported on line

2. An explanation of the facts necessary to establish

33 would be $320 ($50 + $120 + $150).

that the foreign trust should be treated for U.S. tax

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

purposes as owned by another person. (The explanation

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

should identify the Code section that treats the trust as

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

owned by another person.)

foreign trust created on July 1, 2000, would be treated on

3. A statement identifying whether the owner of the

a 2002 calendar year return as having 2 preceding years

trust is an individual, corporation, or partnership.

(2000 and 2001). In this case, you would calculate the

4. A description of property (including cash)

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

distributed or deemed distributed to the U.S. person

disregard tax years in which no distributions were made.

during the tax year, and the FMV of the property

The IRS will consider your proof of these prior

distributed.

distributions as adequate records to demonstrate that

5. A statement that the trust will permit either the IRS

any distribution up to the amount on line 31 is not an

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

accumulation distribution in the current tax year.

permanent books of account, records, and such other

Line 36. Enter this amount as ordinary income on your

documents that are necessary to establish that the trust

tax return. Report this amount on the appropriate

should be treated for U.S. tax purposes as owned by

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

another person. This statement is not necessary if the

1040), Part III).

trust has appointed a U.S. agent.

6. A statement as to whether the foreign trust has

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

appointed a U.S. agent (defined on page 4). If the trust

complete line 38 and Schedule C—Calculation of

has a U.S. agent, include the name, address, and

Interest Charge, to determine the amount of any interest

taxpayer identification number of the agent.

charge you may owe.

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Instructions For Form 3520 - Annual Return To Report Transactions With Foreign Trusts And Receipt Of Certain Foreign Gifts - 2001 Page 7

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