What IRS Form 3520 (2020) Is For

IRS Form 3520 is the Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts that U.S. persons must file to report various foreign trust activities and large foreign gifts received.

The form covers four main areas:

• Transfers to foreign trusts (Part I)
  
  
• Ownership of foreign trusts under grantor trust rules (Part II)
  
  
• Distributions received from foreign trusts (Part III)
  
  
• Receipt of foreign gifts exceeding certain thresholds (Part IV)
  
  

(IRS Instructions for Form 3520 (2020))

When You'd Use Form 3520 for 2020 (Late or Amended Filing)

Taxpayers typically file late or amended Form 3520 returns for 2020 when they receive IRS notices about unreported foreign trust transactions or foreign gifts, discover they had reporting obligations they missed, or need to correct previously filed information.

Late filing scenarios often arise when taxpayers realize they were treated as owners of foreign trusts under sections 671-679, received distributions from foreign trusts, or received foreign gifts exceeding $100,000 from individuals or $16,649 from corporations/partnerships. The IRS may assess substantial penalties for late filing, making prompt compliance essential once the obligation is discovered (IRS Publication - Failure to File Form 3520/3520-A Penalties).

Key Rules Specific to 2020

For tax year 2020, Form 3520 was generally due on April 15, 2021 (the 15th day of the 4th month following the end of the tax year), with automatic extensions available until October 15, 2021.

The 2020 tax year incorporated Rev. Proc. 2020-17, which provided new exemptions from foreign trust reporting for certain eligible individuals' transactions with tax-favored foreign retirement trusts and nonretirement savings trusts.

Additionally, the HIRE Act provisions that took effect after March 18, 2010, continued to apply, treating foreign trusts as having U.S. beneficiaries when they make loans or allow uncompensated use of trust property to U.S. persons (IRS Instructions for Form 3520 (2020)).

Step-by-Step (High Level)

• Gather transcripts: Obtain tax account transcripts from the IRS to understand any prior assessments or correspondence
  
  
• Complete correct-year form: Use the official 2020 version of Form 3520 and its instructions, not current-year versions
  
  
• Attach required schedules: Include all supporting schedules (A, B, C as applicable), substitute Form 3520-A if the foreign trust didn't file, and any required documentation like loan agreements
  
  
• Mail to designated address: Send completed form to Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409, with all attachments
  
  
• Keep comprehensive copies: Maintain copies of the filed return, all attachments, proof of mailing, and supporting documentation for your records
  
  

Common Mistakes and How to Avoid Them

• Failing to file separate forms for each trust: You must file a separate Form 3520 for each foreign trust—don't combine multiple trusts on one form
  
  
• Missing the substitute Form 3520-A requirement: If the foreign trust didn't file Form 3520-A, U.S. owners must complete and attach a substitute version to avoid penalties
  
  
• Incorrectly calculating gross reportable amounts: Use fair market value determined under section 2512 regulations, maintaining contemporaneous records of valuation methods
  
  
• Forgetting qualified obligation reporting: Report outstanding qualified obligations annually on the appropriate schedules, with required loan documentation attachments
  
  
• Inadequate reasonable cause documentation: Include a written statement with penalties of perjury declaration when claiming reasonable cause for late filing
  
  
• Using wrong due dates: Form 3520 follows your income tax return due date, not the foreign trust's tax year end
  
  

What Happens After You File

The IRS typically takes several months to process Form 3520 filings, during which they may request additional documentation or clarification.

If penalties were previously assessed, filing the complete and accurate return stops additional continuation penalties from accruing. You may receive notices requesting payment of assessed penalties, which can be addressed through installment agreements (Form 9465) if immediate payment isn't possible.

If you disagree with penalty assessments, you have appeal rights through the IRS Appeals Office, and you can submit reasonable cause statements to request penalty relief (Treasury Department Publication on Form 3520/3520-A Penalties).

The statute of limitations for assessing penalties remains open until three years after filing a complete and accurate return.

FAQs

What are the penalties for filing Form 3520 late for 2020?

Initial penalties are the greater of $10,000 or 35% of the gross reportable amount for Parts I and III, or 5% for Part II (foreign trust ownership). Continuation penalties of $10,000 accrue every 30 days after the initial 90-day notice period until you file complete and accurate returns.

Can I claim reasonable cause to avoid penalties?

Yes, penalties may be waived if you can demonstrate the failure was due to reasonable cause and not willful neglect. However, foreign country penalties for disclosure or trust provisions preventing disclosure are not considered reasonable cause. Submit a written statement under penalties of perjury explaining the circumstances.

Do I need to get tax transcripts before filing?

While not required, obtaining transcripts helps you understand any prior IRS actions, penalty assessments, or correspondence about your foreign trust reporting obligations, allowing you to address all issues comprehensively in your late filing.

Is there still time to claim refunds for 2020?

The statute of limitations for claiming refunds generally expires three years from the due date of the return. For 2020, this would typically be April 15, 2024, though extensions and other factors may affect this deadline.

Should I amend my state tax return after filing Form 3520?

Form 3520 is purely informational for federal purposes and doesn't directly affect state tax returns. However, if the foreign trust activities generated taxable income that should have been reported on state returns, consult your state's requirements for amending returns.

What if the foreign trust never filed Form 3520-A?

U.S. owners must complete and attach a substitute Form 3520-A to their Form 3520 to avoid penalties. Complete it to the best of your ability using available trust information, even if some details are unknown.

Can I file Form 3520 electronically for 2020?

No, Form 3520 must be filed by mail to the designated IRS service center in Ogden, Utah. Electronic filing is not available for this form, and all required attachments must be included with the paper filing.

‍