For tax years beginning after 2016, the due date for a U.S. person to file Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, has changed to the fifteenth day of the fourth month following the end of the U.S. person's tax year. For most individuals, the new due date for Form 3520 will not change from prior years.
U.S. persons having transactions with a foreign trust, such as transfers to, or distributions from, a foreign trust must file Form 3520 -- see Parts I and III. A U.S. person who is treated as the owner of a foreign trust under the grantor trust rules (IRC section 671 through 679) must also file Form 3520 – see Part II -- even in a year where the U.S. owner did not have any transactions with the foreign trust.
Penalties apply if a taxpayer files Form 3520 late, incompletely or incorrectly. For Parts I and III of Form 3520, the initial penalty is the greater of $10,000 or 35 percent of the gross reportable amount. For Part II of Form 3520, the initial penalty is equal to the greater of $10,000 or 5 percent of the gross value of the portion of the foreign trust's assets treated as owned by the U.S. person at the close of the taxable year. Additional penalties will apply if the noncompliance continues for more than 90 days after the IRS mails a notice of failure to comply with the required reporting. For more information, see Internal Revenue Code section 6677 and the Instructions for Form 3520 and Form 3520-A.
In addition to filing Part II of Form 3520, a U.S. owner of a foreign trust must also file a substitute Form 3520-A, Annual Information Return of Foreign Trust with a U.S. Owner (Under section 6048(b)), if the foreign trust fails to file a Form 3520-A. If the foreign trust and its U.S. owner fail to timely file a complete and accurate Form 3520-A, the U.S. owner is subject to a penalty equal to the greater of $10,000 or 5 percent of the gross value of the portion of the foreign trust's assets treated as owned by the U.S. owner under the grantor trust rules at the close of the taxable year. This penalty is in addition to any applicable penalty of the same amount for the U.S. owner's failure to timely file a complete and accurate Part II of Form 3520.
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