IRS Form 3520 (2015): Late & Amended Filing Guide

What IRS Form 3520 (2015) Is For

IRS Form 3520 (2015) is designed for U.S. persons who must report certain foreign financial transactions and relationships under the Internal Revenue Code. It is a key document for individuals and entities that engage with foreign trusts, receive foreign gifts, or own specified foreign financial assets. This form ensures compliance with U.S. tax obligations by documenting transactions involving foreign trusts and foreign persons, thereby allowing the Internal Revenue Service to monitor and enforce international reporting requirements.

The form applies to transactions with foreign trusts, foreign partnerships, foreign corporations, and nonresident alien individuals that may affect a filer’s taxable income. It requires reporting fair market value for trust property, capital gains, and any financial interest in a foreign account. For U.S. beneficiaries and owners, it confirms compliance for income tax purposes. It demonstrates that their foreign trust reporting obligations have been met according to U.S. tax laws and Treasury regulations.

If you work with several IRS forms related to foreign trusts or cross-border transactions, our IRS Form Help Center explains how key international and domestic forms fit together and what information each one requires.

When You’d Use IRS Form 3520 (2015)

You would file or amend IRS Form 3520 (2015) if you identify omissions, errors, or new information related to your foreign financial reporting.

1. Late Filing for 2015: You must file late if you failed to report foreign trust transactions, foreign estate distributions, or certain foreign gifts by the original 2016 deadline. If you also have unfiled income tax returns for the same period, review our guide to unfiled federal tax returns from 2010 to 2024 to understand how the IRS handles late filings and what compliance options are available.
   
   
2. Amended Filing: You should submit an amended form if prior submissions contain inaccuracies or omit information related to transactions with a foreign trust or a foreign person.
   
   
3. IRS Notice Response: You must file in response to an Internal Revenue Service notice that identifies missing or incorrect data about foreign financial assets or transactions.
   
   
4. Penalty Avoidance: You can file late or amended forms with a detailed reasonable cause statement to reduce or eliminate the initial penalty, equal to a percentage of the trust’s gross value or distributions.  

Key Rules or Details for 2015

Several vital updates were introduced for the 2015 tax year to strengthen oversight of foreign trusts and related international reporting obligations. These rules expanded the Internal Revenue Service’s ability to track cross-border transactions and ensure accurate income tax reporting for U.S. persons.

1. HIRE Act Compliance: The 2015 rules enforced additional disclosure requirements for loans, distributions, and transfers between foreign trusts and U.S. beneficiaries to ensure accurate foreign trust reporting.
   
   
2. Qualified Obligation Standards: Filers were required to document principal and interest payments on each outstanding qualified obligation to demonstrate compliance for income tax purposes.
   
   
3. Form 8938 Coordination: To avoid duplicate reporting, taxpayers who reported specified foreign financial assets on Form 3520 could meet specific Form 8938 disclosure requirements.
   
   
4. Extended Assessment Period: The Internal Revenue Service maintained authority to assess penalties for up to three years after a complete filing, as outlined in Section 6501(c)(8) of the Internal Revenue Code.
   
   
5. Valuation Rules: To ensure proper reporting and accurate tax treatment, fair market value had to be determined for all trust property and transactions using Treasury regulations.

You would file or amend IRS Form 3520 (2015) if you identify omissions, errors, or new information related to your foreign financial reporting, including large foreign gifts that may also require separate reporting on Form 709, the federal gift tax return.

Step-by-Step (High Level)

Filing IRS Form 3520 (2015) correctly involves several structured steps, ensuring full compliance with U.S. reporting requirements for foreign trusts and gifts.

1. Collect 2015 Records: Request tax transcripts for 2015 using Form 4506-T to verify prior filings and identify any unreported foreign financial transactions.
   
   
2. Download the Correct Form: To avoid using forms from another tax year, access the official 2015 version of Form 3520 and its instructions from IRS.gov.
   
   
3. Complete Relevant Schedules: Include the applicable schedules that report transfers, ownership, or distributions from a foreign or foreign grantor trust.
   
   
4. Include Trust Documentation: Attach all required documents, such as the trust beneficiary statement, proof of trust property ownership, and valuation records reflecting fair market value.
   
   
5. Mail to IRS Ogden Center: Send the completed form and attachments to the Internal Revenue Service Center in Ogden, Utah, as specified in the 2015 filing instructions.
   
   
6. Keep Copies for Records: Retain copies of the filed forms, trust documents, and supporting evidence for at least three years in case of audit or penalty assessment.

Common Mistakes and How to Avoid Them

Avoiding common mistakes when filing IRS Form 3520 (2015) is essential to prevent penalties and ensure compliance with U.S. tax reporting requirements.

• Incomplete Trust Identification: Always provide the trust’s employer identification number or reference ID so the Internal Revenue Service can properly associate the form with the correct foreign trust.
  
  
• Missing Reasonable Cause Statement: If you are filing late, include a written reasonable cause statement explaining why the delay occurred to demonstrate good faith and avoid unnecessary penalties. Taxpayers who qualify may also be able to request IRS penalty abatement based on reasonable cause or first-time relief.
  
  
• Incorrect Valuation: Use fair market value calculations supported by verifiable documentation in accordance with Section 2031 to ensure accuracy in determining taxable amounts.
  
  
• Mixing Tax Years: File only the 2015 version of Form 3520 and corresponding schedules to maintain accuracy in reporting obligations for that tax year.
  
  
• Lack of Supporting Documents: Attach all relevant documentation, such as sale contracts, loan agreements, and financial account statements, to substantiate foreign trust transactions and ownership details.

What Happens After You File

Once your IRS Form 3520 (2015) is submitted, the Internal Revenue Service will review the filing and may issue acknowledgment letters, requests for clarification, or penalty notices. You may apply for a payment plan using Form 9465 or the IRS online payment system if a balance is due. The agency may also review related income tax returns or foreign bank account disclosures to verify consistency across your filings. 

During this process, you should maintain communication with the IRS, retain complete records for the extended assessment period, and promptly respond to any correspondence to protect your rights and avoid additional tax consequences. If your late or amended filing results in an assessed balance, learning how the IRS collection process works can help you prepare for notices, deadlines, and possible enforcement actions.

FAQs

What are foreign financial assets for IRS Form 3520 (2015)?

Foreign financial assets include accounts, trusts, or ownership interests in foreign entities that a U.S. person must report for income tax purposes. The Internal Revenue Service requires accurate valuation and documentation to supervise foreign holdings properly.

How are foreign trusts defined for 2015 reporting?

Foreign trusts are entities formed under a foreign jurisdiction where non-U.S. persons control substantial decisions. A trust is considered foreign if the Internal Revenue Service cannot exercise primary supervision over its administration for U.S. tax reporting purposes.

Who are considered foreign persons under IRS rules?

Foreign persons include nonresident alien individuals, corporations, partnerships, and estates. Under the Internal Revenue Code, these individuals or entities are subject to reporting when they transfer property or assets or make distributions to a U.S. person.

How does the foreign tax credit apply to Form 3520 reporting?

A foreign tax credit may reduce double taxation for income reported through foreign trusts or financial accounts. However, any tax credit claim must reference income effectively connected to the U.S. taxpayer and reflect the trust’s position immediately before distribution.

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