U.S. taxpayers with international ties often focus on whether a transaction creates taxable income. In the area of foreign trusts and foreign gifts, however, the greatest risk is frequently information reporting, not tax.
The IRS requires detailed disclosures when a U.S. person interacts with a foreign trust or receives substantial gifts or inheritances from foreign persons. The two primary reporting forms are Form 3520 and Form 3520-A. These forms may be required even when no U.S. tax is due, and failure to file can result in significant penalties.
When Is Form 3520 Required?
Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts) must be filed by a U.S. person when a reportable event occurs during the tax year.
The IRS groups reportable events into three main categories:
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- Transactions with foreign trusts
- U.S. ownership of foreign trusts
- Receipt of large foreign gifts or inheritances
Transfers to a Foreign Trust
If you transfer money or property to a foreign trust—either directly or indirectly—you must report the transfer on Form 3520. This includes:
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- Initial contributions
- Subsequent additions
- Certain indirect transfers made through related parties
U.S. Ownership of a Foreign Trust
If you are treated as a U.S. owner of any portion of a foreign trust under the grantor trust rules (IRC §§ 671–679), you must report that ownership on Form 3520.
U.S. ownership typically arises when the U.S. person retains specific powers or economic benefits described in those rules.
Distributions From a Foreign Trust
Any distribution you receive from a foreign trust must be reported on Form 3520, regardless of whether it is classified as income or principal. U.S. beneficiaries are required to disclose detailed information about each distribution.
Foreign Gifts or Inheritances Above IRS Thresholds
Form 3520 is also used to report certain foreign gifts and bequests once annual thresholds are exceeded:
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- From nonresident alien individuals or foreign estates:
Reporting is required only if the total received from that person or estate exceeds $100,000 during the year. Gifts from related foreign persons must be aggregated. - From foreign corporations or foreign partnerships:
Reporting is required when total gifts exceed a lower, inflation-adjusted annual threshold under IRC §6039F. The exact amount changes each year and is published by the IRS in the form instructions.
- From nonresident alien individuals or foreign estates:
When Does Form 3520-A Apply?
Form 3520-A (Annual Information Return of Foreign Trust With a U.S. Owner) is an annual filing required when a foreign trust has at least one U.S. owner.
Although the foreign trustee has the primary obligation to file Form 3520-A, the IRS makes it clear that the U.S. owner is ultimately responsible for ensuring the form is filed on time. If the trust fails to comply, penalties may be imposed on the U.S. owner.
If the trustee does not file Form 3520-A, the U.S. owner must prepare a substitute Form 3520-A to the best of their ability and attach it to their Form 3520 by the Form 3520 due date.
Deadlines and Extensions
Form 3520 Deadline
Form 3520 is due on the 15th day of the fourth month after the end of the U.S. person’s tax year (typically April 15 for calendar-year individuals).
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- If the taxpayer receives an extension for their income tax return, Form 3520 is due no later than the 15th day of the tenth month (typically October 15).
- U.S. citizens or residents living and working abroad receive an automatic extension to the 15th day of the sixth month (typically June 15), provided the required statement is attached.
- Form 3520 cannot be extended beyond October 15, even if additional discretionary extensions apply to the income tax return.
Form 3520-A Deadline
Form 3520-A is due on the 15th day of the third month after the end of the foreign trust’s tax year (typically March 15 for calendar-year trusts).
A six-month extension is available only if the trust files Form 7004 under its EIN by the original due date. An extension of the U.S. owner’s individual tax return does not extend the Form 3520-A deadline.
Conclusion
Whether Forms 3520 and 3520-A are required depends on specific facts: transfers to a foreign trust, U.S. ownership, distributions received, or foreign gifts or inheritances exceeding IRS thresholds.
Form 3520-A adds a separate annual reporting requirement for foreign trusts with U.S. owners and operates on its own deadline and extension rules. Reviewing these triggers each year—and following IRS instructions closely—is essential to avoid penalties and maintain proper international tax compliance.
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