IRS Form 3520 (2017): Late & Amended Filing Guide

What IRS Form 3520 (2017) Is For

IRS Form 3520 (2017) is an annual information return required for U.S. persons engaging in transactions involving foreign trusts or receiving large foreign gifts or bequests. It ensures compliance with U.S. reporting laws under the Internal Revenue Code, specifically those addressing foreign trust reporting requirements. This form is separate from a standard income tax return but is essential in identifying and documenting cross-border financial activities.

The Internal Revenue Service (IRS) uses the information reported on Form 3520 to monitor foreign financial assets, trusts, and certain foreign entities, such as corporations and partnerships, connected to a U.S. person’s financial dealings. Filing the form correctly helps prevent penalties and ensures proper tax reporting related to specified foreign financial assets, foreign bank accounts, and other financial accounts held outside the United States. 

If your filing involves multiple international reporting forms, you can refer to our IRS Form Help Center for guidance on understanding how different IRS forms interact with foreign trust reporting rules.

When You’d Use IRS Form 3520 (2017)

IRS Form 3520 (2017) is required when specific transactions or circumstances meet the IRS’s foreign reporting obligations.

1. Transfer of assets to a foreign trust: Any transfer of money, property, or other assets to a foreign grantor or foreign nongrantor trust during the tax year must be reported.
   
   
2. Receipt of distributions from a foreign trust: The filing must include all distributions, including cash, property, and indirect benefits such as below-market loans or the use of trust assets.
   
   
3. Ownership of a foreign trust: When an individual is treated as the owner of a foreign trust for tax purposes, ownership under the grantor trust rules must be reported.
   
   
4. Receipt of foreign gifts or bequests: Foreign gifts or bequests exceeding the reporting threshold from foreign persons, foreign estates, or foreign corporations are subject to disclosure. Some large foreign gifts may also require reviewing the Form 709 federal gift tax return guidelines to confirm whether additional reporting obligations apply.
   
   
5. Discovery of a missed filing obligation: Late or amended forms must be filed upon identification of an unfulfilled filing requirement or receipt of an Internal Revenue Service notice concerning unreported transactions. If you also have missing income tax returns for that year, our guide to unfiled federal income tax returns explains how late filings impact IRS compliance and how to bring all years current.

Key Rules or Details for 2017

These rules ensured consistent tax reporting and compliance for U.S. persons with international financial connections.

1. Reporting thresholds: You were required to file Form 3520 if you received more than $100,000 from a nonresident alien individual or foreign estate, or more than $15,797 from foreign corporations or foreign partnerships during the 2017 tax year.
   
   
2. Due date: The due date for filing IRS Form 3520 (2017) was April 15, 2018, unless you requested an extension for your income tax return, in which case the deadline was October 15, 2018.
   
   
3. Applicable transactions: The form required reporting transactions with foreign trusts, including creations, transfers, ownership interests, and distributions received by a U.S. person.
   
   
4. Form structure: The 2017 form contained four main parts covering trust transfers, ownership of foreign trusts, trust distributions, and foreign gifts or bequests received during the tax year.
   
   
5. Penalty exposure: There was no statute of limitations for unfiled Form 3520, meaning penalties could be assessed at any time until you file the form and resolve your tax obligations.

Step-by-Step (High Level)

These steps provide a general overview of correctly preparing and submitting IRS Form 3520 (2017).

1. Gather tax transcripts: Request your 2017 tax information and records from the Internal Revenue Service to verify previously filed returns and identify any related penalties or missing filings.
   
   
2. Obtain the correct form version: Download the 2017 version of Form 3520 and its corresponding instructions from the IRS’s prior-year forms archive to ensure accuracy.
   
   
3. Complete the relevant sections: Complete the sections that apply to your situation, including foreign trusts, gifts, or financial accounts, and attach all supporting documentation.
   
   
4. Mail your submission: Please send the completed form and any attached schedules to the address listed in the official IRS instructions, as Form 3520 cannot be electronically filed.
   
   
5. Attach a reasonable cause statement: If you are filing late, include a clear explanation and supporting evidence to show that your late filing occurred within a reasonable period and was not due to willful neglect.
   
   
6. Keep copies and proof of mailing: Retain complete copies of your form, certified mail receipts, and all related correspondence to document compliance and protect against future reporting disputes.

Common Mistakes and How to Avoid Them

The following points outline the most frequent mistakes and how to prevent them.

• Incorrect exchange rate usage: Always use the fair market exchange rate from the date you received the foreign gift or distribution instead of the date you file the form.
  
  
• Overlooking indirect trust distributions: Include all benefits received from a foreign trust, such as below-market loans or use of trust-owned property, as these qualify as reportable distributions.
  
  
• Using the wrong form version: Always file the official 2017 version of Form 3520, as newer versions may contain updated instructions and reporting requirements that do not apply to the 2017 tax year.
  
  
• Incomplete reasonable cause statements: Provide a detailed and factual explanation supported by documentation to justify any late filing and strengthen your request for penalty relief.
  
  
• Failing to recognize ownership status: Verify whether you are considered an owner under grantor trust or foreign fiduciary rules to ensure accurate completion of Part II of the form.
  
  
• Omitting related party disclosures: Report any transactions involving a foreign person, domestic corporation, or domestic partnership connected to your foreign trust or gift, as these can affect compliance obligations.

Taxpayers who qualify may also seek relief through the IRS penalty abatement program, which includes reasonable cause and first-time abatement options.

What Happens After You File

After you submit IRS Form 3520 (2017), the Internal Revenue Service generally takes four to six months to process the filing. During this period, the IRS may send follow-up correspondence requesting additional documentation or clarification about your reported foreign transactions. If penalties apply, you will receive a notice explaining the assessed amount and available payment options, including installment agreements. If your filing results in a tax balance or penalty, knowing how the IRS collection process works can help you prepare for notices, deadlines, and possible enforcement actions.

You may request penalty relief by providing a reasonable cause statement and supporting evidence. Continue monitoring your IRS account and maintaining records such as bank account statements, foreign address details, and estimated tax payment confirmations to verify that your submission has been properly processed.

FAQs

What counts as foreign financial assets for IRS Form 3520 (2017)?

Foreign financial assets include any accounts, stocks, or investments held with a foreign bank or brokerage account outside the United States. These assets must be reported if they meet the filing thresholds, as they can affect the tax treatment of your income and compliance under the Internal Revenue Code.

When is a foreign trust reportable to the IRS?

A foreign trust must be reported when a U.S. person creates, transfers assets to, or receives distributions from the trust during the tax year. You must include the trust’s beneficiaries, foreign fiduciary details, and related transactions to ensure accurate reporting and compliance with IRS requirements.

Do some foreign gifts always require filing IRS Form 3520 (2017)?

Foreign gifts or bequests must be reported if they exceed the annual thresholds set for nonresident alien individuals, foreign estates, or foreign corporations. The IRS requires this disclosure to properly report transactions and determine whether these gifts have potential U.S. tax consequences.

Does filing Form 3520 affect my taxable income?

Generally, Form 3520 does not directly change your taxable income but provides essential information for assessing income effectively connected with a foreign source. It also supports accurate reporting of capital gains and ensures that your income tax return reflects compliance with U.S. tax rules.