Form 3520 2022 Printable, Fillable PDF – A Form 3520 will need to be filed with your US expat tax return in the case of being connected with or owning a foreign trust, as well as in the case of receiving bequests or gifts from a foreign person living in the United States. You may need more than one Form 3520 to record all of the transactions for each foreign trust in which you are engaged since each transaction must be reported on a separate form for each foreign trust.
You must first grasp the distinction between a foreign trust and a domestic trust in order to fully comprehend your filing obligations. In finance, a foreign trust is described as a trust that was established and is overseen by a foreign individual or entity. When a trust is described as “domestic,” it refers to a trust over which a United States court has primary supervision and in which at least one United States person has a considerable degree of authority over the choices made for the trust. According to the terms of this article, a “US person” is defined as any US citizen or Green Card holder, as well as a US corporation, a US partnership, or a US estate.
In What Circumstances Is Form 3520 Required To Be Filed?
Form 3520 must be completed by any US citizen who satisfies at least one of the qualifications listed below:
If you were in charge of supervising and reporting reportable events on a foreign trust, or if you held any of the duties listed on pages 3 and 4 of the Form 3520 Instructions, you have a Qualified Obligation and must file Form 3520.In your capacity as a person with qualified duties, you will only be required to complete the top section of Form 3520, as well as all applicable elements of Part 1.
In the event that you are regarded as the owner of a foreign trust, or any part thereof, you will be required to submit Form 3520 with the Internal Revenue Service. If this is the case, you will be asked to complete Part 2 of the form, which includes filling out all of the information at the top of the form.
If you received a foreign trust distribution directly or indirectly, or if you had qualifying obligations with a linked foreign trust, you must submit Form 3520 and complete all of the identifying information and Part 3 of the form.
A gift or bequest of at least $100,000 from a foreign person or estate will necessitate the filing of Form 3520, in which you must complete the top identification part as well as Parts 1 and 4 of the tax return.
Recipient of a Gift or Bequest from a Foreign Corporation or Trust: If you received a gift or bequest from a foreign corporation or trust in excess of $11,273, you must submit Form 3520, complete the top identification section as well as Part 4.
Who Is Exempt From The Need To File Form 3520?
Finding out who has a legal obligation to submit Form 3520 is just as critical as figuring out who has a legal obligation not to file Form 3520. If any of the following situations apply to your situation, Form 3520 will not be necessary:
You are not required to file Form 3520 with the IRS if you made transfers to a foreign trust that are specified in Sections 402(b), 404A, and 404(a)(4) of the Internal Revenue Code.
Form 3520 does not need to be filed for the majority of fair market value (FMV) transfers made to a foreign trust by a US person, although there are a few exceptions to this rule.
Transactions from an RRSP (Canadian Registered Retirement Savings Plan) or an RRIF (Canadian Registered Retirement Income Fund) do not qualify as transfers and so do not need to be reported on Form 3520; instead, you will use Form 8891 to record these transactions.
If you received a distribution from a foreign trust as compensation for services rendered, you will not be required to record this information on Form 3520; instead, you will report the payments as income on Form 1040 along with your US expat tax return.
If you receive a distribution from a foreign trust to a domestic trust that has been determined by the IRS to be tax-exempt, you will not be required to submit Form 3520 to the Internal Revenue Service.
For purposes of Section 672 (f), if you are an owner or beneficiary of a domestic trust that has been converted into a foreign trust during the tax year, you will not be required to submit Form 3520.
When Should Form 3520 Be Filed?
If you are submitting Form 3520 on your own behalf, it must be submitted at the same time as your US expat tax return. The form must be filed alongside Form 706 if you are filing on behalf of a deceased United States citizen or resident. In the event that you and the deceased file a combined income tax return, you may be able to submit a joint Form 3520 at the same time.
Form 3520, Penalties And Fines
The Internal Revenue Service will charge fines if you fail to file Form 3520 or if you submit the form with missing or erroneous information. Initially, the penalty charged will be the greater of either $10K or the sum of
It is estimated that the trust received a 35% fee for each property transferred to the trust that was not listed on Form 3520.
35 percent of all received distributions from a foreign trust that were not reported on Form 3520; or 35 percent of all received distributions from a foreign trust that were not reported on Form 3520.
The trust would receive 5% of the gross value of any trust assets owned by a US person that were either not disclosed on Form 3520 or were reported incorrectly on Form 3520.
The fines outlined above are simply the beginning of the lengths to which the IRS will go in order to verify that Form 3520 is completed correctly. If there is ongoing noncompliance after the first penalties have been issued, the Internal Revenue Service will become even harsher, according to the IRS.
In the event that you made an honest error while filing Form 3520, you may be able to avoid penalties if you can demonstrate that you did not withhold or omit information on purpose or with negligence. If your host nation imposes penalties for disclosing particular information relating to the foreign trust, it is critical that you realize that you are required to submit all information about the foreign trust.
Now that you have a fundamental understanding of Form 3520, we will go over several essential terminology and offer in-depth explanations for each of them.