IRS Instruction 3520 – IRS Forms, Instructions, Pubs 2026 – In an increasingly globalized world, U.S. taxpayers often engage in international financial transactions, such as dealings with foreign trusts or receiving substantial gifts from abroad. If you’re a U.S. person involved in these activities, understanding IRS Form 3520 is crucial to ensure compliance and avoid hefty penalties. This comprehensive guide breaks down the IRS instructions for Form 3520, the Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. We’ll cover who must file, what to report, deadlines, and more, based on the latest 2025 revisions applicable for filings in 2026.
Whether you’re dealing with foreign inheritance, trust distributions, or large gifts from non-U.S. sources, filing Form 3520 correctly helps you stay on the right side of tax laws. Let’s dive into the details to make your filing process smoother.
What Is the Purpose of IRS Form 3520?
Form 3520 serves as an informational return required by the IRS to monitor specific international transactions. Its primary purpose is to report:
- Certain transactions involving foreign trusts, such as creations, transfers, or distributions.
- Ownership interests in foreign trusts under the grantor trust rules (Internal Revenue Code sections 671 through 679).
- Receipt of large gifts or bequests from foreign individuals, estates, corporations, or partnerships.
Unlike typical tax forms that calculate owed taxes, Form 3520 is purely for disclosure. However, failure to file can trigger significant penalties, and the information may impact your overall tax liability. A separate form is needed for each foreign trust involved in reportable events.
Key definitions to know:
- Foreign Trust: A trust not considered domestic, meaning no U.S. court supervises its administration, and substantial decisions aren’t controlled by U.S. persons.
- U.S. Person: Includes U.S. citizens, residents, domestic partnerships, corporations, estates, and trusts.
- Reportable Event: Includes creating a foreign trust, transferring property to it, or the death of a U.S. owner.
Who Must File Form 3520?
Not every international transaction requires Form 3520, but specific scenarios mandate filing. You must submit the form if you’re a U.S. person and any of the following apply during your tax year:
- You’re the “responsible party” (e.g., grantor, transferor, or executor) for a reportable event with a foreign trust, such as creating the trust or transferring property to it.
- You’re treated as the owner of any portion of a foreign trust’s assets under sections 671-679.
- You received a distribution, loan, or uncompensated use of property from a foreign trust (or if the trust holds your qualified obligation).
- You received gifts or bequests exceeding certain thresholds: more than $100,000 from nonresident aliens or foreign estates, or over the threshold amount under section 6039F from foreign corporations or partnerships (adjusted annually; check current IRS guidelines).
Exceptions exist for transfers to eligible deferred compensation plans, certain exempt trusts, Canadian registered retirement savings plans, and tax-favored foreign trusts under proposed regulations effective after May 8, 2024. If you’re filing a joint return with your spouse and both are involved with the same trust, you can file a single joint Form 3520.
Even if no transactions occurred, U.S. owners must complete Part II to report ownership.
What Transactions Must Be Reported on Form 3520?
Form 3520 requires detailed reporting across four main parts:
Part I: Transfers to Foreign Trusts
Report creations, transfers of money or property (including by death), and obligations. Include:
- Trust creator details.
- Whether the transfer is gratuitous (not at fair market value).
- Schedules for obligations, gratuitous transfers, and qualified obligations.
Part II: U.S. Ownership of Foreign Trusts
Disclose portions of the trust you own under grantor rules. Attach Form 3520-A (or a substitute) if applicable.
Part III: Distributions from Foreign Trusts
Report any gratuitous transfers, loans, or uncompensated property use. This includes constructive distributions like trust-paid credit card charges. Use schedules for default or actual calculations of income, accumulations, and interest charges.
Part IV: Foreign Gifts and Bequests
Detail receipts exceeding thresholds, including those from nominees or indirect sources.
All values are reported at fair market value (FMV), and you must aggregate related gifts. Provide supporting documents if no U.S. agent is appointed for the trust.
Filing Deadlines and Extensions for Form 3520
Timely filing is essential to avoid penalties. Key dates:
- General Due Date: The 15th day of the 4th month after your tax year ends (April 15 for calendar-year filers).
- With Income Tax Extension: Extends to the 15th day of the 10th month (October 15).
- Living Abroad or Military Service: Automatic 2-month extension to the 15th day of the 6th month (June 15).
- For Decedents or Estates: Based on the decedent’s or estate’s tax year end.
If the due date falls on a weekend or holiday, file on the next business day. Mail to: Internal Revenue Service Center, P.O. Box 409101, Ogden, UT 84409.
To request an extension, check box 1k on the form and reference your extended income tax return. No separate extension form is needed for Form 3520.
Penalties for Not Filing or Incorrect Filing
Non-compliance can be costly:
- Failure to File (Section 6677): Up to the greater of $10,000 or 35% of the gross reportable amount for transfers or distributions; 5% for Form 3520-A failures.
- Foreign Gifts (Section 6039F): 5% per month (up to 25%) on unreported amounts.
- Accuracy-Related Penalties (Section 6662(j)): Increased to 40% for underpayments tied to undisclosed foreign assets.
Penalties accrue if issues aren’t corrected within 90 days of IRS notice. However, reasonable cause (e.g., not due to willful neglect) can waive them. The statute of limitations extends if the form is incomplete.
Step-by-Step Instructions for Completing Form 3520
Follow these steps based on IRS guidelines:
- Identifying Information: Enter your TIN, address, and tax year. Indicate if joint, extended, or amended.
- Part I: Detail transfers, including schedules for obligations and beneficiaries.
- Part II: Report ownership, attach Form 3520-A, and note FMV.
- Part III: List distributions, calculate accumulations, and include beneficiary statements.
- Part IV: Report gifts, aggregating related sources.
Ensure all attachments (e.g., statements from foreign trustees) are included for completeness.
| Section | Key Requirement | Common Pitfalls |
|---|---|---|
| Part I | Report FMV and basis of transfers | Forgetting gratuitous transfer schedules |
| Part II | Attach Form 3520-A if owner | Overlooking substitute forms |
| Part III | Calculate accumulation distributions | Missing interest charges on loans |
| Part IV | Aggregate gifts from related parties | Underreporting indirect receipts |
Recent Changes and Updates for 2026 Filings
The instructions were revised in December 2025 for tax year 2025 and later. Notable updates:
- New guidance on Section 2801 taxes for gifts from covered expatriates.
- Reliance on proposed regulations (post-May 8, 2024) for exemptions on certain tax-favored foreign trusts, if applied consistently.
No major 2026-specific changes are noted, but always check IRS.gov for the latest.
Conclusion: Stay Compliant with Foreign Reporting
Navigating IRS Form 3520 can seem daunting, but understanding its requirements ensures you report foreign trusts and gifts accurately. Consult a tax professional for complex situations, and file on time to avoid penalties. For the full instructions, visit the official IRS website or download the PDF. By staying informed, you can handle your international tax obligations with confidence.