Form 3520 (2011) Checklist
Filing Purpose and Scope
Form 3520 reports U.S. person transactions with foreign trusts and certain foreign gifts or bequests received during 2011. The 2011 instructions modified the threshold for reporting gifts from foreign corporations and foreign partnerships from $13,171 to $14,375, reflecting annual inflation-based adjustments to gift reporting requirements under section 6039F.
You must file a separate Form 3520 for each foreign trust with which you conduct transactions. The 2011 instructions clarify that you cannot combine multiple trusts on one form.
Filer Categories and Filing Requirements
Determine whether you are a U.S. transferor to a foreign trust, U.S. owner of a foreign trust, recipient of distributions from a foreign trust, or recipient of gifts or bequests from foreign persons. Each category requires completion of specific parts of Form 3520 based on your relationship to the foreign trust or foreign donor.
Complete the identifying information section with the correct IRS service center where your U.S. income tax return is filed. The 2011 form specifies this line to route filings appropriately for foreign trust oversight and coordination with income tax administration.
U.S. Agent Appointment Requirements
Determine whether the foreign trust appointed a U.S. agent with a binding contract authorizing IRS examination and summons representation, then provide complete identification and address information on line 3. If no U.S. agent exists, complete Schedule B, lines 15 through 18, and attach all specified trust documents per 2011 instructions.
Transfer Reporting and Qualified Obligations
Report all transfers to foreign trusts in Part I according to 2011 requirements, completing line 11b and Schedule A for qualified obligations under IRC section 7872 with dates, terms, yields, and fair market values. Line 12 requires your agreement to extend the assessment period to three years after obligation maturity.
This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
Gratuitous Transfer Documentation
Complete Schedule B if you transferred property for less than the full market value or no consideration during 2011. List each transfer date, property description, fair market value, adjusted basis, gain recognized, and excess fair market value in the appropriate columns.
Attach copies of all sale or loan documents entered into in connection with transfers reported on line 13. If you previously attached these documents within three years, attach only relevant updates for the current tax year reporting period.
Distribution Calculation Methodology
Calculate ordinary income versus accumulation distribution from foreign trust distributions using lines 31 through 37 of Form 3520. The calculation process includes:
- Enter total distributions received during 2011 on line 31.
- Compute the average distribution over the preceding three years or shorter period per line 32.
- Multiply the average by 1.25 on line 34 to determine the threshold amount.
- Determine whether the current distribution exceeds 125% of the average, creating an accumulation distribution subject to special tax on line 37.
Accumulation Distribution Tax Calculation
Complete Schedule C accumulation distribution calculation if line 37 exceeds zero for the 2011 tax year. Calculate the applicable number of years of trust on line 38 using the trust's weighted undistributed net income.
Attach Form 4970, Tax on Accumulation Distribution of Trusts, as a worksheet to compute tax on the accumulation distribution. Form 4970 is used specifically for trust accumulation distributions and must be completed using lines 1 through 28 to determine the tax amount.
This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
Interest Charge Computation
Apply the combined interest rate on line 51 to compute an interest charge per the 2011 instructions if an accumulation distribution occurred. Interest accumulates on the tax for the period beginning on the date that is the applicable number of years prior to the applicable date and ending on the applicable date.
For portions of the interest accumulation period before 1996, interest accumulates at a simple rate of 6% annually without compounding. For portions of the interest accumulation period after 1995, interest is compounded daily at the rate imposed on underpayments of tax under section 6621(a)(2). Add tax and interest on line 53 to report as additional tax on your income tax return.
Foreign Gift Reporting Thresholds
Report foreign gifts and bequests exceeding applicable thresholds on lines 54 through 56 of Form 3520. On line 54, report gifts or bequests exceeding $100,000 aggregate from a nonresident alien or foreign estate during 2011.
Itemize each gift exceeding $5,000 when the aggregate amount surpasses the $100,000 threshold. On line 55, report gifts exceeding $14,375 from foreign corporations or partnerships during 2011.
The $14,375 threshold represents the 2011 inflation-adjusted amount under section 6039F. Confirm on line 56 whether any foreign donor acted as nominee or intermediary for another person.
Related Party Gift Aggregation
Aggregate gifts from related foreign persons when determining whether you meet the reporting thresholds for 2011. Include gifts from foreign persons related to the nonresident alien individual or foreign estate when calculating the $100,000 threshold.
Include gifts from foreign persons related to the foreign corporation or foreign partnership when calculating the $14,375 threshold. Related persons include family members, controlled entities, and other parties specified in sections 267 and 707(b) of the Internal Revenue Code.
This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
Multiple Trust Filing Requirements
File separate Form 3520 returns for each foreign trust with which you conduct reportable transactions during 2011. The 2011 instructions emphasize that a single return cannot consolidate multiple trusts under any circumstances.
Multiple submissions are required if you hold interests in more than one foreign trust during the year. Each Form 3520 must contain complete information for one specific foreign trust, including all required schedules and attachments.
Distribution Lookback Period
Part III distribution calculations use a three-year lookback period or shorter if the trust existed for fewer than three years as of 2011. The lookback determines whether you received ordinary income or accumulation distribution treatment for amounts received during the current tax year.
The applicable number of years for interest charge calculations depends on the trust's weighted undistributed net income divided by the accumulation distribution amount, round the applicable number of years to the nearest half-year for purposes of computing the interest charge on line 51.
Document Attachment Requirements
Attach all required documents to Form 3520 when filing your return for 2011. Required attachments include trust documents if no U.S. agent was appointed, Form 4970 as a worksheet if accumulation distributions occurred, and copies of sale or loan documents for gratuitous transfers.
The 2011 instructions specify that Form 3520 must have all required attachments to be considered complete for filing purposes. Incomplete returns may result in penalties under section 6677 for failure to file correct information.
This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
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This checklist is for educational purposes only and does not constitute tax or legal advice. Always review official IRS instructions and consult a qualified professional for guidance.
