Comparing Tax Form 3520 and 3520-A, What You Should Know

Difference Between Form 3520 and Form 3520-A

International reporting of foreign accounts, assets, and investments to the IRS can be very complex. And, two of the most common international reporting forms taxpayers may have to file are Form 3520 and Form 3520-A — which involve the reporting of foreign trusts, gifts, and inheritances in accordance with Internal Revenue Code sections 6039 and 6677(a).

More specifically:

• • • Form 3520 “Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts,” and
    • Form 3520-A “Annual Information Return of Foreign Trust With a U.S. Owner.”

Both 3520 forms involve foreign trust reporting. But Form 3520 also includes foreign gift and inheritance reporting as well.  The due dates for filing the forms are different — and so are the methods for requesting an extension. Moreover, international reporting penalty enforcement is on the rise, and the failure to file these two forms may result in significant fines and penalties — noting, that the IRS has also developed various international tax amnesty programs to assist taxpayers with safely getting into compliance.

Difference Between Form 3520 and Form 3520-A

Who Has to File Form 3520 and 3520-A?

The Form 3520 is used by U.S. Persons who engage in certain foreign trust and gift transactions.  First, when a U.S. Person receives a gift or inheritance from a foreign person that exceeds the threshold for reporting, the U.S. person must file Form 3520. In addition, if the U.S. person either has an interest in a foreign trust or received a distribution from a foreign trust — or engages in certain other trust-related transactions — they must also file the form. With Form 3520-A, the filing is required when there is a Foreign Trust with a U.S. owner. The IRS has developed various exceptions and limitations for reporting, such as the Canadian RRSP (Registered Retirement Plan), and a more general reporting limitation in accordance with Rev. Proc 2020-17.

Date of Filing of Form 3520 vs. 3520-A

Filing the Form 3520 coincides with individual tax return filing.  In other words, Form 3520 is due when a person’s tax return is due to be filed. Even if the person does not have to file a Tax Return, they still must submit Form 3520, if applicable.

The Form 3520-A is due by the 15th day of the 3rd month after the end of the trust’s tax year; for most people, the Form 3520-A is due on March 15.

Requesting an Extension

To request an extension to file Form 3520, the person files for a regular extension with their tax return (usually on Form 4868).

• • • “If a U.S. person is granted an extension of time to file an income tax return, the due date for filing Form 3520 is the 15th day of the 10th month (October 15) following the end of the U.S. person’s tax year.”

The Form 3520-A has more specific requirements. In order to request an extension:

• • • “An automatic 6-month extension of time to file Form 3520-A (including the statements on pages 3 through 5) may be granted by filing Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, by the 15th day of the 3rd month after the end of the trust’s tax year.”

Form 3520-A Due Date if the Trustee Does Not File the Form

The due date for Form 3520-A can change if the Trustee does not timely file the Form 3520-A timely.

• • • “If a foreign trust fails to file Form 3520-A, the U.S. owner must complete and attach a substitute Form 3520-A for the foreign trust to the U.S. owner’s Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, by the due date of the U.S. owner’s Form 3520 (and not the due date for the Form 3520-A, which is otherwise due by the 15th day of the 3rd month after the end of the trust’s tax year) in order to avoid being subject to the penalty for the foreign trust’s failure to file a Form 3520-A.”

Abatement of Penalties

There are various options the IRS offers to avoid, reduce, or abate penalties for Form 3520 (we have a separate Form 3520 penalty abatement article to assist you with penalty-related issues).

Current Year vs. Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.