IRS Form 3520 (2018): Late & Amended Filing Guide

What IRS Form 3520 (2018) Is For

IRS Form 3520 (2018) is used by U.S. persons to report transactions involving foreign trusts, ownership of foreign grantor trusts, and certain foreign gifts or bequests received from foreign individuals or entities. It ensures compliance with the Internal Revenue Code provisions that require disclosure of foreign trust activity and large foreign gifts for income tax purposes. The Internal Revenue Service uses this form to monitor transfers of property and distributions from foreign trusts, ensuring transparency in international financial relationships.

The form also applies to individuals who create, transfer, or receive property from a foreign trust immediately before or during the tax year. It extends to taxpayers who receive large gifts or inheritances from foreign estates or foreign persons and must report these for income tax purposes. Filing Form 3520 helps demonstrate good faith compliance and prevents automatic penalties associated with unreported foreign transactions, property transferred, or income derived from foreign trust assets.

If you work with additional IRS forms related to foreign reporting or international transactions, our IRS Form Help Center offers detailed guidance to help you understand how these filings connect to your overall tax obligations.

When You’d Use IRS Form 3520 (2018)

You would file IRS Form 3520 (2018) when specific international financial situations require disclosure to the Internal Revenue Service.

1. Received large foreign gifts: File if you received foreign gifts exceeding reporting thresholds from foreign persons or foreign partnerships, as these must be reported for income tax purposes. In some cases, you may also need to review the Form 709 federal gift tax return rules to determine whether additional disclosures are required beyond Form 3520.
   
   
2. Transferred property to a foreign trust: File when you transfer property or trust assets to a foreign trust, as such transactions must be reported under U.S. tax law.
   
   
3. Treated as an owner under grantor trust rules: File if you are treated as an owner of a foreign grantor trust that exercises primary supervision or control over trust decisions.
   
   
4. Corrected previously late-filed forms: File to amend prior filings if you discover unreported transactions with foreign trusts or unreported gifts from foreign corporations. Suppose other tax returns are still missing from the same period. In that case, our guide to unfiled federal income tax returns explains how late filings impact IRS compliance and how taxpayers can bring multiple years current.
   
   
5. Responding to IRS correspondence: File when the Internal Revenue Service notifies you of missing or incomplete filings requiring correction.

Key Rules or Details for 2018

Several specific rules apply to this tax year when filing IRS Form 3520 (2018), determining filing requirements and compliance obligations.

1. Reporting thresholds: You must report foreign gifts exceeding $100,000 from foreign individuals or estates, and gifts over $16,076 from foreign corporations or partnerships, as these amounts meet the reporting thresholds established under U.S. tax law.
   
   
2. Due date and extensions: The due date for the 2018 tax year was April 15, 2019, or June 15, 2019, for qualifying overseas filers, with an automatic extension available until October 15, 2019.
   
   
3. Filing location: All Form 3520 filings must be mailed to the Internal Revenue Service processing center in Ogden, Utah, as electronic filing was not accepted for this tax year.
   
   
4. Extended statute of limitations: The IRS may review your filing for three years from the date a complete and accurate Form 3520 is submitted, extending the period for tax review.
   
   
5. Penalty structure: The IRS may impose significant penalties for late or incomplete filings, but penalty relief may be available if the taxpayer acted with reasonable cause and not willful neglect.

Step-by-Step (High Level)

The process for filing IRS Form 3520 (2018) requires accuracy and attention to detail to ensure compliance with international reporting obligations.

1. Gather documentation: Before preparing the form, collect all relevant records, such as foreign trust agreements, gift documentation, and correspondence with responsible parties or tax professionals.
   
   
2. Complete the correct-year form: Use the official 2018 version of Form 3520 and fill out every applicable part to report transactions with foreign trusts or receipt of foreign gifts.
   
   
3. Attach supporting documents: Include trust financial statements, schedules identifying trust assets, and any gross reportable amount documentation to substantiate your filing.
   
   
4. Mail with proof of delivery: Send the completed package to the IRS, Ogden, Utah, using certified mail, and retain a copy for your records to confirm timely submission.
   
   
5. Retain such records permanently: Keep copies of all filings, supporting documentation, and proof of mailing to verify compliance if the IRS raises any tax issue in the future.

Common Mistakes and How to Avoid Them

Taxpayers often make errors when filing IRS Form 3520 (2018), and understanding these issues can help prevent delays and penalties imposed by the Internal Revenue Service.

1. Missing filing requirement: Many U.S. persons fail to recognize their reporting obligations for transactions with foreign trusts or large gifts, so carefully review the filing requirements to avoid such penalties.
   
   
2. Incomplete or inaccurate forms: Ensure that all identifying information, trust property details, and foreign trusts’ assets treated under the grantor trust rules are reported accurately to prevent additional penalties.
   
   
3. Ignoring reasonable cause exception: If the form is filed late, always include a reasonable cause statement demonstrating that the taxpayer acted with good faith and not in neglect.
   
   
4. Failing to coordinate with Form 3520-A: Confirm that the foreign trust has filed Form 3520-A and that its annual return matches your reporting to avoid accuracy-related penalties.
   
   
5. Incorrect qualified obligation details: Verify that the applicable federal rate, interest payments, and maturity date for any outstanding qualified obligation are accurate to ensure compliance.

Taxpayers who qualify may also request relief through the IRS penalty abatement program, which includes options for reasonable cause and first-time abatement.

What Happens After You File

After filing IRS Form 3520 (2018), the Internal Revenue Service reviews the submission manually, as these filings involve complex tax issues related to foreign trusts and foreign gifts. The review process can take several months, and the IRS may contact you to clarify trust property details, fair market valuations, or responsible party information. 

If any penalties are assessed, you can request a review for reasonable cause on a case-by-case basis and provide documentation supporting your claim. Taxpayers may also request penalty abatement or payment arrangements for outstanding balances through the appropriate IRS channels. If your filing results in a balance due or assessment, understanding how the IRS collection process works can help you prepare for notices, timelines, and potential enforcement actions.

FAQs

How do foreign persons affect Form 3520 reporting?

Foreign individuals who make large gifts or transfers to U.S. taxpayers create foreign trust reporting obligations, requiring the recipient to disclose the transaction details on Form 3520 to ensure compliance with U.S. tax law.

What are the filing requirements for foreign trusts?

Foreign trusts must provide annual statements and relevant documentation to U.S. owners or beneficiaries, ensuring all foreign trust reporting requirements are satisfied when filing the associated tax return.

How are principal and interest payments reported?

Principal and interest payments associated with a qualified obligation must be disclosed on Form 3520, including details about applicable federal rates and payment schedules for accurate tax reporting.

When does a tax obligation arise under Form 3520?

A tax obligation arises when substantial decisions are made involving property transfers or distributions from a foreign trust, even when the nonresident alien individual concerned is not subject to standard income taxation.