Foreign Trust Reporting
(Form 3520)

Who needs to file

You have a foreign trust reporting obligation if any of the following apply to you:

• You received a distribution from a foreign trust, including most loans from the trust and free use of its property, which generally count as distributions
• You transferred money or property to a foreign trust
• You received gifts or bequests from foreign individuals or foreign estates totaling more than $100,000 in the year, or gifts from a foreign corporation or partnership totaling more than $20,573 (2026)
• You are treated as the owner of a foreign trust for U.S. tax purposes (a “foreign grantor trust”)

Whether a trust is “foreign” does not depend on where it is located. For U.S. tax purposes, a trust is foreign unless a U.S. court can supervise its administration and U.S. persons control all of its substantial decisions.

Many people discover these obligations only after the fact, often when a tax preparer asks about foreign accounts or when the IRS sends a notice. If you are behind on filing, there are procedures to get current. The sooner you address it, the better your position.

Receiving a distribution from a foreign trust

If a foreign trust sends you money, the IRS wants to know about it on Form 3520. The form reports the distribution and helps the IRS determine how much of it is taxable to you.

The tax treatment depends on what kind of trust it is:

• Foreign grantor trust: If someone is treated as the owner of the trust, distributions to you are generally not taxable to you. If the owner is a U.S. person, the income was already taxed to them; if the owner is a foreign person, the distribution is treated as a gift from that person. The distribution still must be reported.
• Foreign non-grantor trust: Distributions are taxable to you to the extent they carry out the trust’s current or past income. The tax can be significant because of a special rule called the “throwback tax,” which applies when the trust has been accumulating income over the years instead of distributing it currently. Distributions first carry out the trust’s income for the current year; only the amount above that is treated as coming from income accumulated in past years, which is where the throwback tax and its interest charge apply. If the trust cannot give you a statement showing its income, a default method treats the part of a distribution above 125% of your average distributions from the prior three years as accumulated income.

The throwback tax can turn what looks like a straightforward distribution into a substantial tax bill. We calculate the throwback tax before or after a distribution, depending on timing, and report it correctly on your return.

Inheriting from a non-U.S. relative

If a relative who lived outside the United States passed away and left you money or property, the tax consequences depend on how the inheritance was structured:

• Direct bequest: A direct inheritance is generally not subject to U.S. income tax. However, if the total exceeds the annual threshold, you must report it on Form 3520. The form is informational only in this case, but failing to file it still triggers the penalty.
• Through a foreign trust: If the inheritance passed through a trust established by the decedent, you are receiving a trust distribution, not a direct bequest. That distribution may be taxable, and the throwback rules may apply if the trust accumulated income before distributing to you.
• Through a foreign estate: The throwback tax does not apply to estates. Distributions from a foreign estate carry out its current income under the normal rules, but an estate kept open longer than reasonably needed can be treated as a trust.

What matters is whether your relative was a U.S. citizen or resident, not where they lived: an inheritance from a U.S. citizen living abroad is not a foreign gift. And a gift from a relative that was really funded by a distribution from a foreign trust can be treated as a trust distribution to you, with different reporting and tax.

Distinguishing between a direct bequest, a trust distribution, and an estate distribution matters because each has different tax consequences and different reporting requirements. We sort out the structure and handle the filings.

Moving to the U.S. with a trust back home

If you became a U.S. tax resident and have a trust in your home country, your U.S. tax obligations depend on your relationship to the trust:

• If you created or funded the trust: If you transferred property to the trust within five years before becoming a U.S. resident, and the trust has a U.S. beneficiary (once you are a resident, that can be you), you are generally treated as its owner under §679; other grantor trust rules can also make you the owner. As the owner, the trust’s worldwide income is reported on your personal U.S. tax return, even if you receive no distributions. You must file Form 3520 reporting your ownership, and the trust must file Form 3520-A (or, if it does not, you must attach a substitute Form 3520-A to your own Form 3520).
• If you are a beneficiary but not the owner: You report distributions on Form 3520 as they occur. Even without distributions, FBAR or Form 8938 reporting can apply in some cases, for example if you have more than a 50% present beneficial interest in the trust; whether it does depends on the trust’s terms.

This is one of the most common situations we see: someone who has been a U.S. resident for years and either did not know about these requirements or was told by a prior preparer that no reporting was needed. Getting current is important, and the IRS has procedures designed for this situation.

The penalties

The penalties for not filing are based on gross amounts, not on any tax you owe. This means the penalty can be larger than the tax itself:

Foreign trust and gift reporting

Penalties for missing or late filings

Failure	Penalty
Distribution from a foreign trust not reported on Form 3520	Greater of $10,000 or 35% of the gross distribution
Transfer to a foreign trust not reported on Form 3520	Greater of $10,000 or 35% of the gross value transferred
Form 3520-A not filed for a trust with a U.S. owner	Greater of $10,000 or 5% of the gross value of the U.S.-owned portion
Large foreign gift or bequest not reported	5% of the gift for each month late, up to 25%
Trust reporting failure continues after an IRS notice	An additional $10,000 for each 30 days beyond 90 days after the notice; total trust reporting penalties cannot exceed the gross amount that should have been reported

These penalties apply automatically for late or incomplete filings. Relief is available if you can show the failure was due to reasonable cause and not willful neglect. A foreign country’s penalties for disclosing the information do not count as reasonable cause. We prepare reasonable cause statements when filing late returns and work with you to establish compliance going forward.

Getting current if you are behind

If you have unfiled Forms 3520 or 3520-A from prior years, the IRS offers several paths to get into compliance:

• The Streamlined Filing Compliance Procedures for taxpayers who were non-willful
• The Delinquent International Information Return Submission Procedures for taxpayers who have reasonable cause
• Voluntary Disclosure for taxpayers with potential criminal exposure

The right path depends on your specific facts, including whether the failure was willful, whether you have other unfiled international information returns, and whether the IRS has already contacted you. We evaluate your situation and recommend the appropriate procedure.

Why these situations need careful review

Foreign trust reporting is one of the most complex areas of tax law. The same payment can be tax-free, taxed normally, or taxed with years of interest added, depending on details that are often buried in foreign-language documents. Among the situations that need a close look:

• Foreign foundations and similar arrangements that may or may not count as trusts for U.S. purposes
• Trusts where part is treated as owned by someone and part is not
• Foreign trustees who cannot or will not provide complete records
• Several years of forms that were never filed
• The death of the person who owned the foreign trust, which can change how it is taxed going forward
• Foreign mutual funds held inside the trust, which bring their own punitive tax rules
• Loans from the trust, or gifts from relatives that were really funded by the trust

An early decision, such as which method is used to calculate the tax on a distribution, can lock in how every later year is handled for you. We review the full history before anything is filed.

What we handle

• Determining whether your trust is foreign or domestic for U.S. tax purposes
• Classifying the trust as grantor or non-grantor
• Preparing Form 3520 for distributions, transfers, and foreign gifts
• Preparing or reviewing Form 3520-A for foreign grantor trusts
• Throwback tax calculations on accumulation distributions
• Coordinating with FBAR, Form 8938, and other international filings
• Late filing procedures and reasonable cause statements
• Coordinating with foreign counsel or trustees to obtain trust records

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