What IRS Form 3520 (2024) Is For
IRS Form 3520 (2024) is an annual information return that must be filed by any U.S. person who engages in certain transactions involving foreign trusts or receives large gifts from foreign persons. Under the Internal Revenue Code, ensuring proper reporting of international transfers of money, property, or trust interests is required.
The form informs the Internal Revenue Service (IRS) about relationships or transactions with foreign corporations, partnerships, or estates that could affect taxpayers' income tax obligations. It applies when a U.S. person receives foreign gifts, transfers property to a foreign trust, or is treated as a U.S. owner of a foreign trust’s assets for income tax purposes.
To review additional IRS forms commonly filed alongside foreign trust disclosures, you can visit our IRS Form Help Center for guidance on related reporting requirements.
When You’d Use IRS Form 3520 (2024)
Taxpayers should file IRS Form 3520 (2024) whenever they encounter situations involving foreign trusts or large foreign gifts.
- Transfer of property to a foreign trust: This occurs when a U.S. person transfers money, marketable securities, or property to a foreign trust, creating a reportable event under the grantor trust rules.
- Ownership of a foreign trust: A taxpayer must file if treated as the U.S. owner of a foreign trust’s assets, including cases where they exercise primary supervision or control over trust property.
- Receipt of large foreign gifts or bequests: Filing is required when a foreign individual or estate receives gifts or bequests exceeding $100,000 or more than $19,570 from a foreign corporation or partnership during the tax year.
- Distributions from a foreign trust: A return must be filed if a U.S. person receives distributions such as principal and interest payments, rent-free use of trust property, or other transactions with foreign trusts.
If your tax situation also involves domestic estate or trust filings, our Form 1041 income tax return for estates and trusts guide explains how domestic trust reporting interacts with foreign trust compliance.
Key Rules or Details for 2024
For the 2024 tax year, the Internal Revenue Service (IRS) continues to enforce strong oversight on foreign trust reporting and foreign gift compliance under the Internal Revenue Code.
- Gift reporting thresholds: The fair market value limit for gifts from foreign corporations and partnerships is $19,570, while the $100,000 threshold for foreign individuals and estates remains unchanged.
- Continuous-use form format: The IRS Form 3520 (2024) retains a continuous-use format, allowing updates as needed rather than annual revisions, ensuring the form reflects the latest reporting obligations.
- Due dates and extensions: The form is due on April 15 or June 15 if the filer resides abroad. Extensions are available until October 15 to align with income tax deadlines.
- Reasonable cause requirement: Taxpayers filing late must include a reasonable cause statement showing that the failure to file was not due to willful neglect but based on valid circumstances.
- IRS enforcement focus: The IRS has increased audits for U.S. persons who fail to report transactions with foreign trusts or foreign gifts, particularly where foreign trusts’ assets were involved.
Where foreign trusts distribute U.S.-source income, you may also need to review the withholding rules outlined in our Form 1042 annual withholding tax return guide.
Step-by-Step (High Level)
To properly complete and submit IRS Form 3520 (2024), taxpayers should follow these steps to ensure compliance with all foreign trust reporting requirements.
- Gather your IRS account transcripts: Obtain official Internal Revenue Service transcripts to confirm any previous filings, penalties, or assessments related to foreign trusts or foreign gifts.
- Complete the correct-year form: Fill out the appropriate 2024 annual return version, accurately marking whether the return is initial, final, or amended, based on the filer’s situation.
- Attach all required schedules: If the foreign trust did not file its return, include any substitute Form 3520-A, and attach all trust property or qualified obligation documentation.
- Mail the completed return: Submit the form to the IRS Ogden, Utah Service Center; electronic filing is not accepted, and incomplete submissions may result in additional penalties.
- Include reasonable cause explanations: If filing late, attach a detailed reasonable cause statement explaining why the delay was not due to willful neglect and include all supporting documentation.
- Retain copies and proof of mailing: Keep certified mail receipts and copies of all submissions, as the statute of limitations remains open until complete information is provided to the IRS.
If you want to compare foreign gift reporting with U.S. gift tax rules, our Form 709 gift tax return guide explains how domestic gift reporting works.
Common Mistakes and How to Avoid Them
Filing IRS Form 3520 (2024) requires careful attention, as even minor errors can lead to significant penalties under the Internal Revenue Code. The following are common mistakes and how to avoid them:
- Missing the EIN requirement: Always use the foreign trust’s Employer Identification Number instead of your Social Security Number; apply for an EIN immediately if one has not been issued to the trust.
- Failing to file substitute Form 3520-A: When a foreign trust fails to file its return, you must attach a substitute Form 3520-A by the same due date to remain compliant.
- Incomplete reporting of foreign gifts: Report each foreign gift exceeding $5,000 individually when the total aggregate amount surpasses the threshold; include details for all related foreign persons.
- Improper documentation of qualified obligations: Maintain complete written records for all principal and interest payments tied to any qualified obligation to avoid reclassification or penalty exposure.
- Incorrect due date calculation: Verify your due date according to your residency status to ensure your return is filed promptly, as miscalculations can lead to additional penalties.
- Omitting a reasonable cause statement: When submitting late filed forms, always include a reasonable cause statement showing that the delay was not due to willful neglect and provide relevant evidence.
If missing or late Form 3520 filings coincide with unresolved income tax issues, our resource on unfiled federal income tax returns provides steps to restore full IRS compliance.
What Happens After You File
After you submit IRS Form 3520 (2024), the Internal Revenue Service generally takes eight to twelve weeks to process the filing. During this period, the IRS may contact you to request clarification or documentation regarding foreign trust reporting or foreign gift transactions. If errors or omissions are discovered, you may receive an IRS notice outlining potential additional penalties or instructions for correction.
Taxpayers who disagree with any gross reportable amount assessment can appeal through the Office of Appeals. If any tax owed or interest payments apply, the IRS allows payment arrangements or abatements based on reasonable cause. Maintaining records of all submissions helps prevent steep penalties and ensures compliance with ongoing reporting obligations.
FAQs
What counts as foreign gifts for IRS Form 3520 (2024)?
A foreign gift includes any money or property received from a nonresident alien individual, foreign corporation, foreign partnership, or foreign estate that exceeds the annual reporting threshold. Such foreign gifts must be reported to the Internal Revenue Service to prevent assessment of such penalties for failure to disclose.
When must foreign trusts be reported on IRS Form 3520 (2024)?
A U.S. person must report any transaction with a foreign trust, including property transfers, ownership interests, or distributions from the trust. Failure to report a foreign trust can lead to steep penalties and the IRS's prolonged review of your tax return.
What qualifies as an outstanding qualified obligation?
An outstanding qualified obligation is a written agreement between a U.S. person and a foreign trust that documents principal and interest payments according to the grantor trust rules. Proper documentation prevents reclassification of the transaction and avoids such penalties under the Internal Revenue Code.
Can penalties for reporting such foreign gifts be reduced?
Yes, penalties may be reduced or removed if the failure to report was due to reasonable cause and not willful neglect. The IRS reviews each request based on the taxpayer’s explanation and supporting evidence.
