Form 3520 (Rev. December 2023) Filing Checklist
Purpose
Form 3520 reports transactions with foreign trusts, U.S. ownership interests in foreign trusts, distributions from foreign trusts, and large gifts or bequests from foreign persons for the tax year 2023. U.S. individuals and executors of U.S. decedents must file this form to comply with IRS reporting requirements under sections 6048 and 6039F.
Who Must File
You must file Form 3520 if any of the following apply:
Transferors: You created a foreign trust, transferred property to a foreign trust, or hold a qualified obligation from a related foreign trust.
U.S. Owners: You are treated as the owner of any portion of a foreign trust under sections 671 through 679 at any time during the tax year.
Distribution Recipients: You received distributions from a foreign trust, received loans from a foreign trust, or used trust property without paying fair market value.
Gift Recipients: You received gifts or bequests exceeding $100,000 from nonresident aliens or foreign estates, or exceeding $18,567 from foreign corporations or partnerships (2023 threshold amount).
Filing Preparation Steps
Step 1: Determine Your Filing Category
Identify which parts of Form 3520 you must complete based on your relationship to the foreign trust or foreign person. You may need to complete multiple parts if you have different roles. Check the applicable boxes on page 1 and gather documentation specific to each category.
Step 2: Verify U.S. Person Status
Confirm you meet the definition of a U.S. person: U.S. citizen, U.S. resident, domestic partnership, domestic corporation, domestic estate, or domestic trust. Resident status affects which parts apply and whether Form 3520-A substitutes are required. If you are a dual resident claiming treaty benefits, you are still considered a U.S. person.
Step 3: Gather Foreign Trust Information
Collect complete identifying information for the foreign trust, including name, employer identification number (if any), creation date, country of creation, country whose law governs the trust, and current address. Verify whether the trust appointed a U.S. agent authorized to respond to IRS requests.
Step 4: Complete Part I if You Are a Transferor
Document all transfers made during the tax year, including transfer dates, property descriptions, fair market values, U.S. adjusted basis, and consideration received. For gratuitous transfers (gifts), complete Schedule B showing all details in columns (a) through (i). Any transfer where you received less than fair market value must show the excess amount.
Step 5: Address Qualified Obligations
If you transferred property to a related foreign trust in exchange for an obligation, determine if the obligation meets all qualified obligation requirements: a written agreement, a maximum five-year term, denominated in U.S. dollars, a yield between 100% and 130% of the applicable federal rate, and an agreement to extend the assessment period. Attach complete loan documents or relevant updates if previously filed within three years.
Step 6: Complete Part II if You Are a U.S. Owner
Obtain Form 3520-A (Annual Information Return of Foreign Trust With a U.S. Owner) from the foreign trust for the 2023 tax year. If the trust did not file Form 3520-A, you must complete and attach a substitute Form 3520-A to avoid penalties. Report the gross value of the portion of the foreign trust you are treated as owning at the end of your tax year.
Step 7: Handle Beneficiary Statements for Part III
If you received a distribution from a foreign trust, determine whether you received a Foreign Grantor Trust Beneficiary Statement or a Foreign Nongrantor Trust Beneficiary Statement from the trust. If you received the appropriate statement, attach it to your Form 3520 and skip the remainder of Part III for that distribution. If no statement was provided, you must complete Schedule A and potentially Schedule C.
Step 8: Calculate Accumulation Distributions
Use Schedule A (Default Calculation) or Schedule B (Actual Calculation) to determine the portion of your distribution that constitutes an accumulation distribution. The 3-year average distribution test on lines 36–37 determines whether you have an accumulation distribution subject to additional tax. If the accumulation distribution amount exceeds zero, proceed to Schedule C.
Step 9: Compute Accumulation Distribution Tax
Complete Schedule C to calculate the interest charge on accumulation distributions. Determine the foreign trust’s aggregate undistributed net income and weighted undistributed net income (lines 45–46). Calculate the applicable number of trust years (line 47) and use Form 4970 to compute the tax on the accumulation distribution. Attach Form 4970 as a worksheet to show your calculations.
Step 10: Report Foreign Gifts in Part IV
Report gifts or bequests from nonresident aliens or foreign estates if the aggregate amount exceeds $100,000 during the tax year. Complete columns (a) through (c) for each gift exceeding $5,000. Separately report gifts from foreign corporations or partnerships if the aggregate amount exceeds $18,567 (the 2023 inflation-adjusted threshold under section 6039F).
Step 11: Apply Aggregation Rules for Related Donors
Aggregate gifts from related foreign persons when calculating thresholds. Related persons include family members (siblings, spouse, ancestors, and descendants), foreign corporations you control (more than 50% ownership), and persons connected through sections 267 and 707(b) relationships. Document each related donor separately while applying combined thresholds.
Step 12: Attach Required Documentation
Include all mandatory attachments: Form 3520-A statements, beneficiary statements from foreign trusts, qualified obligation loan documents (or updates if previously filed within three years), Form 4970 for accumulation distributions, and trust documents if no U.S. agent was appointed. Ensure that all amounts are stated in U.S. dollars, and that all information is presented in English.
Step 13: Verify Due Dates and Extensions
Form 3520 is due by the 15th day of the 4th month after the end of your tax year (April 15 for calendar-year individuals). If you live and work outside the United States, the due date extends to the 15th day of the 6th month (June 15). If you received an extension for your income tax return, Form 3520 is also extended, but not beyond the 15th day of the 10th month (October 15).
Step 14: Review Penalty Provisions
Understand the consequences of non-compliance. Initial penalties equal the greater of $10,000 or 35% of the gross value of property transferred or distributions received (for Parts I and III), or 5% of the foreign trust assets for U.S. owners whose trusts fail to file Form 3520-A (Part II).
Foreign gift reporting failures (Part IV) incur penalties of 5% per month up to 25% of the gift value.
Step 15: Sign and Submit
Sign and date the form under penalties of perjury. If filing on behalf of a partnership, corporation, trust, or estate, ensure the authorized person signs. Paid preparers must complete the preparer section with their PTIN. Mail the complete Form 3520 with all attachments to the Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409.
Key 2023 Updates
The December 2023 revision introduced guidance on section 2801 tax, which imposes tax on U.S. citizens and residents who receive gifts or bequests from covered expatriates (former U.S. citizens or long-term residents who expatriated). If you received such gifts, additional reporting and tax calculations may apply.
The instructions continue to require separate handling of Foreign Grantor Trust Beneficiary Statements versus Foreign Nongrantor Trust Beneficiary Statements, with different Part III completion requirements depending on the type of statement received.
Weighted undistributed net income calculations remain required for Schedule C. The trust’s weighted UNI represents accumulated income that has not been distributed, weighted by the number of years it has accumulated. Calculate this by multiplying each year’s undistributed income by the number of years since that year and summing the results.
The foreign corporation and partnership gift threshold for 2023 is $18,567 (adjusted annually for inflation; the 2024 threshold is $19,570). This amount must be verified through the IRS’s annual inflation adjustment announcements.
Important Reminders
Assessment Period: If you fail to file a complete Form 3520 by the due date, including extensions, the IRS assessment period for related transactions remains open for three years after the required information is finally reported.
Reasonable Cause: Penalties may be waived if you can demonstrate reasonable cause and not willful neglect. However, penalties in foreign countries for disclosure or trust provisions that prevent disclosure do not constitute reasonable cause.
Consistency Requirement: Your tax return must be consistent with the Form 3520-A filed by the foreign trust. If you treat items differently, file Form 8082 to report the inconsistency.
U.S. Agent Importance: If a foreign trust with a U.S. owner does not have a U.S. agent, the IRS may redetermine amounts required to be taken into account. Ensure the trust appoints a qualified U.S. agent and updates the appointment if the agent’s responsibility terminates.
Joint Filing: Spouses filing a joint income tax return who are both transferors, owners, or beneficiaries of the same foreign trust may file a joint Form 3520 for the same tax year.
Additional Reporting Requirements
You may also need to file FinCEN Form 114 (Report of Foreign Bank and Financial Accounts) if you have signature authority or financial interest in foreign financial accounts. Form 8938 (Statement of Specified Foreign Financial Assets) may also be required for certain foreign assets exceeding specified thresholds.
Review the complete instructions for Form 3520 and consult a qualified tax professional for complex situations involving foreign trusts, especially regarding qualified obligation determinations, accumulation distribution calculations, and interactions with treaty provisions.
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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.
