IRS Form 3520 is the annual information return a US person files after transferring property to a foreign trust, being treated as the owner of a foreign trust, receiving a distribution from one, or receiving a large gift or bequest from a foreign source. The form itself does not calculate tax. It reports the transaction so the IRS can see money moving through offshore structures and across borders. Skipping it triggers automatic penalties that begin at $10,000 and can reach 35% of the amount involved, so accuracy and timing matter more here than on most information returns.
When You Have to File
The filing duty falls on any “US person”: US citizens, green card holders, resident aliens who meet the substantial presence test, and domestic corporations, partnerships, and trusts.1Internal Revenue Service. Substantial Presence Test You file if any one of three things happened during the year.
- You transferred property to a foreign trust. Cash, securities, real estate, and even a loan to the trust all count.
- You were treated as the owner of a foreign trust under the grantor trust rules.
- You received a large gift or bequest from a foreign source. From a foreign individual or estate, the threshold is $100,000 in a single year. From a foreign corporation or partnership, the threshold is far lower and adjusted annually for inflation: $19,570 for 2024 and $20,116 for 2025.2Internal Revenue Service. Gifts from Foreign Person
One trigger is enough. The form is purely informational, but the IRS uses it to track offshore activity, and the penalty regime is built to make sure it gets filed.3Internal Revenue Service. About Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
What Counts as a Foreign Trust
A trust is domestic, and therefore outside Form 3520, only if it passes two tests at once. A US court must be able to exercise primary supervision over the trust’s administration (the court test), and one or more US persons must control all substantial decisions of the trust (the control test).4eCFR. 26 CFR 301.7701-7 – Trusts, Domestic and Foreign Fail either and the trust is foreign, even if it holds only US assets or was set up by a US citizen.
This catches people. A trust formed in a US state but administered by a foreign trustee with sole decision-making power fails the control test and is foreign. A trust governed by a foreign court is foreign regardless of who controls the decisions. Both boxes have to stay checked, every year, for the trust to remain domestic.
Part I: Transfers to a Foreign Trust
Part I covers any direct or indirect transfer of property from a US person to a foreign trust. You complete it whether the transfer triggers gift tax, income tax, or nothing at all. The reporting duty is independent of any tax liability.
You provide identifying information about the trust: legal name, address, country of formation, creation date, and its Employer Identification Number if it has one. The first year you report on a trust, you attach a copy of the trust document and any amendments.3Internal Revenue Service. About Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts For the transfer itself, you report the date, a description of the property, and its fair market value on Line 9. If you created the trust that year, you check Line 1a.
Watch for the tax bite. Transfers to a foreign non-grantor trust are generally treated as sales at fair market value, so you recognize gain equal to the difference between fair market value and your basis in the property.5Office of the Law Revision Counsel. 26 USC 684 – Recognition of Gain on Certain Transfers to Certain Foreign Trusts and Estates The forced recognition rule does not apply if you are treated as the owner of the trust under the grantor trust rules, because the trust is disregarded for tax purposes in that case.
Example: a US citizen gifts $50,000 in cash to a newly created discretionary trust in the Bahamas. She checks Line 1a, describes the transfer on Line 9, and reports $50,000 as fair market value. Because the transfer is cash, no built-in gain is recognized. Had she transferred appreciated stock instead, the gain between basis and fair market value on the transfer date would be taxable.
Part II: Ownership of a Foreign Trust
Part II applies when you are treated as the owner of all or part of a foreign trust under the grantor trust rules in Sections 671 through 679. Ownership status means the trust is disregarded for US tax purposes, and you report the trust’s income, deductions, and credits on your Form 1040.
How Grantor Status Gets Triggered
Section 679 is the most common path for foreign trusts. If you transfer property to a foreign trust that has any US beneficiary — including yourself, your spouse, or your children — you are treated as the owner of the portion of the trust tied to that transfer.6Office of the Law Revision Counsel. 26 USC 679 – Foreign Trusts Having One or More United States Beneficiaries The definition of US beneficiary is broad enough that most foreign trusts created by a US person will fall into grantor treatment.
Sections 671 through 678 can also trigger ownership on their own. Retaining the power to revoke the trust, keeping the right to trust income without the consent of someone with a competing interest, or holding a non-fiduciary power to swap trust assets for property of equal value can each make you the grantor for tax purposes.7Internal Revenue Service. Foreign Grantor Trust Determination Part II Sections 671-678
What You Report
On Part II you identify the trust and cite the specific Code section that causes your grantor status — Section 676 for a revocable trust, Section 679 for a trust with US beneficiaries, and so on. You attach a Foreign Grantor Trust Owner Statement listing the income and deduction items that flow through to your personal return.3Internal Revenue Service. About Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
The trust must also provide a Foreign Grantor Trust Beneficiary Statement to each US beneficiary who received a distribution that year.8Internal Revenue Service. Foreign Trust Reporting Requirements and Tax Consequences With that statement, the beneficiary treats the distribution as a nontaxable gift, because you as grantor already paid tax on the trust’s income. Without it, the distribution gets recharacterized as taxable income under the default rules for non-grantor trust distributions.
Part III: Distributions from a Foreign Trust
Part III is for US beneficiaries who received a distribution during the year. How the distribution is taxed turns almost entirely on whether the trust is a grantor or non-grantor trust, and whether the trustee cooperated by providing paperwork.
If the trust is a grantor trust and you have the Foreign Grantor Trust Beneficiary Statement, the distribution is a nontaxable gift. The grantor already paid tax on the trust’s income, so you do not pay again. Without the statement, you lose that treatment.
Distributions from a foreign non-grantor trust are more complex. The beneficiary attaches a Foreign Non-Grantor Trust Beneficiary Statement that breaks the distribution into ordinary income, capital gains, and return-of-corpus components, each taxed at different rates.
When the trust does not provide the beneficiary statement — a common outcome with uncooperative foreign trustees — the entire distribution falls under the default regime. The IRS treats it as an accumulation distribution: taxed as ordinary income plus an interest charge calculated over the years the income sat in the trust untaxed. The interest charge can consume a large portion of the distribution and exists specifically to push beneficiaries to get their trustees to cooperate.
Example: a US citizen receives $25,000 from a foreign non-grantor trust and the trustee never sends the beneficiary statement. She reports the full $25,000 on Part III and checks the box indicating the default regime applies. The entire amount is treated as accumulated income subject to tax and the throwback interest charge.
Part IV: Foreign Gifts and Bequests
Part IV is where you report a large gift or bequest from a foreign source, and it is separate from the trust distribution sections. Receiving a foreign gift does not create US income tax liability on its own, but missing the report brings its own penalty.
Gifts or bequests from a foreign individual or foreign estate get reported on Line 54 if the total from that person exceeds $100,000 during the year. You provide the date of each gift, the value, and the donor’s name and address.9Internal Revenue Service. Instructions for Form 3520
Gifts from a foreign corporation or foreign partnership go on Line 55 if the annual total from all such entities exceeds the inflation-adjusted threshold: $19,570 for 2024 and $20,116 for 2025.2Internal Revenue Service. Gifts from Foreign Person Check the current instructions for the applicable figure. The IRS scrutinizes entity gifts more closely because they can mask disguised compensation or unreported business income, so you also report the entity’s name and principal business activity.
Example: a US resident receives a $150,000 cash gift from a foreign uncle. She reports the gift on Line 54 with the date, amount, and her uncle’s identifying information. No US income tax is owed on the gift, but omitting it would trigger monthly penalties. If she also received $22,000 labeled as a “gift” from a foreign corporation, that would independently require reporting on Line 55.
Form 3520-A and Substitute Filing
Form 3520-A is a separate annual return that the foreign trust itself is supposed to file with the IRS. It provides the income, expense, and balance sheet detail that supports what the US owner reports on Form 3520. In practice, many foreign trustees will not file it, either because they are unfamiliar with US reporting or because local privacy laws discourage disclosure.
When that happens, the US owner can avoid the penalty for the trust’s failure by completing a substitute Form 3520-A and attaching it to their own Form 3520. The substitute must include the Foreign Grantor Trust Owner Statement and the Foreign Grantor Trust Beneficiary Statement, and it must be filed by the Form 3520 due date. The US owner is also responsible for providing copies of both statements to any other US owners and US beneficiaries by that same deadline.10Internal Revenue Service. Instructions for Form 3520-A
If your foreign trustee will not cooperate, you are not stuck absorbing penalties, but you do need to reconstruct the trust’s financial information yourself, often through independent records or correspondence with the financial institutions holding trust assets.
Trusts That Are Exempt
Not every foreign trust triggers a Form 3520 filing. Under Revenue Procedure 2020-17, the IRS exempts eligible individuals from filing Forms 3520 and 3520-A for certain tax-favored foreign trusts, primarily foreign retirement plans and foreign savings accounts that function like US tax-advantaged accounts.11Internal Revenue Service. Rev. Proc. 2020-17
To qualify, the foreign trust must meet specific structural requirements. A foreign retirement trust must operate exclusively or almost exclusively to provide retirement benefits, be tax-favored under local law, and limit contributions to no more than $50,000 annually or $1,000,000 over a lifetime, with withdrawals conditioned on reaching retirement age, disability, or death and penalties for early access. A foreign non-retirement savings trust must limit contributions to $10,000 annually or $200,000 over a lifetime, with withdrawals conditioned on specific criteria such as education or disability and penalties for early access.
You must also be an eligible individual, meaning you have been compliant with your US income tax obligations, including properly reporting any contributions to, earnings of, or distributions from the trust on your return.11Internal Revenue Service. Rev. Proc. 2020-17 Canadian Registered Education Savings Plans (RESPs) and Registered Disability Savings Plans (RDSPs) are common examples. Canadian RRSPs and RRIFs were already exempt under an earlier rule.
The exemption covers Form 3520 and Form 3520-A only. It does not relieve you from filing Form 8938 or the FBAR if those thresholds are met.
When and Where to File
Form 3520 is due April 15 for calendar-year filers, the 15th day of the fourth month after your tax year ends. If you extend your personal return with Form 4868, the Form 3520 deadline automatically extends to October 15.12Internal Revenue Service. Reminder to U.S. Owners of a Foreign Trust
The form is filed separately from your Form 1040. It cannot be filed electronically. Mail it to:
Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409
The IRS processes international information returns at a dedicated facility, which is why the mailing address differs from your 1040. Use certified mail or a delivery service with tracking. If the IRS claims it never arrived, you want proof of timely submission.
Penalties for Missing It
Form 3520 penalties are among the harshest information-return penalties, and the IRS assesses them automatically. No warning notice comes first.
For transfers to a foreign trust (Part I), the penalty is the greater of $10,000 or 35% of the gross value of the property transferred.13Office of the Law Revision Counsel. 26 USC 6677 – Failure to File Information With Respect to Certain Foreign Trusts A $200,000 transfer produces a $70,000 penalty.
For failing to report ownership of a foreign trust (Part II), the penalty is the greater of $10,000 or 5% of the gross value of the portion of the trust you are treated as owning, assessed each year the failure continues. After the IRS sends a penalty notice, an additional $10,000 accrues for each 30-day period the failure persists, up to the gross reportable amount.
For failing to report a large foreign gift (Part IV), Section 6039F imposes a separate penalty: 5% of the unreported gift for each month the failure continues, capped at 25%.14Office of the Law Revision Counsel. 26 USC 6039F – Notice of Large Gifts Received From Foreign Persons On a $150,000 unreported gift, the maximum runs to $37,500. The IRS can also independently determine the tax consequences of the transfer, meaning what you called a “gift” could be reclassified as taxable income.
The only escape is reasonable cause — you acted in good faith and the failure was not due to willful neglect. The IRS has said explicitly that a foreign country’s privacy or secrecy law does not qualify as reasonable cause.15Internal Revenue Service. Failure to File the Form 3520/3520-A Penalties Reliance on a tax professional’s advice may qualify, but only if you gave that professional complete information about the trust or gift. A reasonable cause statement must be in writing and signed under penalties of perjury.
Fixing a Missed Filing
If you discover a Form 3520 you should have filed in a prior year, the IRS provides the Delinquent International Information Return Submission Procedures (DIIRSP). You may use them if the IRS has not contacted you about the missing returns and you are not already under examination or criminal investigation.16Internal Revenue Service. Delinquent International Information Return Submission Procedures
Under DIIRSP you file the delinquent Form 3520 following the standard instructions and attach a reasonable cause statement to each return. The IRS may still assess penalties during processing. The reasonable cause statement is not accepted automatically at filing, and you may need to respond to follow-up correspondence before the determination is final. Coming forward before the IRS reaches out considerably strengthens any reasonable cause argument.
Other Forms You Probably Also Owe
Filing Form 3520 does not satisfy your other international disclosure obligations. Interests in foreign trusts often trigger parallel filings, each with its own deadlines, penalties, and filing method.
- Form 8938 (FATCA). If your foreign financial assets exceed $50,000 at year-end or $75,000 at any point during the year while you live in the US, you report them on Form 8938 with your tax return. Thresholds are higher if you live abroad or file jointly.17Internal Revenue Service. Comparison of Form 8938 and FBAR Requirements
- FinCEN Form 114 (FBAR). If your foreign financial accounts exceed $10,000 in aggregate at any point during the year, you file the FBAR electronically through FinCEN’s BSA E-Filing System. Accounts held by a foreign trust in which you have signature authority or a financial interest are included.
- Form 3520-A. As described above, the trust files it, or the US owner files a substitute.
Assuming Form 3520 covers everything is one of the more expensive mistakes in international tax compliance. Each obligation stands on its own, and each has its own penalty for being missed.