IRS Provides Foreign Trust Reporting Requirements

The IRS has provided on its website a summary of reporting requirements for foreign trusts and their U.S. owners. Though these regulations are not new, this summary is a helpful and concise resource for filers to consult.

As summarized on the IRS website, under U.S. federal tax laws, any “U.S. person” who creates or has transactions with a foreign trust may be subject to taxation or informational reporting requirements in the U.S. An individual is considered to be a U.S. person if he or she is a U.S. citizen or resident. However, entities such as partnerships, corporations, or estates or trusts domiciled in the U.S. can also be considered U.S. persons. In regard to foreign trusts, not only may a trust itself be subject to tax in the U.S., but U.S. owners or beneficiaries of a foreign trust may be subject to tax, as well.

A U.S. person who substantially controls or owns a foreign grantor trust with U.S. beneficiaries by means of asset transfer will be subject to tax on the trust’s income, and on any gain from the appreciation of assets transferred.

Any U.S. person who owns substantially controls or is a beneficiary of a foreign trust as explained above must file Forms 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts. Owners of foreign grantor trusts must also file an informational return annually with the IRS, Form 3520-A, including a complete accounting of the foreign trust’s activities and operations in that tax year. This information must also be provided to all trust owners and beneficiaries.

In addition to these two primary foreign filings, other potential filing requirements include Form 709, Form 1040 Schedule B, Form 1040-NR, Form 8939, and FinCEN Form 114.

The U.S. owners of a foreign trust are responsible for filing required Forms by the 15th day of the fourth month following the end of the U.S. person’s tax year. Extensions of time to file are available.  Failure to timely file these forms, or incomplete filing, may subject owners to a penalty of $10,000 or 5% of the gross value of the trust assets owned by a U.S. person, whichever is greater. Additional penalties may also be imposed.

As U.S. tax advisors at Schneider Downs, we frequently help taxpayers who have either misreported or misunderstood their foreign filing requirements, avoiding costly tax consequences and headaches for our clients. If you think you may be required to file any of the above forms or have additional questions, please contact us.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at [email protected].

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2023 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

our thoughts on
Automobile, Tax BY Brett Cubellis
Explaining the Transfer/Advance Payment of Clean Energy Credits and Energy Credits Online Registration
New Research and Development Capitalization Requirement Shuffles System
Contractors May Benefit From SALT Cap Workaround
2023 Legislative & Regulatory Update
Tax BY Kirk Mitchell
Can “Moore” Tax be Refunded from IRS? How to Protect Your Potential Claim for Refund of §965 Foreign Corporation Transition Tax
Fraud, Tax BY Charlotte Garraway
5 Red Flags of Fraudulent ERC Providers
Register to receive our weekly newsletter with our most recent columns and insights.
Have a question? Ask us!

We’d love to hear from you. Drop us a note, and we’ll respond to you as quickly as possible.

Ask us
contact us
Pittsburgh

This site uses cookies to ensure that we give you the best user experience. Cookies assist in navigation, analyzing traffic and in our marketing efforts as described in our Privacy Policy.

×