Form 3520 (2020) Tax Year Checklist
Purpose
Form 3520 reports all 2020 transfers to foreign trusts by U.S. persons, distributions received from foreign trusts, and gifts or bequests exceeding specified thresholds from foreign persons.
The 2020 instructions expanded guidance on qualified obligations to clarify extension-of-limitations consent rules and added emphasis on substitute Form 3520-A filing penalties when the foreign trust itself does not file.
Filing Steps
Step 1: Identify Your Reporting Categories
Determine which of the four reporting categories apply to your 2020 tax year and check all applicable boxes on page 1:
- Transferor: You transferred property to a foreign trust
- U.S. Owner: You are treated as the owner of all or part of a foreign trust under sections 671-679
- Distribution Recipient: You received distributions from a foreign trust
- Foreign Gift/Bequest Recipient: You received gifts or bequests from foreign persons exceeding thresholds
The 2020 form restructured the checkbox layout to separate transferor obligations from owner reporting, thereby preventing mixed-use filings.
Step 2: Complete Basic Trust Information
If you transferred property to a foreign trust in 2020, complete Part I with:
- The foreign trust’s creation date
- Two-letter country code of the country where the trust was created
- Two-letter country code of the country whose law governs the trust
Enter the applicable two-letter country codes from the list at IRS.gov/CountryCodes (e.g., “GB” for the United Kingdom, “CH” for Switzerland).
Step 3: Report Qualified Obligations
Complete Schedule A (qualified obligations) if you received a qualified obligation from a related foreign trust in 2020. Answer line 12 regarding your agreement to extend the assessment period for income and transfer taxes to 3 years after the obligation’s maturity date.
Important: Refusal to extend the period of limitations disqualifies the obligation as “qualified.”
Attach a copy of the original loan or sale document. If you previously attached the same document to a Form 3520 filed within the prior 3 years, attach only relevant 2020 updates (e.g., amended terms, principal payment schedules, or accrued interest calculations).
Step 4: Report Gratuitous Transfers
Complete Schedule B (gratuitous transfers) if you transferred property to a related foreign trust in 2020 for less than fair market value or without receiving consideration.
Report all such transfers with:
- Fair market value (FMV)
- Adjusted basis
- Any gain recognized at the time of transfer
Attach all sale or loan documents unless previously filed within 3 years.
Step 5: Provide Enhanced Documentation for Non-Agent Trusts
If the foreign trust did not appoint a U.S. agent (line 3 = “No”), complete lines 15-18 for the 2020 tax year:
- List all beneficiaries
- List all trustees
- List all persons with trust powers
Attach copies of:
- Trust instrument
- All written and oral agreements
- Memoranda of wishes
- Trust financial statements
The 2020 instructions impose heightened documentation requirements on non-agent trusts to facilitate IRS examination.
Step 6: File as U.S. Owner of Foreign Trust
If you were treated as a U.S. owner of a foreign trust at any point during 2020 (Part II), complete the following:
- Enter the gross value of your portion at year-end on line 23
- Attach the Foreign Grantor Trust Owner Statement from the trust’s Form 3520-A if it was filed
- If the trust did not file Form 3520-A, complete and attach a substitute Form 3520-A yourself
Penalty Warning: Failure to attach a substitute Form 3520-A subjects you to penalties equal to the greater of $10,000 or 5% of the gross value of the trust portion you are treated as owning.
Step 7: Report Distributions from Foreign Trusts
For any distributions received in 2020 from a foreign trust (Part III), determine whether you received a Foreign Grantor Trust Beneficiary Statement or Foreign Nongrantor Trust Beneficiary Statement from the trust.
If you did not receive either statement:
- Complete Schedule A or Schedule B per the instructions
- Calculate the accumulation distribution on line 37
- Attach Form 4970 if the distribution exceeds the threshold on line 35
Step 8: Calculate Accumulation Distributions
Complete lines 31-37 to determine whether any 2020 distribution is an accumulation distribution.
Key Calculation: Line 36 caps ordinary income at the smaller of:
- Current-year distributions, or
- 125% of the average distribution for the 3 preceding years (or fewer if the trust existed for fewer than 3 years)
Any excess is an accumulation distribution subject to the interest charge computed on Form 4970.
Step 9: Compute Tax on Accumulation Distributions
If an accumulation distribution exists for 2020 (line 37 greater than zero), complete Schedule C (Part III) using Form 4970 to compute:
- The tax on total accumulation
- The combined interest rate
Line 51 requires you to apply the combined rate for all applicable years. Line 52 calculates the interest charge by multiplying the tax on line 49 by the combined rate.
Step 10: Report Foreign Gifts and Bequests
Complete Part IV if you received gifts or bequests in 2020 exceeding:
- $100,000 from a nonresident alien or foreign estate
- $16,649 from a foreign corporation or partnership
Report each gift or bequest of $5,000 or more separately on line 54. For gifts over $16,649 from a foreign corporation or partnership, use line 55 with the donor’s name, address, and entity type.
Step 11: Sign and File the Return
Sign and date the return. If married and filing a joint 2020 income tax return with your spouse, you may file a joint Form 3520 (check line 1i).
Submit the completed Form 3520 with all required attachments to:
Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409
Due Date: File by the due date of your 2020 income tax return, including extensions claimed on lines 1j or 1k (generally April 15, or October 15 if you filed for an extension).
Required Attachments
Ensure your Form 3520 includes all applicable attachments:
- Trust documents (if no U.S. agent appointed)
- Loan agreements and qualified obligation documents
- Form 3520-A or substitute Form 3520-A
- Form 4970 (if accumulation distribution exists)
- Foreign Grantor Trust Owner Statement or Foreign Grantor Trust Beneficiary Statement
- Sale or loan documents for gratuitous transfers
Year-Specific 2020 Updates
Qualified Obligation Documentation
The 2020 Form 3520 instructions expanded the qualified obligation definition to state that you must attach each loan document explicitly. You may omit re-filing only if the same document was attached to a prior-year Form 3520 filed within the preceding 3 years. Any material changes (including interest rate adjustments, maturity date extensions, or principal modifications) require the submission of an updated document.
Country Code Standardization
Form 3520 for the 2020 tax year uses two-letter ISO 3166-1 alpha-2 country codes (e.g., “GB” for the United Kingdom, “CH” for Switzerland) rather than prose country names, standardizing international trust identification.
Extension of Limitations Clarification
The 2020 instructions clarified the consent language on lines 12 and 26: failure to agree to extend the statute of limitations for the assessment of income and transfer taxes generally disqualifies the obligation as qualified, effectively making the obligation non-qualified retroactively. This reversionary consequence was newly emphasized in the 2020 guidance.
Fair Market Value Determination
Schedule A and Schedule B for 2020 reinstated FMV determination dates as of the date of transfer (not distribution), clarifying proper valuation timing.
Penalties for Noncompliance
Form 3520 Penalties
The initial penalty for failing to file Form 3520 timely equals the greater of $10,000 or:
- 35% of the gross value of any property transferred to a foreign trust (Part I)
- 35% of the gross value of distributions received from a foreign trust (Part III)
- 5% of the gross value of the portion of the foreign trust’s assets treated as owned by a U.S. person if the trust fails to file Form 3520-A (Part II)
Additional penalties will be imposed if noncompliance continues for more than 90 days after the IRS mails a notice of failure to comply.
Foreign Gift Penalties
For failure to report foreign gifts promptly (Part IV), the penalty equals 5% of the amount of such foreign gifts for each month the failure continues, not to exceed 25% of the total amount of such foreign gifts.
Reasonable Cause Exception
No penalties will be imposed if you can demonstrate that the failure to comply was due to reasonable cause and not willful neglect. However, the fact that a foreign country would impose penalties for disclosing the required information is not reasonable cause.
Important Reminders
- File a separate Form 3520 for each foreign trust that you are required to report.
- Complete Part II even if there were no transactions involving the trust during the tax year.
- Maintain contemporaneous records of your good-faith estimates for determining fair market value. If Form 3520 is not filed by the due date, the time for assessment of any tax will not expire until 3 years after the required information is reported.
- You may be required to file FinCEN Form 114 (FBAR) and Form 8938 in addition to Form 3520.
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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.
