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the owner of any part of a foreign trust’s assets under

the valuation date. Although formal appraisals are not

sections 671 through 679, excluding section 678.

generally required, you should keep contemporaneous

records of how you arrived at your good faith estimate.

Note. If a partnership or corporation makes a gratuitous

transfer to a trust, the partners or shareholders are generally

Guarantee

treated as the grantors of the trust, unless the partnership or

corporation made the transfer for a business purpose of the

A guarantee:

•

partnership or corporation.

Includes any arrangement under which a person, directly

or indirectly, assures, on a conditional or unconditional

If a trust makes a gratuitous transfer to another trust, the

basis, the payment of another’s obligation;

grantor of the transferor trust is treated as the grantor of the

•

Encompasses any form of credit support, and includes a

transferee trust, except that if a person with a general power

commitment to make a capital contribution to the debtor or

of appointment over the transferor trust exercises that power

otherwise maintain its financial viability; or

in favor of another trust, such person is treated as the

•

Includes an arrangement reflected in a “comfort letter,”

grantor of the transferee trust, even if the grantor of the

regardless of whether the arrangement gives rise to a legally

transferor trust is treated as the owner of the transferor trust.

enforceable obligation. If an arrangement is contingent upon

the occurrence of an event, in determining whether the

Grantor Trust

arrangement is a guarantee, you must assume that the

A grantor trust is any trust to the extent that the assets of the

event has occurred.

trust are treated as owned by a person other than the trust.

See the grantor trust rules in sections 671 through 679. A

Nongrantor Trust

part of the trust may be treated as a grantor trust to the

A nongrantor trust is any trust to the extent that the assets of

extent that only a portion of the trust assets are owned by a

the trust are not treated as owned by a person other than

person other than the trust.

the trust. Thus, a nongrantor trust is treated as a taxable

Gratuitous Transfer

entity. A trust may be treated as a nongrantor trust with

respect to only a portion of the trust assets. See Grantor

A gratuitous transfer to a foreign trust is any transfer to the

Trust above.

trust other than (a) a transfer for FMV or (b) a distribution to

the trust with respect to an interest held by the trust (i) in an

Obligation

entity other than a trust (e.g., a corporation or a partnership)

or (ii) in an investment trust described in Regulations section

An obligation includes any bond, note, debenture, certificate,

301.7701-4(c), a liquidating trust described in Regulations

bill receivable, account receivable, note receivable, open

section 301.7701-4(d), or an environmental remediation

account, or other evidence of indebtedness, and, to the

trust described in Regulations section 301.7701-4(e).

extent not previously described, any annuity contract.

A transfer of property to a trust may be considered a

Owner

gratuitous transfer without regard to whether the transfer is a

gift for gift tax purposes (see Chapter 12 of Subtitle B of the

An owner of a foreign trust is the person that is treated as

Code).

owning any of the assets of a foreign trust under the grantor

trust rules.

For purposes of this determination, if a U.S. person

contributes property to a trust in exchange for any type of

Property

interest in the trust, such interest in the trust will be

disregarded in determining whether FMV has been received.

Property means any property, whether tangible or intangible,

In addition, a U.S. person will not be treated as making a

including cash.

transfer for FMV merely because the transferor is deemed to

Qualified Obligation

recognize gain on the transaction.

A qualified obligation, for purposes of this form, is any

If you transfer property to a foreign trust in exchange for

obligation only if:

an obligation of the trust (or a person related to the trust), it

will be a gratuitous transfer unless the obligation is a

1. The obligation is reduced to writing by an express

qualified obligation. Obligation and qualified obligation are

written agreement;

defined below.

2. The term of the obligation does not exceed 5 years

(including options to renew and rollovers) and it is repaid

Gross Reportable Amount

within the 5-year term;

Gross reportable amount is:

3. All payments on the obligation are denominated in

•

The gross value of property involved in the creation of a

U.S. dollars;

foreign trust or the transfer of property to a foreign trust

4. The yield to maturity of the obligation is not less than

(including a transfer by reason of death);

100% of the applicable federal rate under section 1274(d)

•

The gross value of any portion of a foreign trust treated as

for the day on which the obligation is issued and not greater

owned by a U.S. person under the grantor trust rules or any

than 130% of the applicable federal rate;

part of a foreign trust that is included in the gross estate of a

5. The U.S. person agrees to extend the period for

U.S. citizen or resident;

assessment of any income or transfer tax attributable to the

•

The gross value of assets deemed transferred at the time

transfer and any consequential income tax changes for each

a domestic trust to which a U.S. citizen or resident

year that the obligation is outstanding, to a date not earlier

previously transferred property becomes a foreign trust,

than 3 years after the maturity date of the obligation, unless

provided such U.S. citizen or resident is alive at the time the

the maturity date of the obligation does not extend beyond

trust becomes a foreign trust (see section 679(a)(5)); or

the end of the U.S. person’s tax year and is paid within such

•

The gross amount of distributions received from a foreign

period (this is done on Part I, Schedule A, and Part III, as

trust.

applicable); and

6. The U.S. person reports the status of the obligation,

Gross Value

including principal and interest payments, on Part I,

Gross value is the FMV of property as determined under

Schedule C, and Part III, as applicable, for each year that

section 2031 and its regulations as if the owner had died on

the obligation is outstanding.

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Instructions For Form 3520 - Annual Return To Report Transactions With Foreign Trusts And Receipt Of Certain Foreign Gifts - 2009 Page 3

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