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Lines 12 and 26. If you answered "Yes" to the question

Line 13, column (f). Generally, if the reported

on line 11b (line 25, column (e)) with respect to any

transaction is a sale, you should report the gain on the

obligation, you generally must answer “Yes” to the

appropriate form or schedule of your income tax return.

question on line 12 (line 26). By so doing, you agree to

Line 15. Enter the name, address, whether the person is

extend the period of assessment of any income or transfer

a U.S. beneficiary (defined earlier), and taxpayer

tax attributable to the transfer and any consequential

identification number, if any, of all reportable beneficiaries.

income tax changes for each year that the obligation is

Include specified beneficiaries, classes of discretionary

outstanding to a date 3 years after the maturity date of the

beneficiaries, and names or classes of any beneficiaries

obligation. You have the right to refuse to extend the

that could be named as additional beneficiaries. If there is

period of assessment. Publication 1035, Extending the

not enough space on the form, attach a statement.

Tax Assessment Period, provides a more detailed

Line 17. Enter the name, address, and taxpayer

explanation of your rights and the consequences of the

identification number, if any, of any person, other than

choices you may make. When executed and filed, this

those listed on line 16, that has significant powers over

form will be deemed to be agreed upon and executed by

the trust (e.g., “protectors,” “enforcers,” any person that

the IRS for purposes of Regulations section

must approve trustee decisions or otherwise direct

301.6501(c)-1(d).

trustees, any person with a power of appointment, any

Note. If you answer “No” to the question on line 12

person with powers to remove or appoint trustees, etc.).

(line 26), you generally may not treat an obligation as a

Include a description of each person's powers. If there is

qualified obligation on line 11b (line 25, column (e)). The

not enough space, attach a statement.

one exception to this is if the maturity date of the

Line 18. If you checked “No” on line 3 (or you did not

obligation does not extend beyond the end of your tax

complete lines 3a through 3g) attach the following.

year for which you are reporting and such obligation is

A summary of the terms of the trust that includes a

paid within that tax year.

summary of any oral agreements or understandings you

have with the trustee, whether or not legally enforceable.

Schedule B—Gratuitous Transfers

A copy of all trust documents (and any revisions),

Complete the applicable portions of Schedule B with

including the trust instrument, any memoranda of wishes

respect to all reportable events (defined earlier) that took

prepared by the trustees summarizing the settlor's wishes,

place during the current tax year.

any letter of wishes prepared by the settlor summarizing

Line 13.

his or her wishes, and any similar documents.

In your column (b) description, indicate whether the

A copy of the trust's financial statements, including a

property is tangible or intangible.

balance sheet and an income statement similar to those

You may aggregate transfers of cash during the year on

shown on Form 3520-A. These financial statements must

a single line of line 13.

reasonably reflect the trust's accumulated income under

If there is not enough space on the form, please attach

U.S. income tax principles. For example, the statements

a statement.

must not treat capital gains as additions to trust corpus.

For transfers reported on statements, you must enter

Schedule C—Qualified Obligations Outstanding

“Statement” on one of the lines in column (b), and enter

in the Current Tax Year

the total amount of transfers reported on the statement on

line 13, columns (c), (d), (e), (f), (h), and (i).

Line 19. Provide information on the status of outstanding

obligations of the related foreign trust (or an obligation of a

Note. Penalties may be imposed for failure to report all

person related to the foreign trust) that you reported as a

required information. See Penalties, earlier.

qualified obligation in the current tax year. This

Line 13, column (d). Enter the U.S. adjusted basis of the

information is required in order to retain the obligation's

property transferred.

status as a qualified obligation. If relevant, attach a

statement describing any changes in the terms of the

Line 13, column (e). Only include gain that is

qualified obligation.

immediately recognized at the time of the transfer.

If the obligation fails to retain the status of a qualified

Note. Any transfer of appreciated assets by a U.S.

obligation, you will be treated as having made a gratuitous

person to a foreign nongrantor trust is treated as a sale or

transfer to the foreign trust, which must be reported on

exchange and the transferor must recognize as a gain the

Schedule B, Part I, in the year the obligation fails to meet

excess of the FMV of the transferred property over its

the criteria for a qualified obligation. See section III(C)(2)

adjusted basis. This rule applies to a domestic trust that

of Notice 97-34.

becomes a foreign trust, provided that the foreign trust is

Part II—U.S. Owner of a Foreign Trust

not a grantor trust. The domestic trust is treated as having

transferred all of its assets to the foreign trust immediately

Complete Part II if you are considered the owner of any

prior to becoming a foreign trust. Although the gain is not

assets of a foreign trust under the rules of sections 671

recognized on Form 3520, it must be reported on the

through 679 during the tax year. You are required to enter

appropriate form or schedule of the transferor's income

a taxpayer identification number for such foreign trust on

tax return. See section 684. The transfer of assets,

line 2b(1) or line 2b(2) on page 1 of the form.

however, is reported on Part I of this Form 3520.

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Instructions For Form 3520 - Annual Return To Report Transactions With Foreign Trusts - 2016 Page 8

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