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owned by the U.S. person (the gross reportable amount).

Additional Reporting Information

See Form 3520-A.

For more information on foreign trust reporting, including

Additional penalties may be imposed if noncompliance

abusive foreign trust schemes, go to the IRS website at

continues after the IRS mails a notice of failure to comply

with required reporting. However, this penalty may not

exceed the gross reportable amount. Also, penalties will

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 income

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

worth $1 million to a foreign trust but only reports $400,000

of that amount, penalties could only be imposed on the

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

unreported $600,000.

due on the date that the estate tax return is due (or would be

due if the estate were required to file a return), including

For more information, see section 6677.

extensions. Send Form 3520 to the Internal Revenue

Reasonable cause. No penalties will be imposed if the

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

taxpayer can demonstrate that the failure to comply was due

Form 3520 must have all required attachments to be

to reasonable cause and not willful neglect.

considered complete.

Note. The fact that a foreign country would impose

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

penalties for disclosing the required information is not

including extensions, the time for assessment of any tax

reasonable cause. Similarly, reluctance on the part of a

imposed with respect to any event or period to which the

foreign fiduciary or provisions in the trust instrument that

information required to be reported in Parts I through III of

prevent the disclosure of required information is not

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

reasonable cause.

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

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

Definitions

Who Must Sign

Distribution

If the return is filed by:

A distribution is any gratuitous transfer of money or other

•

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

property from a trust, whether or not the trust is treated as

by that individual or fiduciary.

owned by another person under the grantor trust rules, and

•

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

without regard to whether the recipient is designated as a

partner or limited liability company member.

beneficiary by the terms of the trust. A distribution includes

•

A corporation, it must be signed and dated by the

the receipt of trust corpus and the receipt of a gift or bequest

president, vice president, treasurer, assistant treasurer,

described in section 663(a).

chief accounting officer, or any other corporate officer (such

A distribution also includes constructive transfers from a

as a tax officer) who is authorized to sign.

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

The paid preparer must complete the required preparer

paid by a foreign trust or guaranteed or secured by the

information and:

assets of a foreign trust, the amount charged will be treated

•

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

as a distribution to you by the foreign trust. Similarly, if you

signature.

write checks on a foreign trust’s bank account, the amount

•

Give a copy of the return to the filer.

will be treated as a distribution.

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

Inconsistent Treatment of Items

exchange for property transferred to the trust or services

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

rendered to the trust, and the FMV of the payment received

consistent with the Form 3520-A, Annual Information Return

exceeds the FMV of the property transferred or services

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

rendered, the excess will be treated as a distribution to you.

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

Examples

treating items on your tax return differently from the way the

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

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

and receive $150 in exchange, you have received a

Notice of Inconsistent Treatment or Administrative

distribution of $50.

Adjustment Request (AAR). See Form 8082 for more

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

details.

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

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

Penalties

A penalty generally applies if Form 3520 is not timely filed or

See the instructions for Part III, line 25, on page 7, for

if the information is incomplete or incorrect. Generally, the

another example of a distribution from a foreign trust.

penalty is:

•

Foreign Trust and Domestic Trust

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

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

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

transfer,

A domestic trust is any trust if:

•

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

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

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

primary supervision over the administration of the trust; and

the distribution, or

•

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

5% of the amount of certain foreign gifts for each month

control all substantial decisions of the trust.

for which the failure to report continues (not to exceed a

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

Grantor

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

the required annual reports on trust activities and income,

A grantor includes any person who creates a trust or directly

the U.S. owner is subject to a penalty equal to 5% of the

or indirectly makes a gratuitous transfer of cash or other

gross value of the portion of the trust’s assets treated as

property to a trust. A grantor includes any person treated as

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Instructions For Form 3520 - Annual Return To Report Transactions With Foreign Trusts And Receipt Of Certain Foreign Gifts - 2009 Page 2

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