What is a 3520-A and When Do I Need to File One?

Arin V., EA , MBA

Arin is an Enrolled Agent (EA), authorized to represent taxpayers in front of the IRS, and holds a BA and MBA (Management) degree from California State University, Northridge.

Last week we discussed Form 3520 and the various scenarios in which you would need to file it. Today, we will discuss Form 3520-A and the scenarios in which you would need to file one. While you may assume that the two forms are similar due to the naming convention, the information provided in each of these forms is completely different and so it is important to understand the distinctions between these two forms.

Typically, if you needed to file a Form 3520 to report ownership in a foreign trust, you would also need to file Form 3520-A to provide information about the foreign trust’s U.S. owners and beneficiaries, not to mention additional information about the trust itself, much of which is not included in Form 3520. 

Each U.S. person who is treated as an owner of any portion of a foreign trust needs to ensure that the foreign trust files a Form 3520-A and issues the Foreign Grantor Trust Owner Statement (pages 3 and 4 of Form 3520-A) to each U.S. owner and the Foreign Grantor Trust Beneficiary Statement (page 5 of Form 3520-A) to each U.S. beneficiary who received a distribution during the year from the foreign trust.

However, please note that the due date for Form 3520-A differs from that of Form 3520. Specifically, while you would need to file Form 3520 by April 15, the due date for the foreign trust to file the Form 3520-A is March 15. But to make things even more confusing, if the foreign trust did not file a Form 3520-A and you are filing a substitute Form 3520-A, then the due date would be April 15 (the same as Form 3520).  Additionally, this form, like the Form 3520, is filed separately from your federal tax return. 

And it bears mentioning again – what happens if you are required to file a Form 3520-A but do not do so in a timely manner? Or what happens if you do file the form, but you do it incorrectly? For instance, failure to file the form (or failure to file it correctly) may result in a penalty of $10,000 or 5 percent of the gross value of the portion of the trust’s assets that you own. If you are not able to file this form by the deadline, then you may obtain a 6-month extension by filing Form 7004. Please note that an extension to file your federal tax return is not an extension to file Form 3520-A. Therefore, just because you filed an extension for your federal tax return does not mean that you automatically receive an extension to file a foreign trust return.

Additionally, what makes this form more time-consuming to fill out than Form 3520 is the fact that you will need to include an income statement and balance sheet for the foreign trust directly in this form. Therefore, please ensure that the foreign trust prepares an income statement and balance sheet beforehand, as you do not want to be scrambling to prepare these financial statements when the Form 3520-A deadline comes crashing around the corner.

Given all of these nuances, as with the Form 3520, it makes sense to seek professional help when filing this form, as the consequences for not filing or filing incorrectly can be huge.

If you are the owner or beneficiary of a foreign trust, please get in touch with us today to discuss your options in filing this form.