IRS Form 3520 & 3520-A: Why Investors In Foreign Pensions Plans Need An International Tax Expert


Do you need to file IRS Form 3520 and 3520-A?

Perhaps. More people need to than it might seem.

Are you a US person who has transferred cash or other assets to a foreign trust?

That might seem like a simple and straightforward question… but it’s not.

Some foreign pension plans are legally structured as foreign trusts. As a result, an employee that makes contributions to such a plan is likely to be considered a “grantor” of a foreign trust under IRS rules.

This designation can complicate your tax filings.

Grantors of foreign trusts are generally treated as owning, for income tax purposes, whatever assets they transferred to the foreign trust – meaning, they must continue to pay US income tax on any income generated within the trust by the assets transferred to the trust and must file IRS Form 3520.

Foreign trusts are supposed to file IRS Form 3520-A. However, many fail to do so. In the event that a foreign trust fails to file that form, the taxpayers/grantors must then file a “substitute” Form 3520-A.

These forms can be quite complicated – even their due dates confuse many tax professionals.

Form 3520 is due on April 15 (or whatever day tax returns are due that year).

However, the “substitute” Form 3520-A is due March 15. 

Miss this deadline and you can be penalized $10,000.

The penalty for failing to file Form 3520 is the greater of $10,000 or:

  • 35% of the gross value of any property transferred to a foreign trust that wasn’t reported, OR
  • 35% of the gross value of the distribution received from a foreign trust that wasn’t reported, OR
  • 5% of the gross value of the portion of the foreign trust’s assets treated as owned by a US person that failed to report.

Many unsuspecting taxpayers lose a significant portion of their pension due to mistakes with these forms. 

Selecting a tax preparer is a big decision. Search around the internet and you can read plenty of stories from people that have screwed this up. Many tax preparers are unaware of these and the due dates involved. Others forget and make mistakes when rushing through their clients’ returns.

But the IRS holds you responsible for what’s on your return… and what’s missing.

Our preparers know how to handle Forms 3520 & 3520-A. We can even help you file for an extension in filing the “substitute” 3520-A.

How would it feel to lose a big portion of your retirement savings?

How would it feel to know that experienced international tax consultants have ensured that you’re in compliance?

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