What IRS Form 3520 (2021) Is For

IRS Form 3520 (2021) is an annual information return that U.S. persons must file to report specific transactions with foreign trusts and receipt of large gifts from foreign sources (IRS Instructions for Form 3520 (2021)). The form captures four main reporting scenarios: transfers to foreign trusts, ownership of foreign trusts under grantor trust rules, distributions received from foreign trusts, and foreign gifts or bequests exceeding statutory thresholds.

When You'd Use Form 3520 for 2021 (Late or Amended Filing)

Taxpayers typically file late Form 3520 returns for 2021 when they receive IRS notices about unfiled returns, discover unreported foreign trust transactions during tax preparation, or learn about filing requirements after the original due date.

Common scenarios include receiving CP notices demanding the form, finding foreign gifts that exceeded the $100,000 threshold after filing their income tax return, or discovering foreign trust ownership or beneficiary status.

Late filing may result when taxpayers are unaware of the separate filing requirement from their income tax return, or when foreign trustees fail to provide required statements timely (IRS Instructions for Form 3520 (2021)).

Key Rules Specific to 2021

The 2021 Form 3520 maintained the $100,000 reporting threshold for foreign gifts from nonresident aliens and foreign estates, with gifts from foreign corporations or partnerships subject to inflation-adjusted thresholds under section 6039F (IRS Instructions for Form 3520 (2021)).

For 2021, the form required separate filing for each foreign trust, and the IRS extended assessment statutes of limitations to three years after proper filing for any incomplete or late submissions. The penalty structure remained consistent with prior years, but reasonable cause exceptions continued to apply for demonstrable non-willful failures.

Step-by-Step (High Level)

• Gather transcripts and records: Obtain account transcripts from IRS.gov to verify any previous filings and gather all foreign trust documents, gift records, and financial statements
  
  
• Complete the correct form year: Use the official 2021 Form 3520 and instructions, checking appropriate boxes for late or amended filing status
  
  
• Attach required schedules: Include all mandatory attachments such as trust instruments, beneficiary statements, or substitute Form 3520-A if the foreign trust failed to file
  
  
• Mail to designated address: Send completed package to IRS Ogden, UT 84409 (electronic filing not available for Form 3520)
  
  
• Maintain comprehensive copies: Keep copies of all submissions and supporting documents for your records, as processing may take several months
  
  

Common Mistakes and How to Avoid Them

• Missing the separate due date: Form 3520 has its own due date (April 15 for calendar year filers, or June 15 if living abroad) that differs from income tax returns—mark this separately on your calendar
  
  
• Incomplete attachments: Ensure all required supporting documents are included, such as trust agreements, financial statements, and beneficiary information, as incomplete forms trigger automatic penalties
  
  
• Incorrect valuation methods: Use fair market value calculations consistent with section 2512 regulations for all property transfers and gifts, maintaining contemporaneous documentation of valuations
  
  
• Failing to aggregate related party gifts: Combine all gifts from related foreign persons when determining if thresholds are exceeded, as the IRS treats these as a single source
  
  
• Not claiming reasonable cause: When filing late, always attach a detailed reasonable cause statement explaining the circumstances that prevented timely filing, supported by documentation
  
  
• Missing TIN requirements: Obtain and report all required taxpayer identification numbers for foreign trusts, trustees, and gift providers to avoid processing delays
  
  

What Happens After You File

The IRS processes Form 3520 as an information return under the Business Master File system, typically taking several months for initial processing (IRS Internal Revenue Manual).

You may receive acknowledgment notices or requests for additional information during review. If penalties were assessed, you can request payment plans using Form 9465 for installment agreements, or submit appeals through the standard administrative process if you disagree with IRS determinations (IRS.gov/payments).

Processing delays are common due to the form's complexity and manual review requirements, so expect extended timeframes compared to regular tax returns. The IRS may also cross-reference your submission with income tax returns and issue follow-up inquiries about related reporting requirements.

FAQs

Can I still avoid penalties if I file my 2021 Form 3520 late?

Yes, if you can demonstrate reasonable cause for the late filing and that it was not due to willful neglect. Attach a detailed statement explaining the circumstances with supporting documentation (IRS Instructions for Form 3520 (2021)).

How much are the penalties for late filing a 2021 Form 3520?

Penalties can be severe: 35% of transferred property value or distributions received, 5% of trust assets if the trust failed to file Form 3520-A, or 5% per month (up to 25%) for unreported foreign gifts (IRS Instructions for Form 3520 (2021)).

Do I need tax transcripts before filing a late 2021 Form 3520?

While not required, obtaining account transcripts from IRS.gov helps verify your compliance history and whether the IRS has already initiated penalty assessments, which can inform your filing strategy.

Is there a statute of limitations for filing 2021 Form 3520?

There's no specific statute of limitations for filing the information return itself, but the IRS assessment period for related taxes extends to three years after you properly file the complete form (IRS Instructions for Form 3520 (2021)).

Should I amend my state tax return if I file a late federal Form 3520?

Generally no, as Form 3520 is purely informational for federal purposes and doesn't directly affect state tax calculations, though you should consult your state's specific requirements for foreign income reporting.

What if the foreign trust didn't provide me with required statements for 2021?

You must complete and attach a substitute Form 3520-A to your Form 3520 "to the best of your ability" to avoid penalties for the trust's failure to file (IRS Instructions for Form 3520 (2021)).

Can I request penalty relief after filing a late 2021 Form 3520?

Yes, you can request penalty abatement by demonstrating reasonable cause through the normal administrative process, or through the IRS appeals system if your initial request is denied (IRS.gov).

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