Form 3520 Foreign Trust Reporting for Tax Counsel: Navigating Filing Requirements and Penalty Abatements for Delinquencies

Establishing Reasonable Cause Exceptions, Appeals Prior to Payment, Collection Due Process and More

Recording of a 90-minute CLE/CPE webinar with Q&A


Conducted on Thursday, April 6, 2017
Recorded event now available


This CLE/CPE webinar will provide tax counsel with a comprehensive and practical guide to a deep exploration into reporting regime for U.S. taxpayers’ ownership of foreign trust assets on IRS Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. The panel will detail the events and transactions that require reporting, and discuss tax counsel’s role in remedying an absent or incorrect filing, including navigating the penalty abatement process for failure to correctly and timely file a Form 3520.

Description

Form 3520, the Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, is one of the most complex tax reporting forms in the IRS international tax reporting regime. Taxpayers who own an interest in a foreign-based trust, or receive gifts, inheritances or distributions from a foreign source, are required to report these foreign “reportable events,” even if the taxpayer does not receive income from these foreign sources.

A significant challenge for taxpayers is determining whether a taxpayer qualifies as a “responsible party” for purposes of filing a Form 3520. As in most U.S. tax reporting of foreign activities, extremely steep penalties apply for failure to correctly and timely file Form 3520, including a base penalty of 35% of the value of the reportable event. While Section 6677 provides for reasonable cause relief, the provisions to claim that relief are complex and burdensome for taxpayers and tax counsel alike.

Tax counsel and advisers need to have a thorough understanding of the regime for reporting foreign-based trusts, including how to claim relief from penalties for failure to file, or incorrect filing, of Form 3520. Tax advisers can help their clients avoid costly penalties by navigating the foreign trust reporting rules.

Listen as our experienced panel provides a deep dive into the filing requirements and specific sections of Form 3520, along with a discussion of penalties and relief provisions, to aid you in keeping clients with foreign trust holdings compliant with IRS rules.

Outline

  1. Determining “owners” and “responsible parties”
  2. Reportable events
    1. Obligations
    2. Gratuitous transfers
    3. Qualified obligations
    4. Distributions and calculations
    5. Gifts and bequests
    6. Other form items
  3. IRC Section 6677 penalties for failure to file and relief provisions
    1. Calculation of penalties
    2. Section 6048 special rules
    3. Reasonable cause exception

Benefits

The panel will discuss these and other key issues:

  • What “reportable events” trigger a Form 3520 filing requirement?
  • What is the overlap between Form 3520 and other foreign information reporting requirements, such as Forms 5471, 8865, 8621 and Schedule B?
  • What are the filing requirements for the U.S. beneficiary of a foreign non-grantor trust?
  • What are the penalties, and relief provisions, for failure to file a Form 3520 or Form 3520-A?
  • What are the processes for establishing a reasonable cause exception for penalty abatement?

Learning Objectives

After completing this course, you will be able to:

  • Determine which taxpayers are subject to Form 3520 reporting requirements
  • Discern what transfers and ownership structures must be reported
  • Identify when qualified obligations must be reported
  • Establish how to document a “reasonable cause” exception for penalty abatement
  • Recognize the IRS audit process for determining Form 3520 or 3520-A delinquency

Faculty

Alison N. Dougherty, J.D., LL.M., Director
Aronson, Rockville, Md.

Ms. Dougherty has extensive experience assisting clients with U.S. tax reporting and compliance for offshore assets and foreign accounts. She specializes in international tax compliance, planning and structuring as a subject matter leader of her firm's international tax practice. Her responsibilities include U.S. Federal and multi-state tax compliance for C corporations, S corporations, partnerships and individuals. She also provides transactional tax planning and structuring services.

Richard S. LeVine, Of Counsel
Withers Bergman, New Haven, Conn.

Mr. LeVine's practice focuses on cross-border estate, gift and income tax planning for owners of privately held companies and other high-net-worth U.S. and foreign individuals. He counsels clients on pre-immigration and pre-expatriation tax planning, offshore trusts and foundations deferred compensation planning for fund manager and structures involving life insurance. He has been heavily involved in advising clients on the IRS Voluntary Disclosure programs.

Aaron T. Kriss
Day Pitney, New Haven, Conn.

Mr. Kriss assists corporations, partnerships, investment managers and entrepreneurs in structuring their business enterprises in a tax-efficient manner. He has extensive experience in the manufacturing, financial services, investment management, real estate and high-tech industries, and advises clients on large-scale transactions involving both U.S. and international income tax planning. He presents on an array of tax and international tax issues.


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Tax Law Advisory Board

Patrick Derdenger

Tax Partner

Steptoe & Johnson

Edward Froelich

Of Counsel

Morrison & Foerster

Daniel L. Gottfried

Partner

Hinckley Allen

J. Leigh Griffith

Partner and Practice Group Leader - Tax

Waller Lansden Dortch & Davis

Mark S. Lange

Partner

BakerHostetler

Lori Mathison

Partner, Cross-Border Transactions Tax

Fraser Milner Casgrain

Christian M. McBurney

Partner

Arent Fox

Suzanne Ross McDowell

Partner, Tax-Exempt Organizations

Steptoe & Johnson

Todd Reinstein

Partner, Corporate Tax and Due Diligence

Pepper Hamilton

Alex Sadler

Partner

Morgan Lewis

Susan Seabrook

Shareholder

Buchanan Ingersoll & Rooney

Peter Stathopoulos

Managing Director, State and Local Tax Practice

Bennett Thrasher

Eric Tresh

Partner & Co-Chair, State & Local Tax Practice

Sutherland Asbill & Brennan

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