Form 3520 (2012) Filing Guide for the Tax Year Checklist

Form 3520 (2012) Checklist

Purpose and Scope

Form 3520 (2012) requires U.S. persons to report transfers to foreign trusts, ownership interests in foreign trusts, distributions from foreign trusts, and gifts or bequests exceeding specified thresholds from foreign persons.

U.S. persons must file separate Forms 3520 for each foreign trust, and executors must file when decedents made testamentary transfers, were treated as trust owners under sections 671 through 679, or had trust assets included in estates.

Filing Requirements and Filer Classification

Confirm whether you are filing as an individual, partnership, corporation, trust, or executor and identify which triggering event applies: transfer to a foreign trust, ownership of a foreign trust, distribution from a foreign trust, or receipt of foreign gifts exceeding thresholds.

You may complete multiple Parts on a single Form 3520 if multiple triggering events apply, and executors must provide decedent information on lines 4a through 4f.

Trust Identification and Documentation

Basic Trust Information

Obtain and enter the foreign trust's name, address, country of creation, and country whose law governs the trust. Enter the trust's employer identification number if the IRS has assigned one.

For lines 6a and 6b, enter the applicable two-letter country code from the IRS country code list at www.IRS.gov/countrycodes. For foreign address entries elsewhere on the form, do not abbreviate the country name.

U.S. Agent and Trust Documents

Verify whether the foreign trust appointed a U.S. agent under IRC § 6039F. If you answer "No" on line 3, you must attach all trust documents as mandatory supporting materials on lines 15–18.

Required attachments include the trust instrument, all written or oral agreements, memoranda of wishes, financial statements showing accumulated income under U.S. tax principles, and all subsequent variances to these documents. No exception exists for prior-year filing of these same documents when the trust lacks a U.S. agent.

Part I Transfer Reporting

Record the trust creator's identification number, complete line 7 regarding other foreign trust owners and applicable Code sections, and answer on line 8 whether the transfer constitutes a completed gift or bequest.

Enter information about reportable beneficiaries on line 15 and identify on line 17 any person holding significant powers over the trust, such as protectors, enforcers, or persons with appointment powers.

Qualified Obligations Standards

For any transfer in exchange for a trust obligation on line 11a, classify each obligation as either qualified or nonqualified. Qualified obligations must satisfy all six requirements specified in the 2012 instructions:

1. The obligation is reduced to writing through an express written agreement.
2. The maximum term does not exceed five years, including options to renew and rollovers, with repayment within that five-year term.
3. All payments on the obligation are denominated in U.S. dollars.
4. The yield to maturity falls between 100% and 130% of the applicable federal rate under section 1274(d) for the issuance date.
5. You agree to extend the assessment period to three years after maturity unless the obligation matures and is paid within the same tax year.
6. You report the obligation status annually on Schedule C line 19 or Part III line 28.

Qualified obligations trigger the mandatory extension of the assessment period to three years after maturity on line 12. The fair market value of obligations that fail to meet qualified obligation criteria equals zero for transfer reporting purposes.

Gratuitous Transfers and Sale Documents

Report gratuitous transfers on line 13 where you received less than fair market value or no consideration, indicating whether the property is tangible or intangible, and you may aggregate cash transfers on a single line.

Attach copies of all sale and loan documents on line 14, or if you attached these documents to a Form 3520 within the prior three years, attach only relevant updates.

Part II Ownership Reporting

Enter the gross value of the foreign trust portion you are treated as owning on line 23 using fair market value as of the end of the tax year.

Enter information on line 20 regarding any person other than yourself who is considered an owner under sections 671 through 679, noting the specific Code section in column (e), and enter the applicable two-letter country code from the IRS country code list for lines 21a and 21b.

If the foreign trust filed Form 3520-A, attach the Foreign Grantor Trust Owner Statement received from the trust on line 22. If the trust did not file Form 3520-A, complete and attach a substitute Form 3520-A, or you may face penalties under section 6677 equal to the greater of $10,000 or 5% of the gross value of trust assets you are treated as owning.

Part III Distribution Reporting and Loans

Record cash and property received on line 24, including date, description, fair market value on the distribution date, and any property you transferred in exchange.

Separately report loans or uncompensated use of trust property on line 25 with the fair market value of loan proceeds and applicable interest rate.

Determine whether line 25 loans qualify as qualified obligations in column (e) using the six-part test, because only qualified obligations allow subtraction of fair market value from loan proceeds to compute the amount treated as a distribution in column (g).

Nonqualified loans result in the full fair market value of proceeds being treated as a distribution, and the 2012 instructions clarified that uncompensated use of trust property under IRC § 643(i) is treated as a distribution.

Accumulation Distribution Calculations

Part III accumulation distribution calculations on lines 36–53 apply the throwback rule under IRC § 667 when you receive distributions exceeding current-year distributable net income.

Include the amount from Form 3520 line 48 on Form 4970 line 1.

Compute the tax on the total accumulation distribution using lines 1 through 28 of Form 4970, which is titled Tax on Accumulation Distribution of Trusts. Enter the tax from Form 4970 line 28 onto Form 3520 line 49. Use Form 4970 as a worksheet and attach it to Form 3520 when submitting your return.

Part IV Foreign Gift Reporting

Report gifts or bequests exceeding $100,000 in the aggregate from nonresident aliens or foreign estates on line 54. Report gifts or bequests exceeding $14,723 from foreign corporations or partnerships on line 55.

Identify whether the foreign donor is a corporation or a partnership in column (e) on line 55. Attach explanations if the space on the form is insufficient to report all required information. The $14,723 threshold for foreign corporation or partnership gifts reflects the 2012 cost-of-living adjustment to the reporting threshold.

Signature and Filing Procedures

Sign the return under penalties of perjury, include your title, ensure the paid preparer section is completed, and send Form 3520 to the Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409.

The form is due on the date your income tax return is due, including extensions, or for executors, on the date Form 706 is due or would be due.

Need Help With Your Tax Filing?

If you’re missing tax documents or want to ensure the numbers you enter match IRS records, we can help.

We offer:

• Full IRS transcript retrieval (Wage & Income + Account)
• Professional tax form review
• Preparation & filing support
• Tax relief options if you owe the IRS

Call now before filing: (888) 260-9441
Fast transcript pull available

‍

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.