What IRS Form 3520-A (2013) Is For
IRS Form 3520-A (2013) is the annual information return that a foreign trust must file with at least one U.S. owner. It serves as the primary document through which the Internal Revenue Service tracks foreign trusts connected to U.S. taxpayers. The form reports income, expenses, and the fair market value of trust assets, allowing each U.S. owner to accurately reflect their share of the trust’s income for income tax purposes on their individual tax return.
A foreign trust is any trust that does not meet the conditions of a domestic trust under the Internal Revenue Code, meaning a U.S. court does not exercise primary supervision over its administration, or U.S. persons do not control all substantial decisions. Review how fiduciary income tax reporting works for estates and trusts using IRS Form 1041.
When You’d Use IRS Form 3520-A (2013)
You must file IRS Form 3520-A (2013) when a foreign trust has a U.S. owner or beneficiary, or when reporting obligations arise under U.S. tax law.
- Regular Filing: A foreign trust with a U.S. owner is required to file the form annually to fulfill its foreign trust reporting obligations and document the trust's income and transactions for tax purposes.
- Late or Amended Filings: Form 3520-A may be filed late or amended when an error is discovered or when adjustments are necessary after the due date to correct prior reporting for the same tax year.
- Initial or Final Returns: The form must be filed as an initial return when the foreign trust is established and as a final return when the trust terminates, ensuring that the Internal Revenue Service can track the trust’s complete tax history.
- Extension Requests: When more time is needed, Form 7004 should be submitted to extend the filing due date and prevent additional penalties for late filing.
Learn how IRS extension procedures help when a foreign trust needs more time to file.
Key Rules or Details for 2013
IRS Form 3520-A (2013) includes specific filing requirements that all foreign trusts must follow to remain compliant under U.S. tax law.
- Who Must File: The foreign trust is legally required to file the form; however, each U.S. owner is ultimately responsible for ensuring the foreign trust submits the return and provides complete information.
- U.S. Agent Requirement: Each trust must appoint a U.S. person as its agent, authorized to respond to inquiries from the Internal Revenue Service. If a U.S. agent is not appointed, the filer must attach all trust documents to Form 3520-A.
- Reference ID or Employer Identification Number: Each foreign trust must use an Employer Identification Number or create a consistent reference ID number to ensure proper identification of the trust across the same tax year.
- Reporting Standards: All figures must be reported in U.S. dollars, and each asset should be listed at its fair market value as of the reporting date to ensure consistency for income tax purposes.
Use an IRS account transcript to verify prior-year trust activity and reconcile foreign trust reporting.
Step-by-Step (High Level)
Filing IRS Form 3520-A (2013) requires accurate recordkeeping and careful preparation to meet all foreign trust reporting obligations.
- Collect Trust Information: Gather financial records, including income, expenses, and all transactions related to trust property, to ensure complete reporting for the same tax year.
- Complete Part I (General Information): Enter the trust’s name, address, reference ID number, and details of the trustee, foreign country of administration, and appointed U.S. agent if applicable.
- Complete Part II (Income Statement): Report all income received by the trust, including principal and interest payments, capital gains, and income derived from foreign corporations or foreign partnerships.
- Complete Part III (Balance Sheet): List all trust assets and liabilities at their fair market value at the beginning and end of the trust’s tax year to accurately reflect changes in trust assets.
- Prepare Owner and Beneficiary Statements: Provide a separate statement for each U.S. owner or foreign person who received distributions during the tax year to ensure proper income reporting.
- Sign, Copy, and File: The trustee or authorized representative must sign Form 3520-A under penalties of perjury, make copies of all attachments, and mail the return to the Internal Revenue Service by the due date.
Request an IRS non-filing letter if earlier foreign trust filings or documentation are missing.
Common Mistakes and How to Avoid Them
Many taxpayers make errors when filing IRS Form 3520-A (2013), which can result in significant penalties or processing delays.
- Not Appointing a U.S. Agent: When a U.S. agent is not designated, the filer must attach all foreign trust documents; appointing a qualified U.S. agent reduces administrative burdens and simplifies future communication with the IRS.
- Confusing Form 3520 and Form 3520-A: Form 3520 reports transactions between the taxpayer and the trust, while Form 3520-A is the annual return of the foreign trust; both may be required to ensure complete foreign trust reporting.
- Ignoring Constructive Distributions: All property transferred or interest payments made to a U.S. person by the trust, including non-cash benefits, must be reported as distributions to avoid misreporting.
- Using Different Reference IDs: Once a reference ID number is assigned, it must be used consistently across all filings; inconsistent use can lead to record discrepancies and potential compliance issues.
- Missing Filing Extensions: Filing Form 7004 before the due date is required to extend the deadline; this helps prevent an initial penalty or a penalty equal to five percent of the gross value of the foreign trust’s assets.
Understand the IRS collection process if foreign trust penalties or unpaid taxes arise.
What Happens After You File
After submission, the Internal Revenue Service reviews IRS Form 3520-A (2013) to record the details of the foreign trust’s assets, transactions, and ownership. Each U.S. owner must attach their Foreign Grantor Trust Owner Statement to their income tax return for the same tax year. Beneficiaries must also report any distributions received from the foreign trust to remain compliant with income tax obligations.
If the foreign trust fails to file, the person treated as the owner must submit a substitute form to fulfill reporting requirements. Noncompliance may result in severe penalties; however, demonstrating reasonable cause can sometimes mitigate them.
FAQs
How does Form 3520-A relate to a foreign estate or related foreign trust?
A foreign estate or related foreign trust may be subject to similar reporting obligations if it transfers property or income to a U.S. person. When filing Form 3520-A, the Internal Revenue Service requires full disclosure of such transfers to ensure that foreign estates and trusts comply with the same international taxation standards.
What is an outstanding qualified obligation under Form 3520-A?
An outstanding qualified obligation refers to a loan or financial arrangement between a foreign trust and a U.S. person that meets specific Internal Revenue Code conditions. Reporting this obligation under Form 3520-A helps document the trust’s liabilities and ensures that interest payments and repayment terms align with U.S. tax requirements.
Who are considered certain foreign persons for reporting purposes?
Certain foreign persons include nonresident alien individuals, foreign corporations, foreign partnerships, and foreign estates with connections to a U.S. person. Form 3520-A requires reporting transactions involving these entities to maintain compliance with U.S. foreign trust reporting requirements.
When must a taxpayer report transactions from a foreign trust immediately before transfer?
A U.S. owner or responsible party must report transactions involving the foreign trust immediately before any transfer of trust property. This ensures that the Internal Revenue Service can track how the foreign trust’s assets were treated for tax purposes before ownership or control changes.
