IRS Form 3520 is used to report to the Internal Revenue Service about certain transactions with foreign trusts, ownerships of foreign trusts, or if you get certain large gifts from foreign individuals. Filing a form 3520 with valid details on time is very important to get rid of the penalties.
IRS Form 3520
United States taxpayers who are involved in foreign activities and have had any dealings with foreign trusts or got huge amounts from abroad then they need to inform the Internal Revenue Service (IRS) through form 3520.
IRS requires the filing of Form 3520 that is a yearly return to tell about the Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts from foreign Individuals. The form is also used to report ownership of a foreign trust.
United States residents must file form 3520 before the deadline of 15th day of the 4th month (15 April). If an individual does not file form 3520 timely with accurate details will be subject to IRS civil penalties later. The civil penalty amounts based on the filing requirements and transaction.
Who is eligible to file the IRS Form 3520?
Individuals need to satisfy the following eligibility rule before filing a form 3520.
- Individuals must be a permanent citizen or resident of the United States.
- If U.S citizens are involved in certain transactions with foreign trusts like creating a foreign trust, transferring assets to a foreign trust, or receiving distributions from a foreign trust then they need to file a form 3520.
- If you are a U.S resident and treated as the owner of any part of the assets of a foreign trust under the rules of sections 671 to 679 of the Internal Revenue Code.
- United States taxpayers who received gifts or bequests from foreign entities that cross certain thresholds such as gifts from a nonresident alien individual or foreign estate that priced more than $100,000 in a tax year need to submit form 3520.
What needs to be reported in IRS Form 3520?
There are several types of transactions that an individual needs to report on Form 3520. Every type of transaction must be reported on a different part of the form 3520. Here is the type of transactions that United States residents need to report to the IRS in form 3520 listed.
- Transaction like amount or property to foreign trusts, (Must reported on Part I)
- Ownership of foreign trusts under section 671 to 679 rules, (Must reported on Part II)
- Direct or indirect Distribution from foreign trusts. (Must reported on Part III)
- Receipt of big gifts from foreign entities, estates, corporations and partnerships. (Must reported on Part IV)
How can I file the IRS Form 3520?
It is very difficult to complete the Form 3520 but we make it easy for you by providing step-by-step file forms 3520.
- Navigate to the official website and locate the form 3520 button and then press it.
- Select one of the applicable instructions from the available options.
- Enter required details such as your name, address, and taxpayer identification number, country, city, street, zip code, name of the foreign trust, foreign postal code, foreign trust’s date of creation, etc.
- After that Select the category of your transaction and then enter all the required details and description of foreign trust or gift such as names, addresses, and dates of transactions, fair market value of property or gift received.
- Attach all the required documents if needed.
- Accept all the terms and conditions after that and put your signature and current date in the required session.
- After verifying all your entered details submit your form 3520.
When do you need to file the IRS Form 3520?
United States residents form 3520 is normally due on the fifteenth day of four months by the end of an individual’s tax year for income tax return.
If a United States resident grants an extension to file an income tax return then the form 3520 must be submitted no later than fifteenth day of the 10th month (15 October) after the due date of the person’s tax years extension.
If a person’s due date falls on weekends or legal holidays then he needs to file before or after the holidays or weekend.
If interested filers are living outside the United States then they may have an automatic two-month extension to file your return and submit form 3520 that would make the due date of fifteenth day of 6th month (June 15th).
It is advised to you to enter all the required details and attach all the necessary documents in form 3520 before submitting it to the IRS before the deadline to avoid penalties.
IRS Form 3520 Penalties
If United States residents do not file form 3520 with valid, accurate and complete required details then they may be subject to penalties. The penalties depend on the individual’s filing date after the deadline, incorrect or wrong details and several other things.
Normally the legal initial penalty is equal or more than $10,000 but following penalties may be applicable in certain conditions.
- 35% of the gross value of any type of property that United States residents transferred to a foreign trust for failure by a United States transferor to describe the creation of or transfer to a foreign trust in Part I of form 3520.
- 35% of the gross value of the distributions that an individual received from a foreign trust for failure by a United States person to report receipt of the distribution in Part III of form 3520.
- 5% of the gross value of the part of the foreign trust’s assets treated as owned by a United States resident under the grantor trust rules (from section 671 to section 679).