IRS Form 3520 (2016): Late & Amended Filing Guide

What IRS Form 3520 (2016) Is For

IRS Form 3520 (2016) is used by a U.S. person to report specific international activities that involve foreign trusts or certain foreign gifts. The form is required under the Internal Revenue Code and helps the Internal Revenue Service monitor transactions that involve property transferred to, received from, or held in a foreign trust. A U.S. citizen or resident must also use it to disclose large gifts or bequests from foreign persons, ensuring that these transactions meet federal reporting requirements.

This form is a compliance document that helps identify foreign trust ownership, transfers, and distributions under grantor trust rules. It also ensures that U.S. owners, domestic trusts, and domestic corporations treated as owning foreign trust property accurately report their activities. By requiring this filing, the IRS maintains oversight of income and property received or transferred through foreign trusts, protecting the integrity of U.S. tax reporting.

If you work with multiple IRS forms related to foreign trusts or international reporting, our IRS Form Help Center provides guidance on other forms that may apply to cross-border transactions.

When You’d Use Form 3520 for 2016

You would file IRS Form 3520 for the 2016 tax year if you met one or more qualifying conditions related to foreign transactions.

1. Transfer of property to a foreign trust: You must file Form 3520 if you transferred any assets or property to a foreign trust during the taxable year, as this is considered a reportable event under the Internal Revenue Code.
   
   
2. Ownership under grantor trust rules: You must file if you are a U.S. owner and are treated as owning part of a foreign trust under grantor trust rules, since such ownership creates ongoing reporting obligations.
   
   
3. Receipt of distributions from a foreign non-grantor trust: You must file the form if you received distributions from a foreign non-grantor trust, regardless of whether those distributions were in cash or property.
   
   
4. Receipt of large foreign gifts or bequests: You must report such foreign gifts or bequests if their total value exceeded the 2016 threshold, even if those gifts came from multiple foreign persons. If you also have missing tax returns for the same period, our guide to unfiled federal income tax returns explains how to restore compliance and avoid additional penalties.

Key Rules or Details for 2016

The 2016 version of IRS Form 3520 included specific requirements, deadlines, and reporting thresholds that differ from later years. Understanding these details helps ensure your filing is accurate and compliant with Internal Revenue Service expectations.

1. Due date and extension of time: The due date for filing Form 3520 matched the due date of your income tax return, including any extension that was properly filed with the IRS.
   
   
2. Foreign gift reporting thresholds: For the 2016 tax year, you must report an aggregate amount exceeding $100,000 from foreign individuals or $15,671 from a foreign corporation or domestic partnership.
   
   
3. Filing method and address: The completed form had to be mailed to the Internal Revenue Service Center in Ogden, Utah, since e-filing was unavailable for that year.
   
   
4. Use of correct form version: You must use the 2016 version of Form 3520, as substitute forms or later versions could cause processing issues or rejection.
   
   
5. Required information and documentation: Each filer must include the trust instrument and all supporting details about the foreign trust, domestic trust, or gifts reported to meet the required information standards.

Step-by-Step (High Level)

Filing IRS Form 3520 (2016) involves gathering the correct information, preparing the appropriate documents, and submitting them to the designated IRS office.

1. Obtain prior tax transcripts: Request IRS account transcripts to verify the status of your 2016 income tax return and identify any existing records related to foreign transactions.
   
   
2. Complete the correct-year form: Fill out the original 2016 version of Form 3520 carefully to ensure that all reportable transactions and foreign trust information are correctly listed.
   
   
3. Attach supporting documentation: Include copies of the trust agreement, financial statements, and details of any distributions received or property transferred to or from a foreign trust.
   
   
4. Mail to the proper address: Send your completed form and attachments to the Internal Revenue Service Center in Ogden, Utah, by the appropriate due date.
   
   
5. Retain full copies: Keep a complete copy of the filed form and all attachments for your records, as the IRS may request them later during review or correspondence.

Common Mistakes and How to Avoid Them

Many taxpayers make errors when filing IRS Form 3520 (2016); understanding these common issues can help avoid penalties and delays.

• Using the wrong form year: Always use the 2016 version of Form 3520, since using a form from another year can result in incorrect information and potential rejection by the IRS.
  
  
• Incomplete foreign trust data: Provide complete information about the foreign trust, including trustee details, beneficiaries, and financial statements, to satisfy all reporting requirements.
  
  
• Misunderstanding gift thresholds: Apply the proper dollar limits for each foreign person, not per transaction, to accurately report the total value of foreign gifts received.
  
  
• Failure to include trust instruments: Attach a copy of the trust instrument when a foreign trust has no U.S. agent, as this ensures the IRS has the required documentation.
  
  
• Wrong mailing address: Send the form to the designated IRS Ogden Service Center. Mailing it elsewhere can delay processing or cause the IRS to consider it unfiled.

If the filing results in a balance you cannot pay at once, our guide to IRS payment plans explains how installment agreements work and who qualifies.

What Happens After You File

Once you file IRS Form 3520 (2016), the Internal Revenue Service reviews your submission for accuracy and completeness. You may receive an IRS notice requesting clarification or additional documentation if any information is missing. The IRS may impose a penalty equal to 35% of the gross value of unreported transactions or apply another penalty imposed for failure to file on time. 

You can request reasonable cause relief if you prove the delay or omission was not due to willful neglect. Processing may take several months, and you should keep all supporting records until your case is closed. If the IRS assesses a balance due or penalty, understanding how the IRS collection process works can help you prepare for notices and possible enforcement actions.

FAQs

How does the IRS handle foreign gifts under Form 3520 (2016)?

The Internal Revenue Service exercises primary supervision over reporting certain foreign gifts. If a U.S. person fails to report gifts exceeding the required threshold, such penalties may apply based on the gross value of the property involved. Filing on time helps prevent enforcement actions and delays in review.

What qualifies as a foreign trust for reporting purposes?

A foreign trust is any trust that does not meet the criteria for a domestic one and is generally treated under foreign jurisdiction. The IRS exercises primary supervision to ensure compliance, and substantial decisions concerning the trust must be reported under the applicable grantor or non-grantor trust rules.

When must I report transactions involving foreign trusts or gifts?

You must report transactions when a U.S. person transfers property, receives distributions, or holds ownership under grantor trust rules. The IRS may impose such penalties if these transactions are not disclosed properly. Reporting all property involved ensures compliance and helps the IRS maintain accurate records for the taxable year.

Do nonresident alien individuals need to file Form 3520 (2016)?

Nonresident alien individuals are generally not required to file Form 3520 unless they meet specific conditions under special rules. However, when transactions involve property or distributions that affect U.S. reporting requirements, the IRS may review them, and substantial decisions regarding such penalties may still apply.

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