The IRS Form 3520 and Form 3520-A
By Jason Kovan · April 18, 2023
The essential distinction between Form 3520 and Form 3520-A, the records each filing may require, and the penalty risks that follow an error or omission.
Two forms, different responsibilities
Form 3520 and Form 3520-A are often discussed together because both relate to foreign trusts and cross-border reporting. They are not interchangeable. Form 3520 is generally filed by a U.S. person to report certain transactions with a foreign trust and the receipt of certain foreign gifts or inheritances. Form 3520-A is generally an annual information return associated with a foreign trust treated as having a U.S. owner.
The filing responsibility depends on the trust structure, the taxpayer’s role, the transaction, and the tax year. A beneficiary, grantor, trustee, or other person may have a different obligation from another person connected to the same trust. The first step is to identify the legal relationship rather than assume that one form covers everyone involved.
What Form 3520 can report
Form 3520 can apply to a range of events, including certain transfers to or distributions from a foreign trust and the receipt of a reportable gift or inheritance from a foreign person or entity. The form may require identifying information, dates, values, and a description of the relationship between the taxpayer and the foreign trust or transferor.
A filing may be required even when the transfer is not taxable income. That is why bank statements and income tax returns alone may not tell the full story. Trust agreements, amendments, trustee statements, gift letters, estate documents, and correspondence can be needed to determine what occurred and how it should be reported.
What Form 3520-A is designed to do
Form 3520-A provides information about a foreign trust with a U.S. owner, including the trust’s income, assets, distributions, and the people connected to it. The trust or trustee may have the primary filing responsibility, while a U.S. owner may have a substitute filing obligation if the trust does not file the required return.
The practical difficulty is often access to records. A foreign trustee may use different accounting conventions, report in another currency, or provide statements after the U.S. deadline. Those complications do not automatically eliminate the obligation, but they can be important facts when evaluating a late, incomplete, or inaccurate filing and any request for penalty relief.
Penalty exposure after a missed filing
The IRS may assess penalties when Form 3520 or Form 3520-A is not filed, is filed late, or contains incomplete or incorrect information. For certain foreign trust transactions, the initial penalty can be the greater of $10,000 or 35% of the reportable amount. For certain unreported foreign gifts and inheritances, the penalty can be 5% per month up to a 25% maximum.
Those figures are important warnings, not automatic conclusions. The correct amount depends on the reporting requirement, the transaction, the tax year, and the IRS’s calculation. A taxpayer should review the notice against the form, the filing history, and the original records before paying or conceding the assessment.
Correcting an error and seeking relief
A taxpayer may need to file a delinquent or corrected return, explain an omission, and request abatement in a written statement. The statement should establish the timeline, identify the records that were available, explain why the failure occurred, and show what was done to correct it. Reasonable cause relief focuses on the circumstances and the taxpayer’s conduct; it is different from willful neglect, which suggests a conscious or reckless disregard of the filing duty.
Because the response may discuss trust documents, family transfers, financial records, and advice received, consider consulting an attorney before sending a detailed narrative to the IRS. An accountant may be critical to preparing accurate schedules and values, while counsel can advise on the legal position, privilege, and the appeal path.
A focused review is the safest starting point
The most useful first review gathers the notice, tax year, trust documents, prior filings, trustee communications, account statements, and a timeline of transfers and distributions. From there, the question is not simply whether a form exists; it is which person had which obligation, what information was reportable, and what response is available now.
Form 3520 and Form 3520-A issues are fact-specific. A prompt, organized review can preserve deadlines, prevent inconsistent explanations, and help the taxpayer choose between correction, appeal, abatement, or a combination of those steps.