If you are the recipient of assets with significant value from a foreign source, such as a trust or an inheritance, you won’t be surprised to hear that the IRS requires a certain amount of disclosure. This disclosure comes in several forms, but the two that you’re likely to encounter first are IRS Forms 3520 and 3520-A. Not everyone must file both or either of the forms but failing to file them correctly when required can result in substantial penalties and significant government scrutiny.
Generally, Form 3520 is a filing required of the recipient of foreign assets, and Form 3520-A is an additional, less commonly required form that is submitted by a trustee when there are beneficiaries or owners of the trust that are U.S. taxpayers.
The requirements and contents of both forms are complex, and it is critical that you get the help of the experts who have experience dealing with the IRS. At US Tax Help, our tax professionals are committed to providing you with a smooth, mistake-free experience, so that you can focus on the bigger picture. Get help through our Client Portal or by calling US Tax Help at (541) 362-9127 today.
What is Form 3520?
IRS Form 3520, also known as Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, is required from U.S. taxpayers who receive or may receive income from a trust based outside the US or a foreign inheritance. The requirement of disclosure depends on the size of the asset as well as a host of other factors. Unlike a typical tax return, Form 3520 is actually an information return. You will not be required to pay the IRS concomitantly with a submission of Form 3520. For more information about Form 3520 and whether it may apply to you, visit our website or contact us through the Client Portal.
What is Form 3520-A?
Form 3520-A is required by the government from individuals who oversee foreign grantor trusts that have identified U.S. taxpayer beneficiaries. Form 3520-A is somewhat less frequently required than Form 3520. However, when it is required, accurate completion of Form 3520-A is critical, because failure to file either or both can substantially increase the associated penalties that could be assessed.
If you are the trustee of a foreign trust with U.S. taxpayer beneficiaries, the first thing you must determine is whether the trust is a grantor trust or a non-grantor trust. A grantor trust exists when the grantor (or the individual who established the trust) has some semblance of control over the trust and must pay income tax on the assets held in trust as a result. A non-grantor trust pays income tax out of its own assets, and distributions to the beneficiary or beneficiaries are reported as income tax. Foreign trusts that are not grantor trusts are generally exempt from the requirement of filing Form 3520-A.
The trustee of a foreign grantor trust generally must file Form 3520-A, and the form must be filed annually under many circ*mstances. To find out more about filing Form 3520-A, contact the tax professionals at US Tax Help.
Key Differences Between Forms 3520 and 3520-A
Here are some of the core differences to keep in mind between these two forms:
Who Must File?
The main difference between the two forms is the person who is responsible for filing them. Form 3520 must be filed by the beneficiary or recipient of the income, whether that receipt be by way of trust distribution or foreign inheritance. Conversely, if Form 3520-A is required, filing it in a timely and correct manner is the responsibility of the trustee.
Filing Frequency
In most cases, Form 3520 should be filed just once. Form 3520-A is usually subject to annual filing requirements. Annual filing of Form 3520 is less common but could be required and depends on the nature of the trust structure amongst other factors. For a determination of what is required in your specific case, get help from the qualified tax professionals at US Tax Help via our Client Portal over the phone at (541) 362-9127.
Filing Deadline
The due date for Form 3520 is also the taxpayer’s income tax return due date, which is usually April 15th. If the taxpayer has an extended deadline on their income tax return, the due date for Form 3520 will adjust to match. However, it is important that you indicate the extension in the designated space on Form 3520, or it won’t be considered a timely filing.
The due date for Form 3520-A is typically March 15, but this deadline is subject to exceptions regarding extension circ*mstances as well. US Tax Help can help you determine how your deadlines are determined, and make sure that your filings are compliant and timely. Simply visit our Client Portal on our website or call us at (541) 362-9127.
Substitute Form 3520-A
Any penalty for failing to file Form 3520-A is assessed to the U.S. person, regardless of if that individual is responsible for filing Form 3520-A. The government recognizes that these situations can be nuanced, and the parties may not be cooperative at times. Therefore, the IRS allows for the U.S. person to independently file a “substitute” Form 3520-A. The substitute filing is made simultaneously with and attached to the filing of Form 3520. The filing due date for a substitute Form 3520-A becomes the same as the filer’s income tax return due date and consequently the due date of Form 3520.
Get Help with Forms 3520 and 3520-A
When you are required to fill out either Form 3520 or 3520-A, it means that there is a substantial amount of value at stake. At US Tax Help, we’re familiar with the common issues that a foreign trust or inheritance can create. To talk with the pros, visit our Client Portal on our website or call us at (541) 362-9127.
