What is Form 3520-A and when does a foreign trust need to file it?

Form 3520-A, "Annual Information Return of Foreign Trust With a U.S. Owner," is an annual information return filed by the foreign trust itself. While Form 3520 reports the U.S. person's transactions with or distributions from the foreign trust, Form 3520-A reports the trust's financial activities — its income, expenses, assets, and distributions to all beneficiaries. Think of Form 3520-A as the trust's informational "tax return" for U.S. purposes, and Form 3520 as the individual beneficiary's or owner's report.

The foreign trustee is technically responsible for filing Form 3520-A. However, the IRS recognizes that foreign trustees often have no incentive or obligation under their own country's laws to comply with U.S. filing requirements. If the trust has a U.S. owner (under the grantor trust rules), the U.S. owner is ultimately responsible for ensuring the form is filed. If the trust does not have a U.S. owner but has U.S. beneficiaries, the filing obligation falls on the trustee, but U.S. beneficiaries face consequences if the form is not filed.

When a foreign trustee refuses or is unable to file Form 3520-A, the IRS provides a substitute filing procedure. The U.S. owner or U.S. beneficiary can complete a substitute Form 3520-A using whatever information they have available about the trust, and attach a statement explaining that the foreign trustee failed or refused to file. This substitute filing must be submitted by the due date of the Form 3520-A. While the information may be incomplete, filing a good-faith substitute return is far better than filing nothing — it demonstrates compliance intent and can serve as a basis for reasonable cause penalty relief.

The penalty for failure to file Form 3520-A is the greater of $10,000 or 5% of the gross value of the trust assets treated as owned by the U.S. person. For large trusts, this can be an enormous penalty. Additional penalties of $10,000 per 30-day period can accrue after IRS notice, up to the greater of $50,000 or 5% of the trust's gross assets. Critically, if a U.S. beneficiary receives a distribution from a foreign trust and cannot provide adequate records (which Form 3520-A provides), the entire distribution may be treated as taxable income subject to an additional interest charge — effectively creating a punitive tax on the distribution.

Form 3520-A is due on March 15 following the end of the trust's tax year (or the 15th day of the third month after the trust's fiscal year ends). An extension of up to 6 months can be obtained by filing Form 7004. The form must be mailed to the Internal Revenue Service Center in Ogden, Utah. The trustee must also provide each U.S. owner and U.S. beneficiary with a copy of the Foreign Grantor Trust Owner Statement (part of Form 3520-A) and the Foreign Grantor Trust Beneficiary Statement by March 15, so those individuals can complete their own Form 3520.