Substitute Form 3520-A: How to Prepare and File

Form 3520-A, the Annual Information Return of Foreign Trust With a U.S. Owner, is an IRS document that provides details about a foreign trust’s activities, its beneficiaries, and its financial operations. The responsibility for filing this form rests with the foreign trustee. If the foreign trustee does not comply with their filing duty, the U.S. owner must step in to fulfill the reporting obligation to avoid significant penalties by preparing and filing a substitute Form 3520-A.

Understanding U.S. Owner and Foreign Trustee Responsibilities

The primary obligation to complete and file Form 3520-A lies with the foreign trustee, which includes providing annual statements to any U.S. owners and beneficiaries. The standard deadline for the trustee to file is the 15th day of the third month after the trust’s tax year ends, which is March 15 for a calendar-year trust.

The ultimate responsibility for ensuring the IRS receives the required information falls on the U.S. owner. If the foreign trustee fails to file a timely and accurate Form 3520-A, the U.S. owner becomes liable for penalties. The initial penalty is the greater of $10,000 or 5% of the gross value of the portion of the trust’s assets owned by the U.S. person. If non-compliance continues for more than 90 days after the IRS mails a notice, an additional penalty of $10,000 is assessed for each subsequent 30-day period.

Information Required for a Substitute Form 3520-A

When a foreign trustee fails to provide the necessary information, the U.S. owner must compile a substitute Form 3520-A. This involves gathering details about the trust’s financial situation and structure. The first part of the form requires general information, such as its legal name, mailing address, the date it was created, the country under whose laws the trust was formed, and its Employer Identification Number (EIN). If the trust does not have an EIN, you must apply for one using Form SS-4, Application for Employer Identification Number.

The Foreign Trust Income Statement requires a detailed accounting of all income earned by the trust during the tax year. The owner must report various types of income separately, such as:

• Interest
• Dividends
• Rents
• Royalties
• Capital gains

All financial figures must be reported in U.S. dollars.

The preparer must complete the Foreign Trust Balance Sheet. This provides a snapshot of the trust’s financial health, listing its assets, liabilities, and net worth at both the beginning and end of the tax year. Assets can include cash, securities, real estate, and other property, while liabilities may consist of mortgages or other debts.

The Foreign Grantor Trust U.S. Owner Statement, which is part of the official Form 3520-A, must be completed for each U.S. owner. It requires the owner’s name, address, and Taxpayer Identification Number (TIN), along with a description of the property they transferred to the trust. The owner must also include a statement acknowledging their responsibility to report the trust’s income on their personal income tax return.

If the trust made any distributions to U.S. beneficiaries, a Foreign Grantor Trust U.S. Beneficiary Statement must also be prepared. This statement details the property distributed to each U.S. beneficiary during the tax year. The U.S. owner preparing the substitute form is responsible for creating this statement and providing a copy to the beneficiary.

Filing Procedures Involving Form 3520

After preparing the substitute Form 3520-A, the U.S. owner does not file it as a standalone document. Instead, the substitute form must be attached to the owner’s Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. When completing Form 3520, the U.S. owner must specifically indicate that the foreign trust did not file Form 3520-A.

The deadline for filing Form 3520 with the attached substitute Form 3520-A is the same as the due date for the U.S. owner’s individual income tax return. For most individuals, this is April 15, or October 15 if a filing extension is obtained. The completed forms must be mailed to the designated IRS service center in Ogden, UT.