What IRS Form 3520-A (2015) Is For
IRS Form 3520-A (2015) is the annual return that foreign trusts with U.S. owners must file to report the trust’s financial activities, operations, and ownership details to the Internal Revenue Service. Under the grantor trust rules, any U.S. person treated as the owner of a foreign trust must ensure that this form is filed wholly and accurately each year.
The form provides essential information for income tax purposes, including foreign trust income, trust assets, and distributions made to U.S. owners or beneficiaries. It helps the IRS verify compliance with foreign trust reporting requirements, foreign financial asset disclosure, and tax obligations under the Internal Revenue Code. By submitting this annual return, the filer demonstrates transparency in foreign entity ownership, ensuring that foreign grantor trusts and their foreign persons meet their reporting obligations and avoid penalties imposed for noncompliance.
For additional IRS forms that often accompany foreign trust reporting, you can visit our IRS Form Help Center to better understand related filing requirements.
When You’d Use IRS Form 3520-A (2015)
You should file or amend IRS Form 3520-A (2015) when a foreign trust has not filed on time, or when a previous submission requires correction.
- IRS Notice or Penalty: File the form after receiving IRS Letter 3804 or a notice regarding penalty assessments for a missing or late filing.
- Missed Filing Year: File when you discover that prior years were unreported during a compliance review or audit of foreign trust reporting.
- Error Correction: File to amend incorrect information, such as gross value, trust assets, or foreign trust income previously reported.
- Foreign Trustee Noncompliance: If the foreign trust fails to file, file a substitute form, and the U.S. owner must meet the filing form obligation.
- Reasonable Cause Relief: File with a reasonable cause statement when the taxpayer fails to file Form 3520-A promptly due to circumstances beyond their control, but not from willful neglect.
If your late Form 3520-A filing relates to missed or unfiled income tax returns, our guide on unfiled federal income tax returns outlines how to restore compliance across multiple tax years.
Key Rules or Details for Tax Year 2015
For the 2015 tax year, several essential filing rules and reporting requirements applied to foreign trusts and their U.S. owners under the Internal Revenue Code.
- Filing Deadline: The due date for IRS Form 3520-A (2015) was March 15, 2016, for calendar-year trusts, with an automatic extension available through Form 7004.
- Penalty Structure: The Internal Revenue Service could impose penalties of the greater of $10,000 or 5% of the gross reportable amount owned by a U.S. person, with continued penalties every 30 days after the 90-day notice period.
- Special Reporting Requirements: The 2015 version required additional disclosure of specified foreign financial assets, aligned with Form 8938, and supported foreign trust reporting compliance.
- Substitute Form Filing: If a foreign trust fails to file, the U.S. owner must prepare and submit a substitute Form 3520-A and their income tax return.
- Documentation Standards: If no U.S. agent was designated, complete trust documents and amendments were required to verify foreign trust income, assets, and ownership.
Step-by-Step (High Level)
Filing a late or amended IRS Form 3520-A (2015) involves specific documentation and submission steps to satisfy reporting obligations and avoid penalties.
- Obtain Transcripts: Request account transcripts from the Internal Revenue Service to confirm prior filing form records and identify any outstanding penalty assessments.
- Use the Correct Form Year: Complete and submit the official 2015 version of the form to ensure that the return is correctly matched to the correct tax year and is considered timely filed.
- Prepare Financial Statements: Include the Foreign Trust Income Statement, Balance Sheet, and Owner’s Statement for each foreign grantor trust owner as required.
- Attach Supporting Documents: Provide the U.S. agent authorization, complete the trust’s tax year documentation, and details about foreign gifts or transfers involving foreign persons.
- Submit by Mail: Send the completed form to the Internal Revenue Service Center in Ogden, Utah, since late-filed forms for 2015 cannot be submitted electronically.
- Retain Full Copies: Keep complete copies of the income tax return, reasonable cause statements, and all attachments to support compliance in case of an audit or review.
Common Mistakes and How to Avoid Them
Taxpayers often face penalties imposed because of errors that can easily be prevented with proper attention to detail and documentation.
- Missing Trustee Signature: Always ensure that the foreign trust or an authorized representative signs the return to confirm accuracy and compliance with foreign trust reporting obligations.
- Incomplete Owner Statements: Prepare a complete Foreign Grantor Trust Owner Statement for every U.S. owner to meet IRS reporting requirements.
- Incorrect Identification Numbers: Use a valid EIN or acceptable reference identification number to prevent mismatches in the IRS system and potential penalty notices.
- Inaccurate Gross Value Calculations: To avoid errors in the gross reportable amount, verify that trust assets are reported at fair market value as of the valuation date.
- Lack of Documentation: Attach all foreign trust documents and amendments when no U.S. agent has been designated to demonstrate compliance and reasonable cause.
- Missing Reasonable Cause Statement: Always include a detailed reasonable cause statement signed under penalties of perjury to explain that the delay was due to ordinary business care and not willful neglect.
For domestic trust reporting that may accompany foreign trust disclosures, our Form 1041 income tax return guide explains the reporting requirements for U.S. estates and trusts.
What Happens After You File
After you submit IRS Form 3520-A (2015), the Internal Revenue Service typically processes the return within six to eight weeks. If the filing is complete, your account will reflect the update, and the IRS may issue a confirmation notice. If errors remain, you may receive a request for additional information or a penalty notice.
You can seek reasonable cause relief or appeal penalty assessments through the IRS Appeals Office. A properly filed form also begins the three-year statute of limitations, which applies to audits and foreign trust reporting reviews for that tax year. If a foreign trust receives or distributes U.S.-source income, the withholding requirements in our Form 1042 annual withholding tax return guide may also be relevant.
FAQs
How does a foreign trust affect my U.S. tax reporting?
A foreign trust requires U.S. owners to report transactions involving income, distributions, and ownership interests to the Internal Revenue Service. These details help ensure compliance with foreign trust reporting rules and prevent penalties for unreported foreign financial assets or income earned outside the United States.
What are foreign financial assets, and how are they reported?
Foreign financial assets include accounts, investments, or ownership interests in a foreign country. Under the Internal Revenue Code, U.S. taxpayers must report transactions related to these assets on Form 8938 and Form 3520-A to meet income tax and foreign trust disclosure requirements.
Do I need to report foreign gifts on Form 3520-A (2015)?
Foreign gifts from foreign persons or entities may require disclosure if linked to a foreign trust. Reporting such gifts allows the Internal Revenue Service to monitor foreign trust reporting and ensure an accurate assessment of income tax and business income tax obligations.
Does Form 3520-A apply to specific business income tax situations?
Yes, specific business income tax issues arise when income from a foreign trust is connected to a trade or business in a foreign country. In these cases, the U.S. person must report transactions involving foreign trust income to maintain compliance with U.S. income tax and reporting obligations.
