Attention owners of foreign trusts: your deadline is approaching quickly!
For calendar year-end foreign trusts with U.S. owners, the Form 3520-A information return is due by March 15th. Six-month extensions may be granted by filing Form 7004. Remember, Form 3520-A is filed separately from Form 3520 information returns, which report personal transfers to and/or from foreign trusts to U.S. persons. Filing Form 3520 alone DOES NOT satisfy the requirements to file Form 3520-A information returns.
Not sure if you need to file Form 3520-A?
Form 3520-A is the annual information return required for revocable or irrevocable foreign trusts with U.S. owners. The purpose of the form is to provide information regarding the foreign trust, its U.S. beneficiaries and U.S. citizens who are treated as owners of foreign trust under the grantor trust rules.
IRS guidelines state that, “A foreign trust with a U.S. owner must file Form 3520-A in order for the U.S. owner to satisfy its annual information reporting requirements under Section 6048(b). Each U.S. person treated as an owner of any portion of a foreign trust under the grantor trust rules (Sections 671 through 679) is responsible for ensuring that the foreign trust files Form 3520-A and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries.”
What happens if I fail to file Form 3520-A?
Like other U.S. international tax information returns, the penalties for failure-to-file can be quite severe. However, unlike most forms which cap failure to file penalties at $10,000 per form per year, the penalties for failure to file Form 3520-A can exceed $10,000. U.S. owners can become subject to, “…an initial penalty equal to the greater of $10,000 or 5% of the gross value of the portion of the trust’s assets treated as owned by the U.S. person at the close of that tax year, if the foreign trust: (a) fails to file a timely Form 3520-A or (b) does not furnish all of the information required by section 6048(b) or includes incorrect information.”
Because of how enforcement-minded the IRS has been lately with civil penalties related to U.S. international tax information returns, it is not worth the risk to ignore such important tax filing obligations.