| Instructions for Form 3520-A |
2003 Tax Year |
General Instructions
This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.
Form 3520-A is the annual information return of a foreign trust with at least one U.S. owner. The form provides information
about the foreign
trust, its U.S. beneficiaries, and any U.S. person who is treated as an owner of any portion of the foreign trust.
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 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.
Exception.
Canadian RRSPs and Canadian RRIFs are not required to file Form 3520-A with respect to a U.S. citizen or resident
alien interest holder who is
subject to the simplified information reporting requirements of Notice 2003-75 with respect to the RRSP or RRIF. In addition,
other eligible Canadian
plans within the meaning of section 3 of Rev. Proc. 2002-23, 2002-15 I.R.B. 744, are relieved of any obligation to file Form
3520-A with respect to a
U.S. citizen or resident alien beneficiary who has made an election in accordance with section 4 of Rev. Proc. 2002-23 and
has complied with the
annual reporting requirements of Rev. Proc 2002-23.
File a complete Form 3520-A (including pages 3 and 4) with the Internal Revenue Service Center, Philadelphia, PA 19255, by
the 15th day of the 3rd
month after the end of the trust's tax year. Give copies of the Foreign Grantor Trust Owner Statement (page 3) and the Foreign Grantor
Trust Beneficiary Statement (page 4) to the U.S. owners and U.S. beneficiaries by the 15th day of the 3rd month after the end of the trust's tax
year.
An extension of time to file Form 3520-A (including the statements) may be granted. For details, get Form 2758, Application for
Extension of Time To File Certain Excise, Income, Information, and Other Returns.
If the return is filed by:
- An individual or fiduciary, it must be signed and dated by that individual or fiduciary.
- A partnership, it must be signed and dated by a general partner or limited liability company member.
- A corporation, it must be signed and dated by the president, vice president, treasurer, assistant treasurer, chief accounting
officer, or
any other corporate officer (such as a tax officer) authorized to sign.
The paid preparer must complete the required preparer information and:
- Sign the return in the space provided for the preparer's signature.
- Give a copy of the return to the filer.
The U.S. owner is subject to a penalty equal to 5% of the gross value of the portion of the trust's assets treated as owned
by the U.S. person at
the close of that year if the foreign trust:
(a) fails to file a timely Form 3520-A or (b) does not furnish the information required by section 6048(b). See section
6677(b). Additional penalties may be imposed if noncompliance continues after the IRS mails a notice of failure to comply
with required reporting. See
section 6677(a).
Criminal penalties may be imposed under sections 7203, 7206, and 7207 for failure to file on time and for filing a false or
fraudulent return.
Reasonable cause.
No penalties will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause
and not willful neglect.
Note:
The fact that a foreign country would impose penalties for disclosing the required information is not reasonable cause. Similarly,
reluctance on
the part of a foreign fiduciary or provisions in the trust instrument that prevent the disclosure of required information
is not reasonable cause.
A distribution is any gratuitous transfer of money or other property from a trust, whether or not the trust is treated as owned by
another person under the grantor trust rules, and without regard to whether the recipient is designated as a beneficiary by
the terms of the trust. A
distribution includes the receipt of trust corpus and the receipt of a gift or bequest described in section 663(a).
A distribution also includes constructive transfers from a trust. For example, if charges you make on a credit card are paid
by a foreign trust or
guaranteed or secured by the assets of a foreign trust, the amount charged will be treated as a distribution to you by the
foreign trust. Similarly,
if you write checks on a foreign trust's bank account, the amount will be treated as a distribution.
Also, if you receive a payment from a foreign trust in exchange for property transferred to the trust or services rendered
to the trust, and the
fair market value (FMV) of the payment received exceeds the FMV of the property transferred or services rendered, the excess
will be treated as a
distribution to you.
Examples
- If you sell stock with an FMV of $100 to a foreign trust and receive $150 in exchange, you have received a distribution of
$50.
- If you receive $100 from the trust for services performed by you for the trust, and the services have an FMV of $20, you have
received a
distribution of $80.
If you, or a person related to you, received a loan from a related foreign trust, it will be treated as a distribution to
you unless the obligation
you issued in exchange is a qualified obligation. For this purpose, a loan to you by an unrelated third party that is guaranteed
by a foreign trust is
generally treated as a loan from the trust. See Section V of Notice 97-34, 1997-25 I.R.B. 22.
A foreign trust is any trust other than a domestic trust.
A domestic trust is any trust if:
- A court within the United States is able to exercise primary supervision over the administration of the trust and
- One or more U.S. persons have the authority to control all substantial decisions of the trust.
A grantor includes any person who creates a trust or directly or indirectly makes a gratuitous transfer of cash or other property to
a
trust. A grantor includes any person treated as the owner of any part of a foreign trust's assets under sections 671 through
679, excluding section
678.
Note:
If a partnership or corporation makes a gratuitous transfer to a trust, the partners or shareholders are generally treated
as the grantors of the
trust, unless the partnership or corporation made the transfer for a business purpose of the partnership or corporation.
If a trust makes a gratuitous transfer to another trust, the grantor of the transferor trust is treated as the grantor of
the transferee trust,
except that if a person with a general power of appointment over the tranferor trust exercises that power in favor of another
trust, such person is
treated as the grantor of the transferee trust, even if the grantor of the transferor trust is treated as the owner of the
transferor trust.
A grantor trust is any trust to the extent that the assets of the trust are treated as owned by a person other than the trust. See the
grantor trust rules in sections 671 through 679. A part of the trust may be treated as a grantor trust to the extent that
only a portion of the trust
assets are owned by a person other than the trust.
Gross value is the FMV of property as determined under section 2031 and its regulations as if the owner had died on the valuation date.
Although formal appraisals are not generally required, you should keep contemporaneous records of how you arrived at your
good faith estimate.
A nongrantor trust is any trust to the extent that the assets of the trust are not treated as owned by a person other than the trust.
Thus, a nongrantor trust is treated as a taxable entity. A trust may be treated as a nongrantor trust with respect to only
a portion of the trust
assets. See Grantor Trust above.
An owner of a foreign trust is the person that is treated as owning any of the assets of a foreign trust under the grantor trust rules.
Property means any property, whether tangible or intangible, including cash.
A U.S. agent is a U.S. person (defined below) that has a binding contract with a foreign trust that allows the U.S. person to
act as the trust's authorized U.S. agent (see instructions for Part I, Lines 3a through 3g, on page 3) in applying sections 7602, 7603, and
7604 with respect to:
- Any request by the IRS to examine records or produce testimony related to the proper U.S. tax treatment of amounts distributed,
or required
to be taken into account under the grantor trust rules, with respect to a foreign trust or
- Any summons by the IRS for such records or testimony.
A U.S. grantor, a U.S. beneficiary, or a domestic corporation controlled by the grantor or beneficiary may act as a U.S. agent.
However, you may
not treat the foreign trust as having a U.S. agent unless you enter the name, address, and taxpayer identification number
of the U.S. agent on lines
3a through 3g. If the person identified as the U.S. agent does not produce records or testimony when requested or summoned
by the IRS, the IRS may
redetermine the tax consequences of your transactions with the trust and impose appropriate penalties under section 6677.
The agency relationship must be established by the time the U.S. person files Form 3520-A for the relevant tax year and must
continue as long as
the statute of limitations remains open for the relevant tax year. If the agent resigns, liquidates, or its responsibility
as an agent of the trust is
terminated, see Section IV(B) of Notice 97-34.
A U.S. beneficiary generally includes any person that could possibly benefit (directly or indirectly) from the trust (including an
amended trust) at any time, whether or not the person is named in the trust instrument as a beneficiary and whether or not
the person can receive a
distribution from the trust in the current year. In addition, a U.S. beneficiary includes:
- A foreign corporation that is a controlled foreign corporation (as defined in section 957(a)),
- A foreign partnership if a U.S. person is a partner of the partnership, and
- A foreign estate or trust if the estate or trust has a U.S. beneficiary.
A foreign trust will be treated as having a U.S. beneficiary unless the terms of the trust instrument specifically prohibit
any distribution of
income or corpus to a U.S. person at any time, even after the death of the U.S. transferor, and the trust cannot be amended
or revised to allow such a
distribution.
A U.S. person is:
- A citizen or resident alien of the United States (see Pub. 519, U.S. Tax Guide for Aliens, for guidance on determining resident
alien status),
- A domestic partnership,
- A domestic corporation,
- Any estate (other than a foreign estate, within the meaning of section 7701(a)(31)), and
- Any trust if it is not a foreign trust (defined above).
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