Form 3520 helps the IRS track the flow of money between the United States and other countries. People in the United States forming a trust in another country, transferring money to a foreign trust, or who receive money from a foreign trust need to be aware of IRS Form 3520. This is an informational return, not a tax return because these events aren't taxed. Because this form is six pages long and is used for three very different--and often complicated--types of transactions, you'll want to become familiar with the IRS Form 3520 instruction book also.
Decide if you need to file the form. The grantor or beneficiary of a foreign trust must file Form 3520 within 90 days of a reportable event, including the formation of a foreign trust; transfer of cash or other assets by the grantor to a foreign trust; the receipt of any distributions by U.S. beneficiaries from a foreign trust; the receipt by any U.S. resident of a bequest from a foreign person in excess of $100,000; the receipt of more than a $14,723 gift from a foreign person, partnership or corporation; or loan transactions between a foreign trust and any beneficiary.
Check the appropriate box at the top of Page 1 of the form. This form is used in three basic ways, so you'll certify that you're either a person who transferred money to a trust, an owner of a foreign trust, or someone who received money from a foreign trust or corporation.
Fill in your personal information on the front page. You'll not only need your name, Social Security number, and address, but also the name and address of the trust, information on the name and address of any U.S. agent appointed by the trust, and the name, date of death, and trust relationship of any U.S. resident associated with a foreign trust who passed away.
Complete Part I of Form 3520 if you transferred money to a foreign trust. You'll need to certify whether you transferred money to the trust in exchange for any obligation. If so, you'll to complete Schedule A. All gratuitous and less-than-fair-market-value transfers require you to fill out Schedule B. Any transactions the IRS deems as Qualified Transactions should be reported on Schedule C. Qualified transactions are agreements in writing, such as loans, that comply with specific parameters laid out in detail on Page 3 of the Form 3520 instruction book.
Attach any sale or loan document involved in a transfer to Form 3520. You must also attach any applicable summaries of agreements, trust instruments, memoranda or letter of wishes, subsequent variances to original trust documents, or trust financial statements.
Complete Part II of Form 3520 if you created a foreign trust. You'll need the names, addresses and identification numbers of other foreign trust owners along with the country code for countries where the foreign trust was created and whose laws govern the trust and the date of the trust. Fill in the gross value of the portion of the foreign trust belonging to you in Line 23.
Complete Part III of the trust if you received distributions from a foreign trust. You'll need the date of distribution, description of property, fair market value, and the values of any money transferred back to the trust in exchange. Answer questions around receiving loans, qualified obligations, and Foreign Grantor and Nongrantor Trust Beneficiary Statements. The form will direct you whether to complete Schedule A, B, or C depending on your answers.
Complete Part IV if you received gifts or bequests from foreign persons. Gifts of over $100,000 should be detailed on Line 54; gifts from corporations or foreign partnerships should be listed on Line 55. Any gifts above $14,723 from an expatriate will require you to complete and file Form 708, U.S. Return of Tax for Gifts and Bequests Received From Expatriates.
The IRS requires Form 708 for some transactions, but in the instructions admit that this form has not yet been created. Speak with a qualified tax advisor about how to handle this situation.