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Instruction 3520 (Rev 2002 ) Annual Return to Report Transactions with Foreign Trusts and Receipt of

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The document provides detailed instructions for U.S. persons on how to file Form 3520, which is required to report transactions with foreign trusts and the receipt of certain foreign gifts. It outlines who must file, exceptions to filing, definitions of key terms, penalties for noncompliance, and specific instructions for completing the form. The document emphasizes the importance of accurate reporting and compliance with IRS regulations regarding foreign trusts.

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How do I report foreign trust and estate distributions to US beneficiaries?

A US beneficiary who receives a distribution from a foreign grantor trust (whether the grantor is a US person or a NRA) must file Form 3520 by the due date (including extensions) of the individuals Form 1040.

How do I report foreign trust income?

File Form 3520-A using an Employer Identification Number (EIN) for the foreign trust on Line 1b of the form rather than the U.S. owners SSN or ITIN. If the foreign trust does not have an EIN, refer to How to Apply for an EIN. File Form 3520-A by the 15th day of the 3rd month after the end of the trusts tax year.

Do I need to report foreign inheritance to the IRS?

If you receive an inheritance from a foreign estate or non-resident alien, or gifts from non-resident aliens exceeding $100,000 (USD), then it must be reported to the IRS. This includes the total of all foreign inheritance or gifts received.

Does form 3520 trigger an audit?

A Form 3520 filing may be audited by the IRS at any time within the statute of limitations. While extremely unlikely, a timely-filed Form 3520 could be found so incomplete or inaccurate that it could be treated as a failure to file and subject the US person to Form 3520 penalties.

How do I report a foreign inheritance to the IRS?

To report a foreign inheritance or gift, complete Form 3520 and file it with the IRS. This is an informational return and doesnt involve any tax payments. However, failing to file it when required could result in severe penalties.

Are the distributions from a foreign trust taxable in the US?

U.S. beneficiaries of a foreign non-grantor trust who receive distributions from the trust are subject to U.S. federal (and state) income tax upon receipt of trust distributions to the extent of the pro-rata share of the trusts net income earned that year.

Are distributions from an offshore trust taxable?

Where capital distributions exceed the total accumulated capital gains, the charge is limited to the total gains. However the excess is not truly free of tax unless the trust is fully distributed because it is carried forward and matched to future capital gains or income.

What happens if you dont file form 3520?

A penalty applies if Form 3520 is not timely filed or if the information is incomplete or incorrect (see below for an exception if there is reasonable cause). Generally, the initial penalty is equal to the greater of $10,000 or the following (as applicable).

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