Form 3520: Reporting Foreign Trust Activities on U.S. Beneficiaries' Income Tax Returns

Identifying Filing Obligations, Completing the Form, DNI Planning After MID Disallowance, Avoiding Throwback Tax

Note: CLE credit is not offered on this program

Recording of a 110-minute CPE webinar with Q&A

Conducted on Tuesday, September 3, 2019

Recorded event now available

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Program Materials

This webinar will provide a practical guide to meeting the reporting obligations of Form 3520 for transactions with foreign trusts. The panel will detail the events and transactions that require filing by U.S. beneficiaries of foreign non-grantor trusts, review the form in depth, and discuss how the 2017 tax reform law impacts distribution planning for foreign trusts with U.S. beneficiaries.


Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, continues to present significant complexity for beneficiaries of foreign trusts. The Service requires taxpayers who qualify as the "responsible party" for reporting a foreign "reportable event," owned any part of the assets held in a foreign trust, or received a distribution from a foreign trust to file Form 3520, even if no transactions related to the trust occurred during the tax year.

Tax advisers preparing Form 3520 also must contend with the special rules governing U.S. tax treatment of foreign trusts as opposed to domestic trusts. DNI calculations are different for foreign trusts, and U.S. tax rules distinguish the taxation of distributions made from DNI vs. UNI with the latter's distributions subject to harsh tax consequences in the hands of beneficiaries in the form of the "throwback" rules. The throwback rules require that, unless current DNI is distributed within 65 days of the tax year's end, the DNI must be reclassified as UNI rather than being treated as an addition to trust corpus.

Among the critical changes the 2017 tax reform legislation made is the disallowance of miscellaneous itemized deductions (MIDs). For foreign trusts, this will likely lead to an increase in the DNI the trust must distribute to avoid reclassification. Trust advisers serving U.S. beneficiaries or owners of foreign trusts likely should begin the process of calculating DNI earlier to ensure that the trust has sufficient liquidity to meet distribution requirements to avoid the imposition of the throwback tax.

Listen as our panel of expert practitioners provides a deep dive into the filing requirements and specific sections of Form 3520, along with a discussion of how the 2017 tax law changed the landscape for foreign trust compliance.



  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. 2017 tax law changes to DNI calculations and distribution strategies
  4. Completing the form
  5. "Throwback tax"
    1. 65-day rule
    2. Form 4970
  6. IRC Section 6677 penalties for failure to file and relief provisions
    1. Calculation of penalties
    2. Section 6048 special rules
    3. Reasonable cause exception


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?


Brister, Jack
Jack R. Brister, TEP

Managing Member
International Wealth Tax Advisors

Mr. Brister specializes in U.S. tax planning and compliance for non-U.S. families with international wealth and asset...  |  Read More

Lazo, Christiana
Christiana M. Lazo

Kirkland & Ellis

Ms. Lazo’s practice consists of representing ultra-high net worth individuals, their family offices, and closely...  |  Read More

Lipoff, Lawrence
Lawrence M. Lipoff, CPA, TEP, CEBS


With more than 30 years of experience, Mr. Lipoff specializes in the delivery of domestic and international private...  |  Read More

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