IRS Form 3520
If you are a U.S. citizen during the reporting tax year or the executor of an estate for U.S. citizens and/or their dependents, it is important for you to understand when you are required to report specific transactions dealing with foreign trusts.
Persons meeting at least one of the following requirements must file IRS Form 3520 each year:
- Transferring money or property to a foreign trust or creating a foreign trust.
- Estate executors of a deceased U.S. citizen where a transfer was made to a foreign trust because of their death or they were considered an owner of any part of the foreign trust directly prior to their death.
- Owning or partially owning a foreign trust.
- Receiving a distribution from a foreign trust, directly or indirectly.
- Holding an obligation from a foreign trust such as a debenture, a bill or note receivable or other form of indebtedness.
- Receiving a gift, settlement, inheritance or donation from a foreign person or an estate in excess of $100,000.
- Receiving a gift, settlement, inheritance or donation from a foreign corporation or partnership in excess of $15,102 (amount as of 2013).
Depending on whether you are the owner of a foreign trust, the recipient of a distribution from a foreign trust or which other requirement(s) you met above; this dictates what portions of Form 3520 are filled out as not all parts are required. If you need additional assistance understanding or filing the six page Form 3520, please contact a tax attorney at Moskowitz LLP.
Remember, failure to file IRS Form 3520 on time includes the following penalties:
- A penalty of 35% of the gross value of the distribution received from or transferred to a foreign trust.
- An additional 5% to 25% per month penalty for specified foreign gifts.