Transferor of Money or Property to Foreign Trust & Form 3520
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Transfer Money or Property into a Foreign Trust & Form 3520
Transferor of Money or Property to Foreign Trust & Form 3520: One common misconception for individuals who have foreign trusts is that they are only required to file an IRS form 3520 when they receive a trust distribution — but this is incorrect. In fact, in any year that a US person transfers money or other property into a foreign trust, they are required to file a form 3520 in that year.
Let’s review the requirements for filing for US transfers of money or property into a foreign trust.
Transferor of Money or Property to a Trust
Before reviewing the technicalities of filing, an important question we get often is why do U.S. persons have to file the Form 3520?
The short answer is because the Internal Revenue Service wants to know about any money or property that a US person moves into outside of the U.S. and into a foreign trust.
Two important rules are IRC 6048 and the Regulations for IRC 679 and 684.
IRC 6048
As provided by the IRS:
“(1) General rule
On or before the 90th day (or such later day as the Secretary may prescribe) after any reportable event, the responsible party shall provide written notice of such event to the Secretary in accordance with paragraph (2).
(2) Contents of notice The notice required by paragraph (1) shall contain such information as the Secretary may prescribe, including— (A)the amount of money or other property (if any) transferred to the trust in connection with the reportable event, and (B)the identity of the trust and of each trustee and beneficiary (or class of beneficiaries) of the trust.
(3) Reportable event For purposes of this subsection— (A)In general The term “reportable event” means— (i)the creation of any foreign trust by a United States person, (ii)the transfer of any money or property (directly or indirectly) to a foreign trust by a United States person, including a transfer by reason of death, and (iii)the death of a citizen or resident of the United States if— (I)the decedent was treated as the owner of any portion of a foreign trust under the rules of subpart E of part I of subchapter J of chapter 1, or (II)any portion of a foreign trust was included in the gross estate of the decedent.”
Regulations for 679 and 684
There are also regulations that taxpayers can refer to in order to get a better grasp on these tax laws.
Before assuming a person is subject to Form 3520 reporting, it is important to understand who is considered a Transferor:
1.679-1 Regulation: Who is a U.S. Transferor?
“(a) In general. A U.S. transferor who transfers property to a foreign trust is treated as the owner of the portion of the trust attributable to the property transferred if there is a U.S. beneficiary of any portion of the trust, unless an exception in § 1.679-4 applies to the transfer.”
1.679-4 Regulation: What are the Exceptions?
The regulations provide for some exceptions for transferors who are subject to reporting on form 3520.
(1) Any transfer of property to a foreign trust by reason of the death of the transferor;
(2) Any transfer of property to a foreign trust described in sections 402(b), 404(a)(4), or 404A;
(3) Any transfer of property to a foreign trust described in section 501(c)(3) (without regard to the requirements of section 508(a)); and
(4) Any transfer of property to a foreign trust to the extent the transfer is for fair market value.
Notice 97-34
IRS Notice 97-34 is very detailed and beyond the scope of this introductory article. It summarizes the reporting requirements for foreign trusts in accordance with IRC 6048 and and the Small Business Job Protection Act of 1996 (the ‘‘Act’’).
As provided in the Notice:
“The Act expands information reporting requirements under section 6048 of the Internal Revenue Code (the ‘‘Code’’) for U.S. persons who make transfers to foreign trusts and for U.S. owners of foreign trusts
What Information Should the Transferor of Money or Property Include on the Form 3520
When it comes to reporting transfers by US persons to a foreign trust, the following information is required:
- Name of Trust Creator
- Address
- Identification Number
- Country Information
- Date Trust was Created
- Name of any person (other than the foreign trust) be treated as the owner of the transferred assets after the transfer?
- Was the transfer a gift or bequest
- Will income flow to a U.S. beneficiary
- Now or at any time in the future, can any part of the income or corpus of the trust benefit any U.S. beneficiary?
- Can it be revised to allow a U.S. Beneficiary?
Additional information is necessary regarding obligations of a related trusts and gratuitous transfers.
Copy of Trust Documents
If there is not a US agent for the foreign trust, then the trust is required to disclose certain trust documents to the IRS — unless they have previously been disclosed on either form 3520 or 3520-A.
Specifically, the IRS requires:
“Summary of all written and oral agreements and understandings relating to the trust
- The trust instrument
- Memoranda or letters of wishes
- Subsequent variances to original trust documents
- Trust financial statements
- Other trust documents”
International Tax Lawyers for Form 3520 and 3520-A
Our firm specializes exclusively in international tax, and specifically IRS offshore disclosure, including help clients with late reporting of Forms 3520 and 3520-A.
Contact our firm today for assistance with getting compliant.