Who is Required to File Form 3520-A (Are Reporting Exceptions?)

Who Must File Form 3520-A, are there Reporting Exceptions?

Who Must File Form 3520-A?

When a US Person is considered an owner of a foreign trust, then in order to satisfy the United States international information reporting requirements, the US Person foreign trust owner is required to file an annual IRS Form 3520-A. The Form 3520-A is not the same as Form 3520 — and in general it requires additional reporting than is required on form 3520 (some Taxpayers have to file both forms in the same year). The rules involving grantor trust ownership are laid out in Internal Revenue Code section 671 to 679 — with 679 being the primary code section for foreign grantor trusts. If a US person fails to properly report the annual form 3520-A, it may lead to fines and penalties — and the Internal Revenue Service has made foreign trust compliance a key enforcement priority. It is important to note, that while most foreign trusts are required to be disclosed to the US Government, some foreign trusts are not required to be reported on Form 3520-A — due to reporting exceptions or exemptions. Let’s go through the basics of who must file form 3520-A and what are the exceptions:

Form 3520-A Filing 

As provided by the IRS:

• • • “A foreign trust with a U.S. owner must file Form 3520-A in order for the U.S. owner to satisfy its annual information reporting requirements under section 6048(b).

    • Each U.S. person treated as an owner of any portion of a foreign trust under the grantor trust rules (sections 671 through 679) is responsible for ensuring that the foreign trust files Form 3520-A and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries.

    • 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. See Line 22 in the Instructions for Form 3520.”

What does this Mean?

It means that if a US person has any ownership over a foreign trust, then in accordance with Internal Revenue Code section 6048 (b), the US owner of the foreign trust is required to file an annual form 3520-A.

Exceptions To Filing Form 3520-A

Rev. Proc. 2014-55

As provided by the IRS:

• • • Rev. Proc. 2014-55 exempts from foreign trust information reporting certain Canadian retirement plans, including Canadian registered retirement savings plans (RRSPs) and Canadian registered retirement income funds (RRIFs), regardless of whether you are an eligible individual described in section 4.01 of Rev. Proc. 2014-55.

    • For more information about whether your Canadian retirement plan qualifies for an exemption from foreign trust information reporting, see sections 3 and 5 of Rev. Proc. 2014-55, 2014-44 I.R.B. 753.

What does this Mean?

RRSP/RRIF are Canadian Registered Retirement Savings Plans/Income Funds, which are very common types of retirement plans in Canada. These types of Canadian retirement plans receive beneficial tax and reporting treatment in the United States — in that not only do they escape the Form 3520-A reporting requirements — but the accrued/non-distributed income generated from the RRSP/RRIF is not taxable. There is also no longer a requirement to file an annual Form 8891 election.

Rev. Proc. 2020-17

As provided by the IRS:

• • • Rev. Proc. 2020-17 exempts from foreign trust information reporting certain eligible individuals’ transactions with, and ownership of, certain tax-favored foreign trusts that are established and operated exclusively or almost exclusively to provide pension or retirement benefits, or to provide medical, disability, or educational benefits.

    • For more information about whether you are an eligible individual, and whether your foreign trust qualifies for an exemption from foreign trust information reporting, see section 5 of Rev. Proc. 2020-17, 2020-12 I.R.B. 539.

What does this Mean?

In 2020, the Internal Revenue Service promulgated a revenue procedure (Rev. Proc. 2020-17) to assist tax deferred foreign trusts abroad from having to go through the duplicative reporting of FBAR/FATCA — along with form 3520-A. As a result, oftentimes a foreign tax-deferred trust will not be required to file a Form 3520-A in order to report the foreign trust on a US tax return.

FATCA or FBAR Still Required for Foreing Trust

As provided by the IRS:

• • • The exemptions from foreign trust information reporting described in Rev. Proc. 2014-55 and Rev. Proc. 2020-17 do not affect any reporting obligations under section 6038D or under any other provision of the U.S. law, including the requirement to file Financial Crimes Enforcement (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR), imposed by 31 U.S.C. section 5314 and the regulations thereunder. 

What does this Mean?

This means that even if a trust is exempt from having to report on form 3520-A, it may still be required to have the report on the FBAR and/or FATCA such as with the RRSP and RRIF.

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