What Form 3520 Is For

Form 3520 is the IRS's way of keeping track of Americans' financial relationships with foreign trusts and large gifts from foreign sources. Think of it as a disclosure form—it doesn't necessarily mean you owe tax, but it ensures the IRS knows about these international transactions.

You'll need this form if you fall into any of these categories:

• Foreign Trust Creators or Transferors: You created a foreign trust or transferred money or property to one during 2013
• Trust Owners: You're treated as the owner of any portion of a foreign trust under U.S. tax law (sections 671-679)
• Trust Beneficiaries: You received distributions from a foreign trust, including any indirect benefits like using trust property without paying for it
• Gift Recipients: You received substantial gifts or bequests from foreign individuals, estates, corporations, or partnerships

The form requires a separate filing for each foreign trust you deal with, so if you're involved with multiple trusts, be prepared to file multiple forms. Source

When You’d Use Form 3520 (Including Late and Amended Returns)

Regular Filing Deadline

Form 3520 is due on the same date as your income tax return, including any extensions you've requested. For most individuals, this means April 15, 2014, for the 2013 tax year (or October 15, 2014, if you filed for an extension). If you're an executor filing for a deceased person, the form is due when Form 706 (the estate tax return) is due.

Initial Returns

Check the "Initial return" box if this is your first time reporting on a particular foreign trust. If you filed an extension for your income tax return, check "Initial return (extension filed)" instead.

Late Filing

Missing the deadline triggers serious penalties—the greater of $10,000 or up to 35% of the transaction value. The IRS doesn't take late filing lightly with international forms. If you realize you've missed the deadline, file immediately and consider whether you can demonstrate "reasonable cause" for the delay, which might help reduce penalties.

Amended Returns

If you discover errors or omissions after filing, check the "Amended return" box and submit a corrected form. Better to fix mistakes voluntarily than wait for the IRS to find them.

Final Returns

When you no longer have any reportable transactions with a trust (perhaps it terminated or you're no longer connected to it), check the "Final return" box on your last filing. Source

Key Rules for 2013

Foreign Gift Thresholds

• From individuals or estates: You must report if you received more than $100,000 in aggregate from nonresident alien individuals or foreign estates (including gifts from people related to them)
• From corporations or partnerships: You must report if you received more than $15,102 from foreign corporations or foreign partnerships

Important: You must add together gifts from related foreign donors. If you received $75,000 from one foreign person and $40,000 from their relative, that totals $115,000—over the threshold—and requires reporting.

Trust Transaction Rules

• Any gratuitous transfer (gift-like transfer) to a foreign trust must be reported, regardless of amount
• If you're treated as a trust owner under U.S. tax rules, you must report even if there were no transactions during the year
• Receiving distributions from foreign trusts triggers reporting requirements, including indirect benefits like using trust property rent-free

Where to Mail: Send your completed Form 3520 to: Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409. Make sure all required attachments are included—incomplete forms can trigger penalties. Source

Step-by-Step (High Level)

Step 1: Determine Your Filing Category

Identify which parts of the form apply to you:

• Part I: Transfers you made to a foreign trust
• Part II: Foreign trust ownership (required even with no transactions)
• Part III: Distributions you received from a foreign trust
• Part IV: Large foreign gifts or bequests you received

Step 2: Gather Your Documentation

Collect all relevant records:

• Trust documents and agreements
• Records of transfers, gifts, or distributions with dates and amounts
• Property valuations (use fair market value as of the transaction date)
• Trust financial statements
• Information about trust beneficiaries and trustees

Step 3: Complete Identifying Information

Fill out the top section with your personal details, trust identification (name, address, and reference ID number if the trust has no EIN), and check appropriate boxes (initial, amended, or final return).

Step 4: Complete Applicable Parts

Work through each relevant section:

• Provide detailed descriptions of transactions
• Calculate fair market values accurately
• Report all distributions, including indirect benefits
• Aggregate related gifts properly to check thresholds

Step 5: Attach Required Statements

Include any required supporting documents, such as:

• Trust beneficiary statements (if you didn't receive them from the trust)
• Copies of trust documents (if no U.S. agent is appointed)
• Explanations for any unusual transactions

Step 6: Review and Mail

Double-check for completeness, sign and date the form, make copies for your records, and mail to the Ogden address by your tax return due date. Source

Common Mistakes and How to Avoid Them

Mistake #1: Missing the Filing Deadline

This is the costliest error. Penalties start at $10,000 and can reach 35% of transaction values. Set calendar reminders well before April 15 (or your extended deadline) to ensure timely filing.

Mistake #2: Failing to Aggregate Related Gifts

Many filers don't realize they must add together gifts from related foreign donors. If you received multiple gifts that individually fall below the threshold but collectively exceed it, you must report. Research donor relationships carefully.

Mistake #3: Incomplete Forms or Missing Attachments

An incomplete Form 3520 is treated as not filed, which means penalties apply and the statute of limitations doesn't start running. Use the form instructions as a checklist to ensure every required field is completed and every required document is attached.

Mistake #4: Not Reporting Indirect Distributions

Using trust property (like staying in a trust-owned vacation home) without paying fair market value counts as a distribution. Similarly, having a foreign trust pay your credit card bills is a distribution. Report all benefits you received, not just cash payments.

Mistake #5: Filing One Form for Multiple Trusts

Each foreign trust requires a separate Form 3520. Don't try to consolidate multiple trusts onto one form—it won't satisfy your filing requirement and will trigger penalties.

Mistake #6: Ignoring the "Reasonable Cause" Defense

If you have a legitimate reason for late filing (serious illness, natural disaster, etc.), document it thoroughly. The IRS may waive penalties if you can prove reasonable cause and that your failure wasn't due to willful neglect.

Mistake #7: Not Keeping Records

The IRS can request supporting documentation at any time. Maintain comprehensive records of all foreign trust transactions, valuations, and supporting calculations for at least three years after filing. Source

What Happens After You File

Normal Processing

If your Form 3520 is complete and accurate, the IRS will process it without contacting you. No news is generally good news. Keep copies of everything you submitted for your records.

IRS Inquiries

The IRS may send correspondence requesting additional information or clarification. Respond promptly to these requests. If you named a U.S. agent for the trust, that agent must be able to produce records when the IRS asks; failure to do so can result in the IRS re-determining your tax consequences and imposing penalties.

Statute of Limitations

If you don't file a complete Form 3520, the statute of limitations for IRS assessment doesn't begin. This means the IRS has unlimited time to audit and assess taxes until you file properly. Once you file a complete form, the IRS generally has three years to assess additional taxes related to those transactions.

Document Retention

Keep your Form 3520 and all supporting documentation for at least three years after filing (longer if you have concerns about accuracy). The IRS may audit years later, especially for international transactions.

Follow-Up Compliance

If you continue to have relationships with foreign trusts or receive foreign gifts in subsequent years, you'll need to file Form 3520 again. Make filing this form part of your annual tax preparation routine. Source

FAQs

1. Do I need to pay tax just because I'm filing Form 3520?

Not necessarily. Form 3520 is primarily an information return—it reports transactions but doesn't always mean you owe tax. However, certain foreign trust distributions may be taxable, and transfers to foreign trusts might trigger gain recognition. Consult a tax professional to understand your specific tax liability.

2. What if the foreign trust doesn't provide me with required information?

You're still responsible for filing Form 3520 even if the trust doesn't cooperate. Complete the form to the best of your ability and attach an explanation describing what information is missing and why. The trust may face its own penalties for not providing required beneficiary statements.

3. Can I avoid reporting by claiming the foreign country's privacy laws prevent disclosure?

No. Foreign privacy laws are not considered "reasonable cause" for failing to file. The IRS requires U.S. persons to report their foreign trust transactions regardless of foreign legal restrictions.

4. What's the difference between Form 3520 and Form 3520-A?

Form 3520 is filed by U.S. persons involved with foreign trusts. Form 3520-A is filed by the foreign trust itself when it has a U.S. owner. If you own a foreign trust, both forms may be required—you file Form 3520, and the trust files Form 3520-A.

5. I received a gift of $50,000 from a foreign individual. Do I need to file?

Not unless other factors apply. The threshold for gifts from foreign individuals is $100,000 (or $15,102 from foreign corporations/partnerships). However, if you received multiple gifts that aggregate over $100,000 from related foreign individuals, you must report.

6. What happens if I discover I should have filed Form 3520 in previous years but didn't?

File the missing forms as soon as possible. The IRS has voluntary disclosure programs that may reduce penalties for taxpayers who come forward before being discovered. Consult a tax attorney or CPA experienced in international tax matters before proceeding.

7. How do I value property transferred to or received from a foreign trust?

Use fair market value as of the transaction date, determined as if the property's owner had died on that date (following estate tax valuation rules). While formal appraisals aren't always required, maintain contemporaneous documentation of how you arrived at your valuation in case the IRS questions it later.

Final Thoughts

Form 3520 is one of the most complex IRS forms, but compliance is essential. The penalties for failure to file are severe, and the IRS pays close attention to international transactions. If you're unsure whether you need to file or how to complete the form accurately, investing in professional tax advice can save you significant money and stress in the long run. The IRS provides additional resources and updates at IRS.gov/form3520.

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