Form 3520 Filing Requirements: Foreign Trusts, Gifts, Penalties

You must file IRS Form 3520 if you are a U.S. person who created a foreign trust, transferred money or property to one, was treated as its owner under the grantor trust rules, received a distribution from one, or received large gifts or bequests from foreign persons above the reporting thresholds. The form is informational, filed separately from your income tax return, and the penalties for skipping it start at $10,000. Below are the filing requirements for Form 3520 in plain terms: who owes the return, what triggers it, when it’s due, and what happens if it’s late.

Who Has to File

The filing obligation runs to “U.S. persons,” which the tax code defines as U.S. citizens, resident aliens, domestic corporations, domestic partnerships, and any estate or trust that qualifies as domestic under federal tax rules.¹ Green card holders and people who meet the substantial presence test are resident aliens for this purpose, even if they think of another country as home. Executors of a deceased U.S. person’s estate can also inherit the filing obligation if the decedent had reportable foreign trust transactions at death.²

Is Your Trust Actually Foreign?

Whether a trust is foreign is not about where it was set up in ordinary language. A trust is domestic only if it passes both the court test and the control test. Fail either one and the IRS treats it as foreign.³

Court test: a U.S. court must be able to exercise primary supervision over the trust’s administration.
Control test: one or more U.S. persons must have authority to control all substantial decisions of the trust.

A family trust set up under the laws of another country and run by a foreign trustee will almost always fail one or both tests, even if every beneficiary is American. That classification is what turns on the Form 3520 obligations below.

The Three Foreign Trust Triggers

Form 3520 covers three separate relationships you might have with a foreign trust. Each uses a different part of the form and each has its own documentation requirements. The underlying statute is IRC Section 6048.⁴

You Transferred Money or Property to a Foreign Trust

Any U.S. person who directly or indirectly transfers money or property to a foreign trust reports the transaction on Part I of Form 3520.⁵ There is no dollar floor. Creating a new trust, adding to an existing one, or making indirect contributions through intermediaries all count.

Under IRC Section 679, if you transfer property to a foreign trust that has any U.S. beneficiary, you are treated as the owner of the portion of the trust attributable to your transfer, and the IRS presumes there is a U.S. beneficiary unless you can prove otherwise.⁶ That presumption means most transfers pull you into both a one-time transferor filing and the ongoing owner reporting described next.

Transfers made at fair market value get a narrow exception from grantor trust treatment under Section 679, but not from the reporting requirement. You still report the transaction and document that you received full value in return. A loan to a foreign trust that does not meet the “qualified obligation” requirements is also treated as a transfer.⁷

You Are Treated as the Owner Under the Grantor Trust Rules

If you are treated as the owner of any portion of a foreign trust under the grantor trust rules, you have an annual filing obligation for every year that ownership continues. This commonly applies when you funded the trust while keeping powers such as the ability to revoke it, redirect income, or control distributions. This piece goes on Part II of Form 3520.²

As U.S. owner, you are also responsible for making sure the foreign trust itself files Form 3520-A, a separate annual information return. The trust must give you a Foreign Grantor Trust Owner Statement, which you attach to your own Form 3520, and any U.S. beneficiaries must receive their own beneficiary statements.⁸

When the trust does not file Form 3520-A on its own, you can head off penalties by completing and attaching a substitute Form 3520-A to your Form 3520 by the Form 3520 due date, signed by you as U.S. owner. If neither the trust nor you files it, the penalty is the greater of $10,000 or 5% of the gross value of the trust assets treated as owned by you at year-end.⁹

You Received a Distribution From a Foreign Trust

Any distribution you receive from a foreign trust during the year goes on Part III of Form 3520, whether it consists of income or a return of your original contribution. To classify what you received, you need a Foreign Non-Grantor Trust Beneficiary Statement from the trustee. Without that statement, the entire distribution defaults to the worst possible tax treatment: fully taxed as accumulated income at the highest rate, with a throwback interest charge added. The missing paperwork does not excuse you from filing.

Loans from a foreign trust to a U.S. beneficiary are treated as distributions unless the loan is a qualified obligation. That requires a written instrument, a term of five years or less, all payments in U.S. dollars, and additional yield-to-maturity and ongoing reporting conditions. Uncompensated use of trust property is treated the same way.⁷

Large Gifts and Bequests From Foreign Persons

The second half of Form 3520 has nothing to do with trusts. If you receive large gifts or bequests from foreign persons unrelated to a foreign trust, you report them on Part IV. This reporting is informational; the gift itself is not taxable income to you.¹⁰

The threshold depends on the source:

Gifts and bequests from a foreign individual or foreign estate are reportable when the total from a single source exceeds $100,000 during the tax year.¹⁰
Gifts from foreign corporations or foreign partnerships are reportable when the aggregate from all such sources combined exceeds $20,573 for the 2026 tax year.¹¹

The corporate and partnership threshold is inflation-adjusted each year. The $100,000 threshold is also inflation-adjusted under the statute, though the IRS instructions have long kept it at that round number.¹² When you exceed the threshold, you identify the donor and give a description and fair market value of what you received.

Some transfers from abroad are not reportable gifts. Amounts already reported on Form 1042-S are excluded. Tuition or medical expenses paid directly to the educational institution or medical provider are generally not treated as gifts. Transfers from U.S. persons do not fall under this section at all, even if the money originates overseas. And if the IRS later decides a transfer was really compensation for services, it is reclassified as taxable income on your regular return rather than reported as a gift.

Foreign Retirement Plans: Usually Not Reportable

Foreign pension and personal retirement accounts are often structured as trusts, which worries a lot of filers unnecessarily. Two IRS revenue procedures carve them out.

Revenue Procedure 2020-17 exempts eligible individuals from both Form 3520 and Form 3520-A for “applicable tax-favored foreign trusts” used for pension, retirement, medical, disability, or educational benefits. Qualifying requires that the plan be tax-favored under its home country’s laws, subject to information reporting there, limited to contributions from earned income, capped at $50,000 annually or $1,000,000 over a lifetime, and restricted so withdrawals are permitted only at retirement age, disability, or death (with penalties for earlier withdrawals).¹³

Revenue Procedure 2014-55 separately exempts Canadian RRSPs and RRIFs from both Form 3520 and Form 3520-A, regardless of whether they would meet the Rev. Proc. 2020-17 conditions.¹⁴

These exemptions cover Form 3520 only. You still report income from the plan on your Form 1040, and the account may still trigger separate FBAR or Form 8938 filings.

When and Where to File

Form 3520 is filed separately from your income tax return. It cannot be e-filed through standard systems and must be mailed on paper to:

Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409

Mailing it with your Form 1040, or sending it to the wrong address, counts as a failure to file even if your income tax return itself was timely.² All amounts must be converted to U.S. dollars using the exchange rate in effect at the time of each transaction.

For calendar-year individual filers, Form 3520 is due April 15 following the close of the tax year. U.S. persons living and working abroad get an automatic extension to June 15. If you extend your income tax return using Form 4868 (individuals) or Form 7004 (entities), your Form 3520 deadline moves with it to October 15. An extension of time to file is not an extension of time to pay any related tax.

Form 3520-A, if you owe it as U.S. owner of a foreign grantor trust, has a different deadline: the 15th day of the third month after the trust’s tax year ends, or March 15 for a calendar-year trust. A substitute 3520-A attached to your Form 3520 follows the Form 3520 due date instead.⁹

Penalties and the Open Statute of Limitations

Form 3520 penalties are among the harshest in the international reporting arena, and the IRS assesses them automatically when it spots a missing or incomplete return.

For failure to report the creation of or a transfer to a foreign trust, the penalty is the greater of $10,000 or 35% of the gross value of the property transferred. The same structure applies to failing to report a distribution: the greater of $10,000 or 35% of the distribution amount.¹⁵ For failure to file Form 3520-A, the U.S. owner’s penalty is the greater of $10,000 or 5% of the gross value of the trust assets treated as owned. Additional penalties accrue if the failure continues more than 90 days after the IRS mails a notice.⁹ The IRS can stack separate penalties for each obligation on the same form: a U.S. person who is both grantor and beneficiary could be hit for failing to report ownership, failing to secure Form 3520-A, and failing to report distributions in a single year.

For failing to report a foreign gift, the penalty is 5% of the gift amount per month the failure continues, up to a maximum of 25%. On a $200,000 gift, that caps at $50,000.¹² The IRS also gains authority to determine the tax consequences of the gift, meaning it can reclassify the transfer as taxable income.

The quieter cost is the statute of limitations. Under IRC Section 6501(c)(8), when a required international information return is not filed, the assessment period does not begin to run. The three-year window only starts once the information is furnished.¹⁶ Skipping Form 3520 leaves your entire income tax return for that year open to examination indefinitely, not just the foreign items. If the failure was due to reasonable cause and not willful neglect, the open period narrows to items directly related to the missing information.

Fixing a Missed Filing

The penalties are not absolute. The statutes provide an exception where the failure was due to reasonable cause and not willful neglect.¹² The burden is on you: a written statement signed under penalties of perjury laying out the specific facts.¹⁷ Saying you relied on a tax professional is not enough by itself; you have to show you gave the advisor complete information and that the advisor’s guidance drove the failure. The IRS also states outright that foreign-country secrecy laws are not reasonable cause.

If you discover you should have been filing Form 3520 in prior years but reported all related income correctly, you can submit the delinquent forms under the Delinquent International Information Return Submission Procedures. Delinquent Forms 3520 and 3520-A are filed according to their normal instructions, not attached to an amended return, and you can include a reasonable cause statement — though penalties may still be assessed during processing before that statement is reviewed. You are eligible only if you are not already under civil examination or criminal investigation and the IRS has not contacted you about the missing returns.¹⁸

If you also have unreported income tied to foreign assets, the Streamlined Filing Compliance Procedures are the usual path back into compliance. They are open to individual taxpayers who can certify their failures were non-willful — the result of negligence, inadvertence, mistake, or a good-faith misunderstanding.¹⁹ Taxpayers under civil examination or criminal investigation are ineligible, and submissions can still be selected for audit. Where the failure was willful, the IRS directs you to IRS Criminal Investigation’s voluntary disclosure practice instead.

1
Internal Revenue Service. Classification of Taxpayers for U.S. Tax Purposes
2
Internal Revenue Service. Instructions for Form 3520
3
Electronic Code of Federal Regulations. 26 CFR 301.7701-7 – Trusts, Domestic and Foreign
4
Office of the Law Revision Counsel. 26 USC 6048 – Information With Respect to Certain Foreign Trusts
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Internal Revenue Service. Form 3520
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Office of the Law Revision Counsel. 26 USC 679 – Foreign Trusts Having One or More United States Beneficiaries
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Internal Revenue Service. Instructions for Form 3520
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Internal Revenue Service. Foreign Trust Reporting Requirements and Tax Consequences
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Internal Revenue Service. Instructions for Form 3520-A
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Internal Revenue Service. Gifts from Foreign Person
11
Internal Revenue Service. Rev. Proc. 2025-32
12
Office of the Law Revision Counsel. 26 USC 6039F – Notice of Large Gifts Received From Foreign Persons
13
Internal Revenue Service. Rev. Proc. 2020-17
14
Internal Revenue Service. Rev. Proc. 2014-55
15
Office of the Law Revision Counsel. 26 USC 6677 – Failure to File Information With Respect to Certain Foreign Trusts
16
Office of the Law Revision Counsel. 26 USC 6501 – Limitations on Assessment and Collection
17
Internal Revenue Service. Failure to File the Form 3520/3520-A Penalties
18
Internal Revenue Service. Delinquent International Information Return Submission Procedures
19
Internal Revenue Service. Streamlined Filing Compliance Procedures