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Joint Returns

Penalties

Two transferors or grantors of the same foreign trust, or

Section 6677. A penalty applies if Form 3520 is not

two U.S. beneficiaries of the same foreign trust, may file a

timely filed or if the information is incomplete or incorrect

joint Form 3520, but only if they file a joint income tax

(see below for an exception if there is reasonable cause).

return.

Generally, the initial penalty is equal to the greater of

Additional Reporting Information

$10,000 or the following (as applicable):

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

For more information on foreign trust reporting, including

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

abusive foreign trust schemes, go to the IRS website at

creation of or transfer to a foreign trust.

IRS.gov.

35% of the gross value of the distributions received

When and Where To File

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

receipt of the distribution.

In general, Form 3520 is due on the date your income tax

5% of the gross value of the portion of the foreign trust's

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

assets treated as owned by a U.S. person under the

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

grantor trust rules (sections 671 through 679) for failure by

due on the date that Form 706, United States Estate (and

the U.S. person to report the U.S. owner information.

Generation-Skipping Transfer) Tax Return, is due

Such U.S. person is subject to an additional separate 5%

(including extensions), or would be due if the estate were

penalty (or $10,000 if greater), if the foreign trust (a) fails

required to file a return.

to file a timely Form 3520-A or (b) does not furnish all of

the information required by section 6048(b) or includes

Send Form 3520 to the Internal Revenue Service

incorrect information. See section 6677(a) through (c) and

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

the Instructions for Form 3520-A.

Form 3520 must have all required attachments to be

Additional penalties will be imposed if the

considered complete.

noncompliance continues for more than 90 days after the

IRS mails a notice of failure to comply with the required

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

reporting. For more information, see section 6677.

date, including extensions, the time for assessment of any

Reasonable cause. No penalties will be imposed if the

tax imposed with respect to any event or period to which

taxpayer can demonstrate that the failure to comply was

the information required to be reported in Parts I through

due to reasonable cause and not willful neglect.

III of such Form 3520 relates, will not expire before the

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

Note. The fact that a foreign country would impose

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

penalties for disclosing the required information is not

Who Must Sign

reasonable cause. Similarly, reluctance on the part of a

foreign fiduciary or provisions in the trust instrument that

If the return is filed by:

prevent the disclosure of required information is not

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

reasonable cause. See section 6677(d) for additional

by that individual or fiduciary;

information.

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

partner or limited liability company member; or

Section 6039F. In the case of a failure to report foreign

A corporation, it must be signed and dated by the

gifts described in section 6039F, a penalty equal to 5% of

president, vice president, treasurer, assistant treasurer,

the amount of such foreign gifts applies for each month for

chief accounting officer, or any other corporate officer

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

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

of 25%). No penalty will be imposed if the taxpayer can

demonstrate that the failure to comply was due to

The paid preparer must complete the required preparer

reasonable cause and not willful neglect. See section

information at the bottom of page 6 of Form 3520 and

6039F for additional information.

must be sure to:

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

Section 6662(j). Penalties may be imposed under

signature, and

section 6662(j) for undisclosed foreign financial asset

Give a copy of the return to the filer.

understatements. No penalty will be imposed with respect

to any portion of an underpayment if the taxpayer can

Inconsistent Treatment of Items

demonstrate that the failure to comply was due to

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

reasonable cause with respect to such portion of the

consistent with the Form 3520-A, Annual Information

underpayment and the taxpayer acted in good faith with

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

respect to such portion of the underpayment. See section

foreign trust unless you report the inconsistency to the

6662(j) and section 6664(c) for additional information.

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

Definitions

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

file Form 8082, Notice of Inconsistent Treatment or

Distribution

Administrative Adjustment Request (AAR). See Form

8082 for more details.

A distribution for section 6048(c) reporting purposes is

any gratuitous transfer of money or other property from a

trust, whether or not the trust is treated as a grantor trust

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Instructions For Form 3520 - Annual Return To Report Transactions With Foreign Trusts - 2016 Page 2

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