The IRS Form 3520 and Form 3520-A

IRS Form 3520 is used to report certain transactions with foreign trusts, including the receipt of gifts or bequests from foreign entities.

Form 3520-A is used to report information about the foreign trust itself, including the identity of its trustees and beneficiaries, and information about its assets and income.

Essentially, Form 3520 is used to report transactions between the taxpayer and the foreign trust, while Form 3520-A is used to report information about the trust itself.

IRS Form 3520 is used to report certain transactions with foreign trusts, including the receipt of gifts or bequests from foreign entities. The form is required to be filed by U.S. persons, including individuals, estates, estates of estates, estates of estates of estates, etc.

The form is used to report:

1. Receipt of gifts or bequests from foreign entities
2. Creation of a foreign trust by a U.S. person
3. Transfer of property to a foreign trust by a U.S. person
4. Distribution of property from a foreign trust to a U.S. person
5. The acquisition of an interest in a foreign trust by a U.S. person

The form is due on the same date as the taxpayer's annual income tax return (April 15th or the following business day if it falls on a weekend or holiday) and penalties for failure to file or late filing can be significant.

When a U.S. taxpayer is involved in one of the above transactions with a foreign trust, they are required to file Form 3520 with the IRS. The form must be filed by the same date as the taxpayer's annual income tax return (April 15th or the following business day if it falls on a weekend or holiday).

The form includes information about the foreign trust, including the identity of its trustees and beneficiaries, and information about its assets and income. It also includes information about the transactions between the taxpayer and the foreign trust, such as the value of gifts or bequests received, the fair market value of property transferred, and the value of any distributions received.

It's important to note that the filing of Form 3520 is in addition to any other required tax forms, such as Form 1040 for individual income tax returns or Form 5471 for certain foreign corporation ownership. Additionally, penalties for failure to file or late filing can be significant.

Form 3520-A is used to report information about a foreign trust that is required to be filed by U.S. persons, including individuals, derivatives, derivatives of derivatives, derivatives of derivatives of derivatives, etc. The form is used to report information about the foreign trust itself, including the identity of its trustees and beneficiaries, and information about its assets and income.

Form 3520-A must be filed annually by the foreign trust, and is due by the 15th day of the 3rd month following the close of the foreign trust's tax year. The foreign trust is also required to furnish a copy of the form to the U.S. beneficiaries and U.S. grantors of the trust.

Here are the 10 most important compliance recommendations for Form 3520-A:

1. File Form 3520-A on time to avoid penalties.
2. Maintain accurate and complete records of all transactions involving the foreign trust.
3. Provide the foreign trust's EIN, if it has one.
4. Include information about all trustees and beneficiaries of the foreign trust.
5. Include the foreign trust's assets, income, and expenses.
6. Disclose any changes in the trustees or beneficiaries of the foreign trust.
7. Include any distributions made from the foreign trust to U.S. beneficiaries or grantors.
8. File Form 3520-A even if the foreign trust did not have any U.S. beneficiaries or grantors during the tax year.
9. File Form 3520-A even if the foreign trust did not have any income or assets during the tax year.
10. Seek professional advice if you have any questions or concerns about the compliance requirements for Form 3520-A.

Form 3520-A is filed separately from Form 3520 and both forms have different due dates and different requirements.

A U.S. business may be required to file Form 3520 or Form 3520-A depending on the specific circumstances of the business and its foreign transactions. Form 3520 is used to report transactions involving foreign trusts, while Form 3520-A is used to report information about foreign grantor trusts. 

The penalties for not timely filing Form 3520 and/or Form 3520-A can be significant.

If Form 3520 is not filed by the due date, including extensions, the penalty is equal to 5% of the gross value of any property transferred to a foreign trust for each month or part of a month that the return is late, up to a maximum of 25%.

Similarly, if Form 3520-A is not filed by the due date, including extensions, the penalty is equal to 5% of the gross value of the portion of the trust's assets treated as owned by a U.S. person for each month or part of a month that the return is late, up to a maximum of 25%.

Additionally, if the failure to file is due to willful neglect or fraud, the penalties increase to the greater of $10,000 or 35% of the gross value of the property or trust assets.

Penalties are in addition to any other penalties that may be imposed for failure to file other required tax forms.