You probably wouldn't ask the IRS out on a date or join the IRS for happy hour at the bar, but nevertheless, if you're a US Citizen you have a relationship with the IRS, whether you like it or not. If you have any offshore entities, or invest offshore, have a foreign bank account, or do business offshore, the IRS needs to know about it. Because of the draconian penalties imposed for lack of compliance, I cannot stress enough the importance of timely attention to these reporting matters.

Please be aware that these reporting requirements must be completed annually. It is your responsibility to make sure the filings are completed by the required due dates or properly extend due dates. 

Form 3520 

Purpose of Form: U.S. persons and executors of estates of U.S. decedents file Form 3520 to report certain transactions with foreign trusts and receipt of certain large gifts or bequests from certain foreign persons a separate Form 3520 must be filed for transactions with each foreign trust.

Due Date: Form 3520 is due on the date that your income tax return is due, including extensions.Explanation: You must file Form 3520 if:
   (1) You are the responsible party for reporting a reportable event that occurred during the current tax year, or you held an outstanding obligation of a related foreign trust (or a person related to the trust) that you treated as a qualified obligation during the current tax year.
   (2) You are a U.S. person who, during the current tax year, is treated as the owner of any part of the assets of a foreign trust under the grantor trust rules.
   (3) You are a U.S. person who received (directly or indirectly) a distribution from a foreign trust during the current tax year or a related foreign trust held an outstanding obligation issued by you (or a person related to you) that you treated as a qualified obligation during the current tax year.
   (4) You are a U.S. person who, during the current tax year, received either:  

        (a) More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts or bequests; or  

        (b) More than $13,561 from foreign corporations or foreign partnerships (including foreign persons related to such foreign corporations or foreign partnerships) that you treated as gifts.  

A reportable event includes:
    (1) The creation of a foreign trust by a U.S. person  

    (2) The transfer of any money or property, directly or indirectly, to a foreign trust by a U.S. person, including a transfer by reason of death.  

    (3) The death of a citizen or resident of the United States if:

* The decedent was treated as the owner of any portion of a foreign trust under the grantor trust rules or  

* Any portion of a foreign trust was included in the gross estate of the decedent.

Form 3520-A 

Purpose of Form: Form 3520-A is the annual information return of a foreign trust with at least one U.S. owner.  The form provides information about the foreign trust, its U.S. beneficiaries, and any U.S. person who is treated as an owner of any portion of the foreign trust.  

Due Date: Form 3520-A is due by the 15th day of the 3rd month after the end of the trust’s tax year.  An extension of time to file may be granted.  

Explanation: A foreign trust with a U.S. owner must file Form 3520-A in order for the U.S. owner to satisfy its annual information reporting requirements under section 6048(b).  Each U.S. person treated as an owner of any portion of a foreign trust under sections 671 through 679 is responsible for ensuring that the foreign trust files form 3520-A and furnishes the required annual statements to its U.S. owners and U.S. beneficiaries.

Form TD F 90-22.1

Purpose of Form: Each United States person who has a financial interest in or signature or other authority over any foreign financial accounts, including bank, securities, or other types of financial accounts, in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must report that relationship each calendar year by filing this report with the Department of the Treasury.

Due Date: Form TD F 90-22.1 is due on or before June 30, of the year following the calendar year reported.  There are no extensions of time for filing this report. 

Explanation: A financial interest in a bank, securities, or other financial account in a foreign country means:
    (1) A United States person has a financial interest in each account for which such person is the owner of record or has legal title, whether the account is maintained for his or her own benefit or for the benefit of others including non-United States persons.  

    (2) A United States person has a financial interest in each bank, securities, or other financial account in a foreign country for which the owner of record or holder of legal title is: (a) a person acting as an agent, nominee, attorney, or in some other capacity on behalf of the U.S. person; (b) a corporation in which the U.S. person owns directly or indirectly more than 50 percent of the total value of shares of stock or more than 50 percent of the voting power for all shares of stock; (c) a partnership in which the U.S. person owns an interest in more than 50 percent of the profits or more than 50 percent of the capital of the partnership; or (d) a trust in which the U.S. person either has a present beneficial interest, either directly or indirectly, in more than 50 percent of the assets or from which such person receives more than 50 percent of the current income.  

    (3) A United States person has a financial interest in each bank, securities, or other financial account in a foreign country for which the owner of record or holder of legal title is a trust, or a person acting on behalf of a trust, that was established by such US person and for which a trust protector has been appointed a financial account includes any bank, securities, securities derivatives or other financial instruments accounts.  Such accounts generally also encompass any accounts in which the assets are held in a commingled fund, and the account owner holds an equity interest in the fund (including mutual funds).  The term also means any savings, demand, checking, deposit, time deposit, or any other account (including debit card and prepaid credit card accounts) maintained with a financial institution or other person engaged in the business of a financial institution.  

A person has signature authority over an account if such person can control the disposition of money or other property in it by delivery of a document containing his or her signature to the bank or other person with whom the account is maintained.  Other authority exists in a person who can exercise comparable power over an account by communication with the bank or other person with whom the account is maintained, either directly or through an agent, nominee, attorney, or in some other capacity on behalf of the U.S. person, either orally or by some other means.

Form 1041

* The income, deductions, gains, losses, etc. of the estate or trust;  

* The income that is either accumulated or held for future distribution or distributed currently to the beneficiaries;

* Any income tax liability of the estate or trust; and  

* Employment taxes on wages paid to household employees. Due Date: Form 1041 is due on or before April 15 for calendar year estates and trusts.

Explanation: A trust or decedent’s estate figures its gross income in much the same manner as an individual.  Most deductions and credits allowed to individuals are also allowed to estates and trust.  A trust or decedent’s estate is allowed an income distribution deduction for distributions to beneficiaries.  The income distribution deduction determines the amount of any distributions taxed to the beneficiaries.  The beneficiary, and not the trust or decedent’s estate, pays income tax on his or her distributive share of income.  Schedule K-1 is used to notify the beneficiaries of the amounts to be included on their income tax returns.  With a decedent’s estate the fiduciary must file Form 1041 for a domestic estate that has gross income for the tax year of $600 or more, or a beneficiary who is a nonresident alien.  With a trust the fiduciary must file Form 1041 for a domestic trust taxable under section 641 that has any taxable income for the tax year, gross income of $600 or more (regardless of taxable income), or a beneficiary who is a nonresident alien.

If you have any questions about this article or the tax reporting requirements, click here

*This information was provided to the author by Michael Klarin, CPA at Klarin & Associates