Form 3520 (2016) Tax Year Checklist
Reporting Purpose and Scope
Form 3520 reports 2016 transfers to foreign trusts, distributions from foreign trusts, and gifts exceeding $100,000 from nonresident aliens. The 2016 instructions introduced heightened documentation requirements for gratuitous transfers when no U.S. agent is appointed, requiring attachment of trust instruments and all written agreements.
This compliance shift emphasizes substantiation of trust control and beneficiary information distinct from prior years. The heightened documentation requirements represent a significant enforcement focus for the 2016 tax year.
Filing Triggers and Initial Requirements
Determine your filing obligation under Part A if you transferred property directly or indirectly to a foreign trust during 2016. Complete Box A to indicate initial, extension-filed, final, or amended status.
Verify Part A checkboxes align with 2016 activity: transfers by U.S. transferor, U.S. ownership of foreign trust, distributions received, or gifts from foreign persons. The 2016 instructions clarify that multiple checkboxes on one form are permissible if all relate to the same foreign trust.
Filer Identification Standards
Enter the U.S. person's name, taxpayer identification number, and address on lines 1a through 1h. If filing a joint 2016 income tax return but filing separate Forms 3520 for each spouse, check line 1i. The 2016 instructions require explicit service center designation on line 1j, and failure to specify the correct IRS service center may delay processing.
Foreign Trust Identification Requirements
Report the foreign trust's legal name, country of creation, and country of governing law using 2016-designated country codes on the appropriate lines of the form. For Part I transfers, provide the trust creator's name, complete address, and identification number on lines 5a through 5c to establish the originating party.
The 2016 instructions require country codes in a specific format for lines 6a and 6b to ensure proper processing and timely acceptance by the IRS. Consult IRS Publication 514 for the correct two-letter or three-digit country designations applicable to your specific reporting requirements and verify the codes match current standards.
U.S. Agent Appointment and Documentation
Answer line 3 regarding whether the foreign trust appointed a U.S. agent for reporting and compliance purposes. If yes, provide the agent's complete name, address, and identification number on lines 3a through 3g as required by the form.
If no U.S. agent was appointed, lines 15 through 18 become mandatory reporting requirements under the 2016 instructions. The absence of a U.S. agent triggers strict documentation requirements, including attachment of complete trust instruments unless identical documents were previously attached to Form 3520 or Form 3520-A within the prior three years.
Transfer Reporting Obligations
Complete Part I if transferring property to a foreign trust during 2016 by answering line 11a to trigger the appropriate reporting schedules. Complete Schedule A regarding obligations received if applicable to your transaction type and circumstances.
The 2016 instructions define a qualified obligation with specific yield and term requirements that must be satisfied for deferral treatment. Attach all sale and loan documents on line 14 unless previously attached within the prior three years, in which case attach only relevant updates to avoid duplicative submissions.
Gratuitous Transfer Documentation
Complete Schedule B if you made transfers for less than fair market value or no consideration in 2016. Report date, property description, fair market value transferred, adjusted basis, gain recognized, and property received in columns (a) through (i).
The 2016 instructions require attachment of sale and loan documents on line 14 with specificity. Incomplete document disclosure may trigger accuracy penalties under the 2016 rules.
U.S. Owner Reporting Requirements
Complete Part II if you held any ownership interest in a foreign trust during 2016 by confirming line 22 applies to your situation. Enter the gross value of your ownership portion on line 23 in U.S. dollars for accurate reporting.
The 2016 instructions require that if the trust did not file Form 3520-A, you must complete and attach a substitute with detailed trust accounting. Failure to attach the required Form 3520-A or substitute results in penalties under the 2016 compliance rules.
Distribution and Loan Reporting
For each 2016 distribution from the foreign trust, complete line 24 columns (a) through (f):
- Report distribution date, property description, fair market value on distribution date, and net distribution amount.
- For trust loans to you in 2016, report loan proceeds, original date, term, interest rate, and qualified obligation status on line 25.
- Calculate ordinary income on line 36, accumulation distributions on line 37, and attach Form 4970 on line 49 if an accumulation distribution occurred.
The 2016 instructions specify that the applicable number of years calculation on line 32 includes all years the trust was in existence.
Foreign Gift Thresholds and Reporting
Report gifts exceeding $100,000 in aggregate from nonresident aliens or foreign estates during 2016 on line 54 of Part IV. Report each gift over $5,000 separately with date, description, and fair market value to satisfy individual itemization requirements.
For gifts from foreign corporations or partnerships exceeding $15,671 in 2016, complete all columns on line 55, including donor identification and entity type. The 2016 instructions impose special scrutiny on related donors and require disclosure of any belief that the foreign donor acted as a nominee or intermediary.
Assembly and Signature Requirements
Assemble the 2016 Form 3520 with all Parts and Schedules in numerical order. Attach all required documents, including trust instruments, loan agreements, sale documents, Form 3520-A statements, beneficiary statements, and Form 4970 if applicable, then sign and date the form under penalties of perjury.
Enhanced Compliance Standards for 2016
The 2016 instructions reinforce that the absence of a U.S. agent triggers mandatory attachment of trust instruments, beneficiary lists, trustee information, and persons with trust powers. Foreign gift reporting follows the $100,000 aggregate threshold for nonresident alien gifts, with individual gift itemization required over $5,000.
The $15,671 threshold for foreign corporation or partnership gifts represents the inflation-adjusted amount specific to 2016. Qualified obligations require written agreements, maximum 5-year terms, U.S. dollar denomination, applicable federal rate compliance, assessment period extension agreement, and annual status reporting.
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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.
