What IRS Form 3520-A (2020) Is For
The Internal Revenue Service (IRS) requires foreign trusts with at least one U.S. owner to file Form 3520-A each year. This form serves as the annual information return that reports ownership, administration, and income for tax purposes. Each U.S. person treated as an owner under grantor trust rules must ensure accurate filing.
Form 3520-A identifies foreign non-grantor trusts, grantor trusts, and certain foreign gifts that affect tax obligations. It also provides the IRS with data on foreign trust reporting requirements and any financial accounts connected to the trust. This process maintains compliance with the Internal Revenue Code (IRC Section 6048).
Accurate reporting prevents penalties, promotes transparency, and protects a taxpayer’s compliance record for future taxable years.
When You’d Use Form 3520-A for 2020
IRS Form 3520-A (2020) applies when a foreign trust has not met its filing requirements or when an amendment is needed to correct previously reported information. A U.S. citizen, domestic partnership, or domestic trust that owns a share of a foreign trust must ensure the annual information return is filed correctly. The Internal Revenue Service uses this document to verify ownership, transactions, and distributions related to foreign-held property or accounts.
Taxpayers may also need to file when a trust is administered exclusively outside the United States or includes an automatic migration provision affecting income tax obligations. Each submission must include annual statements for all trust beneficiaries. Complete filings confirm that the entity maintains accurate records and meets obligations connected to business or trade activities abroad.
Filing Form 3520-A on time helps prevent penalties, maintain accurate payment records, and ensure compliance with federal foreign trust reporting standards.
Key Rules or Details for 2020
Form 3520-A for 2020 required strict compliance with reporting rules established by the Internal Revenue Service. Each filer needed to disclose income, distributions, and trust ownership details to meet the standards of the annual return. These requirements applied to every citizen, domestic partnership, and domestic trust that had a foreign trust interest.
1. Filing Deadline
- 2020 Rule or Standard: The filing deadline was March 15, 2021, for calendar-year trusts.
- Authority or Source: Internal Revenue Code Section 6048.
2. Penalty Amount
- 2020 Rule or Standard: The penalty was the greater of $10,000 or 5% of the trust’s assets.
- Authority or Source: Internal Revenue Service.
3. Exemption
- 2020 Rule or Standard: Certain foreign trusts qualified for exemption under Revenue Procedure 2020-17.
- Authority or Source: Applicable law.
4. Documentation
- 2020 Rule or Standard: The filer was required to include annual statements for all trust beneficiaries.
- Authority or Source: IRS Form 3520-A Instructions.
5. Oversight
- 2020 Rule or Standard: A U.S. person with supervisory authority over the trust’s administration ensured accuracy.
- Authority or Source: United States Tax Code.
These rules ensured accurate disclosure, supported foreign trust reporting, and helped taxpayers avoid penalties during the 2020 filing year. Taxpayers who need prior-year Form 3520-A instructions or reference materials may consult the IRS Help Center for foreign trust reporting guidance.
Step-by-Step (High Level)
Filing Form 3520-A involves specific actions to meet IRS requirements. Each taxpayer must complete the form accurately to confirm ownership, report income, and maintain compliance with United States tax rules. Every submission ensures proper documentation of the trust’s financial activities for the applicable taxable year.
- Obtain the correct version of Form 3520-A from the IRS website, ensuring it includes the latest review or update details.
- Fill in all sections to report transactions related to income, assets, or distributions for the trust.
- Attach supporting schedules for certain transactions that involve property transfers or ownership adjustments.
- Review all entries and verify the mailing address before submission to avoid delays.
Completing these steps accurately promotes consistency, supports transparency, and prevents potential filing issues.
Common Mistakes and How to Avoid Them
Many filers encounter preventable errors when submitting Form 3520-A that can interrupt processing and lead to compliance issues. Recognizing these problems and applying corrective actions ensures accuracy and consistency in every submission. Taking preventive steps helps maintain proper filing with the Internal Revenue Service.
- Incorrect Identification Number: Use the trust’s employer identification number instead of a personal identification number to ensure accurate processing.
- Missing Signature Authorization: Verify that a trustee or owner has signed the form before mailing to confirm accountability.
- Incomplete Trust Documentation: Include all required schedules and attachments so the IRS can thoroughly verify each filing.
- Incorrect Value Reporting: Recheck reported asset and income figures before submission to maintain precision.
- Late Mailing: Send the form before the deadline to comply with United States tax reporting requirements.
These preventive actions promote accuracy, reduce errors, and support timely submission.
What Happens After You File
After Form 3520-A is filed, the Internal Revenue Service reviews the submission for completeness and accuracy. Each return is evaluated to confirm that ownership details, distributions, and taxable income are correctly reported. This verification ensures compliance with trust reporting requirements in the United States.
IRS Review and Processing
The IRS typically processes Form 3520-A within six to eight weeks. During this period, it compares the information with related filings from owners or entities. If the IRS identifies differences, it issues a notice requesting clarification or documentation.
Correction and Record Maintenance
When corrections are required, a taxpayer or domestic corporation must respond promptly with accurate records. Maintaining precise filings prevents further notices and delays. Consistent compliance promotes transparency and supports future trust reporting reviews.
FAQs
Who must file Form 3520-A for a foreign trust?
Every U.S. person, foreign trust, or foreign non-grantor trust with ownership or beneficiary interests must file an annual information return. This filing provides the foreign trust information required by the Internal Revenue Service. Each filer must also maintain accurate records to comply with foreign trust reporting requirements within the United States.
How does the court test affect a trust’s classification?
The court test determines if a U.S. court can exercise primary supervision over the trust’s administration. If a court in the United States has authority, the trust may be treated as domestic. This classification impacts taxation, reporting, and how compliance with foreign trust reporting is measured.
What is the control test, and how is it applied?
The control test evaluates whether one or more U.S. persons hold control over all substantial decisions of the trust. A trust that meets this standard may be considered domestic for tax purposes. Failing the test means continued classification as a foreign non-grantor trust subject to foreign trust reporting requirements.
What penalties apply for failing to file Form 3520-A?
The Internal Revenue Service may impose significant penalties for late or incomplete filings. Penalties can equal the greater of $10,000 or 5% of the trust’s U.S.-owned assets. Filers can avoid penalties by ensuring all information, foreign gifts, and account data are complete and submitted by the annual due date.
How can taxpayers protect against offshore scheme promoters?
Taxpayers are advised to avoid any arrangements promoted as hidden or exempt from U.S. oversight. Entities or individuals claiming to bypass foreign trust reporting requirements are often offshore scheme promoters. Verifying IRS guidance through the official website (look for the locked padlock icon) helps ensure the information is secure and reliable.
Entities that need related foreign trust reporting materials, prior-year instructions, or comparable information returns may refer to the Federal Fillable Tax Forms directory for additional federal resources that support Form 3520-A compliance.
