What IRS Form 3520-A (2017) Is For
IRS Form 3520-A (2017) is the annual information return for foreign trusts with U.S. owners. It ensures that each U.S. person with an ownership interest in a foreign trust reports all relevant financial activities and transactions to the Internal Revenue Service. The form provides transparency for foreign financial assets, including the trust’s income, distributions, and assets, under the grantor trust rules of the Internal Revenue Code.
This filing requirement applies to foreign trusts that hold property, investments, or income sources connected to U.S. taxpayers. The form details the foreign trust’s assets treated as owned by a U.S. person, including marketable securities, mutual funds, and capital gains. It also verifies compliance with foreign trust reporting obligations, ensuring that all income tax purposes are met according to Treasury regulations and that no income effectively connected to the United States is left unreported.
For help with other IRS forms related to foreign trust reporting and international compliance, you can visit our IRS Form Help Center to review connected filing requirements.
When You’d Use IRS Form 3520-A (2017)
You would use IRS Form 3520-A (2017) when specific events or findings require correction, compliance, or late submission.
- Received IRS notice about missing foreign trust reporting: You must file if the Internal Revenue Service notifies you of unreported foreign trust activities or incomplete submissions.
- Found errors in a previously filed return: When inaccuracies involving a foreign trust’s assets, taxable income, or trust property are discovered, an amended form is required.
- Discovered unreported foreign trust ownership: File once you confirm ownership in a foreign grantor trust, foreign non-grantor trust, or foreign partnership previously omitted from your income tax return.
- Joined voluntary disclosure or compliance programs: U.S. persons participating in IRS disclosure initiatives must submit the form to correct prior omissions related to foreign assets, foreign gifts, or specified foreign financial assets.
If your situation also involves domestic trust or estate reporting, refer to our Form 1041 income tax return guide to understand how U.S. trust filings interact with foreign trust disclosures.
Key Rules or Details for 2017
Several specific rules applied to IRS Form 3520-A (2017) under the Internal Revenue Code and Treasury regulations. These ensure proper filing, penalty assessment, and compliance for U.S. persons with foreign trust interests.
- Filing deadline: The due date for filing is the 15th day of the third month following the trust’s tax year, typically March 15, 2018, for calendar-year trusts.
- Penalty structure: The penalty is the greater of $10,000 or 5% of the gross value of the foreign trust’s assets treated as owned by a U.S. person.
- Extension requirements: A valid Form 7004 must be filed before the due date, and the foreign trust must possess a valid employer identification number (EIN).
- Separate trust filing rule: Each foreign trust must file Form 3520-A individually; it cannot be combined with an individual income tax return.
- Penalty relief eligibility: U.S. persons may request penalty relief if delays were caused by unavailable records or foreign trustees, supported by reasonable cause documentation.
If a foreign trust holds or distributes U.S.-source income, the withholding rules explained in our Form 1042 annual withholding tax return guide may also apply.
Step-by-Step (High Level)
Filing IRS Form 3520-A (2017) requires careful attention to details and adherence to reporting obligations under applicable law.
- Gather documentation: Collect financial accounts, trust property records, and the foreign trust’s bank statements to verify fair market value, income, and capital gains.
- Complete the correct form: Use the official 2017 version of IRS Form 3520-A with the trust’s EIN, accurately reporting foreign income, taxable income, and trust assets.
- Include required statements: Attach the Foreign Grantor Trust Owner Statement and Trust Beneficiary Statement to comply with required annual statements under grantor trust rules.
- Mail to the correct IRS address: Send the completed form to the Internal Revenue Service Center in Ogden, Utah; do not attach it to your income tax return.
- Maintain complete records: Retain copies of all trust instruments, financial accounts, and supporting documents for primary supervision and future tax reporting compliance.
If foreign trust filing issues occur alongside unfiled or incorrect income tax returns, our guide to unfiled federal income tax returns explains how to restore full IRS compliance.
Common Mistakes and How to Avoid Them
Avoiding common filing errors is essential to maintaining compliance with IRS Form 3520-A (2017) and minimizing penalties.
- Using the wrong identification numbers: To ensure proper tracking of the foreign trust, always use the trust’s employer identification number (EIN) instead of an individual taxpayer identification number or Social Security number.
- Incorrect substitute filings: Attach the substitute Form 3520-A to Form 3520 rather than mailing it separately to comply with foreign trust reporting requirements.
- Missing signatures: Ensure that authorized trustees or representatives sign and date the form in accordance with the court test and control test for domestic trust supervision.
- Incomplete trust details: Include complete information about the foreign trust’s assets, foreign bank accounts, and connections to any foreign corporation, foreign estate, or foreign partnership.
- Improper extension requests: Obtain a valid EIN before submitting Form 7004 to request a filing extension for a foreign trust.
- Wrong mailing location: You should submit all completed forms to the IRS Ogden Service Center rather than attaching them to an individual income tax return.
What Happens After You File
After you file IRS Form 3520-A (2017), the Internal Revenue Service reviews the submission for completeness and accuracy. Processing typically takes several months, depending on the trust’s complexity and any international elements. The IRS may issue acknowledgment letters or request additional documentation about the foreign trust’s assets or financial accounts.
If penalties are assessed, taxpayers may request penalty abatement based on reasonable cause or seek assistance through the Taxpayer Advocate Service. When penalties cannot be immediately paid, Form 9465 may be used to establish an installment agreement and prevent further tax liability enforcement actions.
FAQs
What are considered foreign financial assets under IRS Form 3520-A (2017)?
Foreign financial assets include accounts and property outside the United States that must be reported under the Internal Revenue Code. The Internal Revenue Service expects U.S. persons to supervise these assets to ensure all foreign income and related transactions are adequately disclosed.
What is a foreign trust for IRS Form 3520-A (2017)?
A foreign trust is an arrangement established under non-U.S. law where the court and control tests are not met within the United States. Trustees or owners must make substantial decisions regarding distributions, investments, and income management to maintain compliance with reporting obligations.
Who is considered a foreign person under IRS rules?
A foreign person refers to any nonresident alien individual, foreign corporation, foreign estate, or foreign partnership subject to separate tax reporting. Such individuals or entities are responsible for providing documentation when transactions involve U.S. beneficiaries or U.S.-owned foreign trusts.
What defines a domestic corporation in the context of IRS Form 3520-A (2017)?
A domestic corporation is formed under U.S. law and may have obligations or connections with foreign trusts through financial accounts or ownership interests. When such entities engage in principal and interest payments transactions, these must be accurately reported for income tax purposes.
