Form 3520 (2022) Filing Checklist
Form Purpose & Overview:
Form 3520 reports transactions with foreign trusts and receipt of certain foreign gifts exceeding reporting thresholds for the 2022 tax year. U.S. persons must file this form to report certain transactions with foreign trusts, ownership of foreign trusts under grantor trust rules, and receipt of large gifts or bequests from foreign persons.
Preparation Steps
Step 1: Confirm Your Filing Status and Filer Category
Determine which 2022 filer category applies to you: Individual, Partnership, Corporation, Trust, or Executor. Select the applicable box at line B on page 1 of the form. Identify whether you are a U.S. transferor, U.S. owner, distribution recipient, or foreign gift recipient, and mark the appropriate checkboxes. Each category triggers different Part completion requirements for 2022 reporting.
Step 2: Gather Foreign Trust Creation and Governance Information
Collect essential trust information including the trust creation date (line 6c) and the two-letter country code for the country where the trust was created (line 6a). You must also provide the two-letter country code for the country whose law governs the trust (line 6b). Use the official IRS country codes from IRS.gov/CountryCodes, not country names.
Step 3: Verify U.S. Agent Appointment Status
Determine whether the foreign trust appointed a U.S. agent by 2022 year-end (line 3). If yes, obtain and enter the agent’s name, TIN, and complete address (lines 3a–3g). If no U.S. agent exists, you must complete lines 15–18 and attach comprehensive trust documents (lines 18a–18f). Failure to attach required trust documents when no U.S. agent is appointed may result in penalties.
Step 4: Report Transfers to Foreign Trusts
For each transfer made during 2022 to a foreign trust, complete line 13 columns (a) through (i) in Part I. If you received a qualified obligation in 2022, attach the loan document (line 14b) and agree to extend the statute of limitations to three years after maturity (line 12). Qualified obligations must meet all requirements specified in the instructions, including being denominated in U.S. dollars and meeting interest rate requirements.
Step 5: Calculate Distribution Income Recognition
Enter 2022 distributions received on line 24 of Part III. Calculate the average distribution using line 35, which applies a 1.25 multiplier to line 34 and divides by 3.0 years or fewer if the trust existed for less than three years. Determine ordinary income (line 36) as the smaller of the current-year distribution (line 31) or the average distribution calculated.
Step 6: Report Accumulation Distributions
If line 37 (accumulation distribution) exceeds zero, complete Schedule C of Part III. Prepare Form 4970 (Tax on Accumulation Distribution of Trusts) as a worksheet attachment if directed by the instructions. Enter the calculated tax on line 49. Calculate the combined interest rate (line 51) using the 2022 IRS interest rate tables. Form 4970 computes the partial tax on accumulation distributions under section 667.
Step 7: Report Foreign Gifts and Bequests
Determine whether you received gifts or bequests exceeding the 2022 reporting threshold of more than $100,000 from nonresident aliens or foreign estates, or more than $17,339 from foreign corporations or foreign partnerships. Complete Part IV (line 54) and provide required information in columns (a) through (c) for each gift exceeding $5,000. The $100,000 threshold is not adjusted for inflation.
Step 8: Complete Form 8938 Coordination
If you file Form 8938 (Statement of Specified Foreign Financial Assets) for the same tax year and report excepted specified foreign financial assets on Form 3520, check the box at line C. This checkbox coordinates reporting between Form 3520 and Form 8938 to avoid duplicative reporting of certain foreign financial assets.
Step 9: Review Filing Deadline and Extension Rules
File Form 3520 by the 15th day of the 4th month following the end of your tax year (April 15 for calendar-year individual filers). If you qualify for the automatic 2-month extension because you live and work outside the United States, your deadline is June 15. If you filed for an income tax return extension, your Form 3520 deadline extends to October 15.
Step 10: Prepare Required Attachments
Assemble all required schedules and attachments before signing. This includes trust documents (if no U.S. agent is involved), Form 4970 as a worksheet (if accumulation distributions apply), qualified obligation documentation, and a substitute Form 3520-A (if required, as per line 22). Ensure all attachments are complete and properly labeled.
Step 11: Complete Signature Requirements
Sign and date the 2022 Form 3520 under penalties of perjury. If you are an executor, sign in your fiduciary capacity. For partnerships, a general partner or LLC member must sign. For corporations, an authorized officer must sign. If using a paid preparer, ensure they complete the Paid Preparer Use Only section with their signature, PTIN, and firm information.
Step 12: Verify Accuracy and Mail Form
Review all entries for accuracy and completeness. Verify that all required checkboxes are marked, country codes are entered correctly, and calculations are accurate. Mail the completed Form 3520 with all attachments to the Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409. Keep copies of all filed forms and supporting documentation for your records.
Key 2022 Form Requirements
Excepted Specified Foreign Financial Assets (Line C): Check the box at line C only if you file Form 8938 for the same tax year and report excepted specified foreign financial assets that are included in the Form 8938 count. This coordination provision helps avoid duplicative reporting between these two forms.
Country Code Requirements (Lines 6a, 6b, 21a, 21b): Enter two-letter country codes from the official IRS list at IRS.gov/CountryCodes rather than country names. This standardization ensures consistency with FATCA reporting standards and other international tax forms.
Qualified Obligation Requirements (Lines 12, 26): Qualified obligations must meet six specific requirements: reduced to writing, term not exceeding five years, denominated in U.S. dollars, yield between 100% and 130% of applicable federal rate, agreement to extend statute of limitations to three years after maturity, and annual status reporting on Schedule C.
Foreign Gift Reporting Thresholds: Report gifts exceeding $100,000 from nonresident alien individuals or foreign estates. The threshold for gifts from foreign corporations or foreign partnerships is $17,339 for 2022. These thresholds apply on an aggregate basis from related parties.
Accumulation Distribution Tax Calculation: Use Form 4970 as a worksheet (not as a separately filed form) to calculate tax on accumulation distributions from foreign trusts. The form computes the partial tax attributable to undistributed net income accumulated in prior years and now distributed.
Statute of Limitations Extension: If a complete Form 3520 is not filed by the due date, including extensions, the statute of limitations for assessing any reassessment remains open until three years after the required information is reported. This applies to any event or period covered in Parts I through III.
Penalties and Compliance
Section 6677 Penalties: Failure to timely file or filing incomplete or incorrect information triggers penalties equal to the greater of $10,000 or 35% of the gross value of property transferred to a foreign trust, 35% of distributions received, or 5% of the trust’s assets treated as owned by a U.S. person. Additional penalties apply if noncompliance continues more than 90 days after IRS notice.
Section 6039F Penalties: Failure to report foreign gifts results in a penalty equal to 5% of the gift amount for each month of failure, up to a maximum of 25% of the gift value. The IRS may also determine the income tax consequences of the receipt.
Reasonable Cause Exception: No penalties apply if you demonstrate that failure to comply was due to reasonable cause and not willful neglect. However, penalties may apply for failure to disclose or fulfill obligations related to trust instruments that do not qualify as reasonable cause.
Form 3520-A Requirements: If a foreign trust with a U.S. owner fails to file Form 3520-A, the U.S. owner must complete and attach a substitute Form 3520-A to their Form 3520 by the Form 3520 due date to avoid penalties for the trust’s failure to file.
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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.
