Section 6677. A penalty applies if Form 3520 is not

timely filed or if the information is incomplete or incorrect. For exceptions, see Reasonable cause, later. Generally,

Instructions for Form 3520 (Rev. 12-2025) 3

the initial penalty is equal to the greater of $10,000 or the following (as applicable).

• 35% of the gross value of any property transferred to a foreign trust for failure by a U.S. transferor to report the creation of or transfer to a foreign trust in Part I.

• 35% of the gross value of the distributions received from a foreign trust for failure by a U.S. person to report receipt of the distribution in Part III.

• 5% of the gross value of the portion of the foreign trust’s assets treated as owned by a U.S. person under the grantor trust rules (sections 671 through 679), if the foreign trust (a) fails to file a timely Form 3520-A and furnish the required annual statements to its U.S. owners and U.S. beneficiaries; or (b) does not furnish all of the information required by section 6048(b) or includes incorrect information. See section 6677(a) through (c) and the instructions for Part II of this form and Form 3520-A.

If a foreign trust fails to file Form 3520-A, the U.S. owner must complete and attach a substitute Form 3520-A to the U.S. owner’s Form 3520 by the due date of the U.S. owner’s Form 3520 (and not the due date for the Form 3520-A, which is otherwise due by the 15th day of the 3rd month after the end of the trust’s tax year) in order to avoid being subject to the penalty for the foreign trust’s failure to timely file Form 3520-A. For example, a substitute Form 3520-A that, to the best of the U.S. owner’s ability, is completed and attached to the U.S. owner’s Form 3520 by the due date for the Form 3520 (such as April 15 for U.S. owners who are individuals), is considered to be timely filed.

Additional penalties will be imposed if the noncompliance continues for more than 90 days after the IRS mails a notice of failure to comply with the required reporting. If the IRS can determine the gross reportable amount (defined later), then the penalties will be reduced as necessary to assure that the aggregate amount of such penalties does not exceed the gross reportable amount. For more information, see section 6677.

Reasonable cause. No penalties will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect.

Note: The fact that a foreign country would impose penalties for disclosing the required information is not reasonable cause. See section 6677(d). Similarly, reluctance on the part of a foreign fiduciary or provisions in the trust instrument that prevent the disclosure of required information is not reasonable cause.

Section 6039F. In the case of a failure to timely report foreign gifts described in section 6039F, the IRS may determine the income tax consequences of the receipt of such gift, and a penalty equal to 5% of the amount of such foreign gifts applies for each month for which the failure to report continues (not to exceed a total of 25%). See section 6039F for additional information.

Reasonable cause. No penalty will be imposed if the taxpayer can demonstrate that the failure to comply was due to reasonable cause and not willful neglect.

Section 6662(j). If a U.S. owner of a foreign trust is subject to a 20% penalty imposed under section 6662 for an underpayment of tax required to be shown on a return, then such penalty may be increased to 40% under section

6662(j) for any portion of an underpayment that is attributable to any transaction involving any asset with respect to which information was required to be provided on Form 3520-A. For more information about undisclosed foreign financial asset understatements, see section 6662(j). Reasonable cause. No penalty will be imposed with respect to any portion of an underpayment if the taxpayer can demonstrate that the failure to comply was due to reasonable cause with respect to such portion of the underpayment and the taxpayer acted in good faith with respect to such portion of the underpayment. See section 6664(c) for additional information.

Distribution A distribution received directly or indirectly from a foreign trust for section 6048(c) reporting purposes is any gratuitous transfer of money or other property from a foreign trust, whether or not a portion of such trust is treated as a grantor trust under the grantor trust rules of sections 671 through 679, and without regard to whether the recipient is designated as a beneficiary by the terms of the trust. A distribution includes the receipt of a trust corpus and the receipt of a gift or bequest described in section 663(a).

A distribution also includes constructive transfers from a foreign trust. For example, if charges you make on a credit card are paid by a foreign trust or guaranteed or secured by the assets of a foreign trust, the amount charged will be treated as a distribution to you by the foreign trust. Similarly, if you write checks on a foreign trust’s bank account, the amount will be treated as a distribution. Also, if you receive a payment from a foreign trust in exchange for property transferred to the trust or services rendered to the trust, and the FMV of the payment you received exceeds the FMV of the property transferred or services rendered, the excess will be treated as a distribution to you. See section V of Notice 97-34 .

Examples.

1. If you sell stock with an FMV of $100 to a foreign trust and receive $150 in exchange, you have received a distribution of $50.

2. If you receive $100 from a foreign trust for performing services for the trust, and the services have an FMV of $20, you have received a distribution of $80.

If you are a grantor or beneficiary of a foreign trust and you (or a U.S. person related to you) directly or indirectly received a loan of cash or marketable securities from a foreign trust, or you (or a U.S. person related to you) used any property owned by a foreign trust without paying FMV within a reasonable amount of time, the amount of such loan or the FMV of the use of trust property will be treated as a distribution for reporting purposes. For this purpose, a loan by an unrelated third party that is guaranteed by a foreign trust is generally treated as a loan from the trust. See section V.A of Notice 97-34 .

Foreign Trust and Domestic Trust A foreign trust is any trust other than a domestic trust.

4 Instructions for Form 3520 (Rev. 12-2025)

A domestic trust is any trust if:

1. A court within the United States is able to exercise primary supervision over the administration of the trust, and

2. One or more U.S. persons have the authority to control all substantial decisions of the trust.

Grantor A grantor includes any person who creates a trust or directly or indirectly makes a gratuitous transfer of cash or other property to a trust. A grantor includes any person treated as the owner of any part of a foreign trust’s assets under sections 671 through 679, excluding section 678.

Note: If a partnership or corporation makes a gratuitous transfer to a trust, the partners or shareholders are generally treated as the grantors of the trust, unless the partnership or corporation made the transfer for a business purpose of the partnership or corporation.

If a trust makes a gratuitous transfer to another trust, the grantor of the transferor trust is treated as the grantor of the transferee trust, except that if a person with a general power of appointment over the transferor trust exercises that power in favor of another trust, such person is treated as the grantor of the transferee trust, even if the grantor of the transferor trust is treated as the owner of the transferor trust.

Grantor Trust A grantor trust is any trust to the extent that the assets of the trust are treated as owned by a person other than the trust. See the grantor trust rules in sections 671 through 679. A part of the trust may be treated as a grantor trust to the extent that only a portion of the trust assets are owned by a person other than the trust.

Note: Under the HIRE Act, effective after March 18, 2010, if a foreign trust directly or indirectly loans cash or marketable securities to a U.S. person who does not repay the loan at a market rate of interest, or allows a U.S. person to use trust property without paying FMV within a reasonable period of time, the trust will be treated as having a U.S. beneficiary and therefore is treated as a grantor trust under the grantor trust rules. See section 679.

Reporting by U.S. owners receiving distributions from foreign grantor trust. If a U.S. owner (defined later) of a foreign trust receives, directly or indirectly, a distribution from the foreign trust, the U.S. owner must only complete lines 24 and 27 in Part III.

Gratuitous Transfer A gratuitous transfer to a foreign trust is any transfer to the trust other than (a) a transfer for FMV; or (b) a distribution to the trust with respect to an interest held by the trust (i) in an entity other than a trust (for example, a corporation or a partnership), or (ii) in an investment trust described in Regulations section 301.7701-4(c), a liquidating trust described in Regulations section 301.7701-4(d), or an environmental remediation trust described in Regulations section 301.7701-4(e). A gratuitous transfer includes any

indirect transfer that is structured with a principal purpose of avoiding the application of section 679 or 6048.

A transfer of property to a trust may be considered a gratuitous transfer without regard to whether the transfer is a gift for gift tax purposes. See chapter 12 of subtitle B of the Code (that is, sections 2501 through 2524).

For purposes of this determination, if a U.S. person contributes property to a trust in exchange for any type of interest in the trust, such interest in the trust will be disregarded in determining whether FMV has been received. In addition, a U.S. person will not be treated as making a transfer for FMV merely because the transferor is deemed to recognize gain on the transaction.

If you transfer property to a related foreign trust in exchange for an obligation of the trust (or an obligation of a person related to the trust), it will be a gratuitous transfer unless the obligation is a qualified obligation. Any transfer in exchange for an obligation (whether or not a qualified obligation) must be reported under section 6048(a). For definitions, see Obligation and Qualified Obligation, later. See section III.B of Notice 97-34 , and the regulations under sections 679 and 684 for additional information.

• Includes an arrangement reflected in a “comfort letter,” regardless of whether the arrangement gives rise to a legally enforceable obligation. If an arrangement is

Gross Reportable Amount Gross reportable amount is:

• The gross value of property involved in the creation of a foreign trust or the transfer of property to a foreign trust (including a transfer by reason of death);

• The gross value of any portion of a foreign trust treated as owned by a U.S. person under the rules of sections 671 through 679 or any part of a foreign trust that is included in the gross estate of a U.S. citizen or resident;

• The gross value of the assets in a trust at the time the trust becomes a foreign trust, if the trust was a domestic trust to which a U.S. citizen or resident had previously transferred property, and provided that such U.S. citizen or resident is alive at the time the trust becomes a foreign trust (see section 679(a)(5)); or

• The gross amount of distributions received from a foreign trust.

Gross Value or Amount For purposes of determining the gross reportable amount, the gross value or gross amount of property is the value of property as determined under section 2512 and its regulations, without regard to any prohibitions or restrictions on a person’s interest in the property. Although formal appraisals are not generally required, you should keep contemporaneous records of how you arrived at your good faith estimate.

Guarantee A guarantee:

• Includes any arrangement under which a person, directly or indirectly, assures, on a conditional or unconditional basis, the payment of another’s obligation;

• Encompasses any form of credit support, and includes a commitment to make a capital contribution to the debtor or otherwise maintain its financial viability; or

Instructions for Form 3520 (Rev. 12-2025) 5

contingent upon the occurrence of an event, in determining whether the arrangement is a guarantee, you must assume that the event has occurred.

Nongrantor Trust A nongrantor trust is any trust to the extent that the assets of the trust are not treated as owned by a person other than the trust under the grantor trust rules in sections 671 through 679. Thus, a nongrantor trust is treated as a taxable entity. A trust may be treated as a nongrantor trust with respect to only a portion of the trust assets. See Grantor Trust, earlier.

Obligation An obligation includes any bond, note, debenture, certificate, bill receivable, account receivable, note receivable, open account, or other evidence of indebtedness, and, to the extent not previously described, any annuity contract.

Owner An owner of a foreign trust is the person that is treated as owning any of the assets of a foreign trust under the rules of sections 671 through 679.

Property Property means any property, whether tangible or intangible, including cash.

• A member of your family—your brothers and sisters, half-brothers and half-sisters, spouse, ancestors (parents, grandparents, etc.), lineal descendants (children, grandchildren, etc.), and the spouses of any of these persons; or

• A corporation in which you, directly or indirectly, own more than 50% in value of the outstanding stock.

See section 643(i)(2)(B) and the regulations under sections 267 and 707(b).

Person related to a foreign trust. A person is related to a foreign trust if such person, without regard to the transfer at issue, is a grantor of the trust, a beneficiary of the trust, or is related to any grantor or beneficiary of the trust. See the definition of Related Person above.

3. The death of a U.S. citizen or resident if:

• The decedent was treated as the owner of any portion of a foreign trust under the rules of sections 671 through 679, or

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

Reportable Event A reportable event includes the following.

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. This includes transfers that are deemed to have occurred under sections 679(a)(4) and (5).

Qualified Obligation A qualified obligation, for purposes of this form, is any obligation only if:

1. The obligation is reduced to writing by an express written agreement;

Responsible Party Responsible party means:

2. The term of the obligation does not exceed 5 years (including options to renew and rollovers);

3. All payments on the obligation are denominated in U.S. dollars;

4. The yield to maturity of the obligation is not less than 100% of the applicable federal rate under section 1274(d) for the day on which the obligation is issued and not greater than 130% of the applicable federal rate;

5. The U.S. person agrees to extend the period for assessment of any income or transfer tax attributable to the transfer and any consequential income tax changes for each year that the obligation is outstanding to a date not earlier than 3 years after the maturity date of the obligation, unless the maturity date of the obligation does not extend beyond the end of the U.S. person’s tax year and is paid within such period (this is done on Part I, Schedule A, line 12, and Part III, line 26, as applicable); and

6. The U.S. person reports the status of the obligation, including principal and interest payments, on Part I, Schedule C, line 19, and Part III, line 28, as applicable, for each year that the obligation is outstanding.

• The grantor in the case of the creation of an inter vivos trust;

• The transferor, in the case of a reportable event (defined above) other than a transfer by reason of death; or

U.S. Agent A U.S. agent is a U.S. person (defined later) that has a binding contract with a foreign trust that allows the U.S. person to act as the trust’s authorized U.S. agent in applying sections 7602, 7603, and 7604 with respect to:

• Any request by the IRS to examine records or produce testimony related to the proper U.S. tax treatment of amounts distributed, or required to be taken into account under the grantor trust rules, with respect to a foreign trust; or

• Any summons by the IRS for such records or testimony.

A U.S. grantor, a U.S. beneficiary, or a domestic corporation controlled by the grantor or beneficiary may act as a U.S. agent. However, a foreign trust will not be treated as having a U.S. agent unless the U.S. agent’s name, address, and TIN are entered on lines 3a through 3g on page 1 of Form 3520. See Taxpayer identification numbers (TINs), later.

If a foreign trust with a U.S. owner does not have a U.S. agent, the IRS may redetermine the amounts required to be taken into account with respect to the foreign trust by

• The executor of the decedent’s estate in any other case (whether or not the executor is a U.S. person).

Related Person A related person generally includes any person who is related to you for purposes of sections 267 and 707(b). This includes, but is not limited to:

6 Instructions for Form 3520 (Rev. 12-2025)

the U.S. owner. See section 6048(b)(2). In order to avoid this, a U.S. owner of a foreign trust should ensure that the foreign trust appoints a U.S. person to act as the foreign trust’s limited agent for purposes of applying sections 7602, 7603, and 7604. The agency relationship must be established by the time Form 3520 is filed for the relevant tax year and must continue as long as the statute of limitations remains open for the relevant tax year.

In order to authorize a U.S. person to act as a U.S. agent under section 6048(b)(2) or for purposes of section 6048(c)(2)(A), the foreign trust and the U.S. person must enter into a binding agreement substantially in the format of the AUTHORIZATION OF AGENT form in the Instructions for Form 3520-A , amended as required.

If the U.S. person’s responsibility as an agent of the foreign trust is terminated for any reason (for example, resignation, liquidation, or death), the U.S. owner of the foreign trust must make sure the foreign trust files an amended Form 3520-A with the IRS within 90 days. See section IV.B of Notice 97-34 .

U.S. Beneficiary A U.S. beneficiary generally includes any U.S. person that could possibly benefit, directly or indirectly, from the trust (including an amended trust) at any time, whether or not the person is designated in the trust instrument as a beneficiary and whether or not the person can receive a distribution from the trust in the current year. In addition, a U.S. beneficiary includes:

described earlier, if any U.S. person who directly or indirectly transfers property to the trust is directly or indirectly involved in any agreement or understanding (whether written, oral, or otherwise) that may result in the income or corpus of the trust being paid or accumulated to, or for the benefit of, a U.S. person, such agreement or understanding will be treated as a term of the trust.

Certain loans or uncompensated use of trust property. If a foreign trust is not already treated as having a U.S. beneficiary under the rules described earlier, the trust will be treated as having a U.S. beneficiary if, after March 18, 2010, either:

• The foreign trust loans cash or marketable securities, directly or indirectly, to a U.S. person, and the U.S. person does not repay the loan at a market rate of interest within a reasonable period of time; or

• A U.S. person, directly or indirectly, uses property that is owned by the foreign trust and does not pay FMV of the use of such property within a reasonable period of time.

Presumption that foreign trust has U.S. beneficiary. If a U.S. person, directly or indirectly, transfers property to a foreign trust (other than a deferred compensation or charitable trust described in section 6048(a)(3)(B)(ii)), the IRS may treat such trust as having a U.S. beneficiary for purposes of applying section 679(d) to such transfer if the IRS requests information with respect to the transfer and the U.S. person fails to demonstrate to the satisfaction of the IRS that no portion of the income or corpus of the trust may ever be paid to or accumulated for the benefit of a U.S. person.

• A foreign corporation that is a controlled foreign corporation (as defined in section 957(a)),

• A foreign partnership if a U.S. person is a partner of the partnership, and

U.S. Person A U.S. person is:

• A citizen or resident of the United States, including dual residents who claim the benefits under an income tax treaty;

• A foreign estate or trust if the estate or trust has a U.S. beneficiary. See section II of Notice 97-34 and the regulations under section 679 for additional information.

Foreign trust treated as having a U.S. beneficiary. In general, if a U.S. person, directly or indirectly, transfers property to a foreign trust (other than a deferred compensation or charitable trust described in section 6048(a)(3)(B)(ii)), the foreign trust will be treated as having a U.S. beneficiary unless the terms of the trust instrument specifically prohibit any distribution of income or corpus to a U.S. person at any time, even after the death of the U.S. transferor or any event terminating the trust, and the trust cannot be amended or revised to allow such a distribution. For these purposes, an amount will be treated as accumulated for the benefit of a U.S. person even if the U.S. person’s interest in the trust is contingent on a future event and regardless of whether anything is actually distributed to a U.S. person during that tax year.

Special rule in case of discretion to identify beneficiaries. For purposes of the general rule described earlier, if any person has the discretion of making a distribution from the trust to, or for the benefit of, any person, the trust will be treated as having a beneficiary who is a U.S. person unless the terms of the trust specifically identify the class of persons to whom such distributions may be made, and none of those persons are U.S. persons during the tax year.

Certain agreements and understandings treated as terms of the trust. For purposes of the general rule

• A domestic partnership;

• A domestic corporation;

• Any estate (other than a foreign estate, within the meaning of section 7701(a)(31)(A)); and

• Any domestic trust (defined earlier).

For guidance on determining resident alien status, go to Pub. 519, U.S. Tax Guide for Aliens .

U.S. Transferor A U.S. transferor is any U.S. person who:

1. Creates or settles a foreign trust;

2. Directly or indirectly transfers money or property to a foreign trust (this includes deemed transfers under section 679(a)(4) or section 679(a)(5));

3. Makes a sale to a foreign trust if the sale was at other than arm’s-length terms or was to a related foreign trust, or makes (or guarantees) a loan to a related foreign trust; or

4. Is the executor of the estate of a U.S. person and: a. The decedent made a testamentary transfer (a transfer by reason of death) to a foreign trust;

b. Immediately prior to death, the decedent was treated as the owner of any portion of a foreign trust under the rules of sections 671 through 679; or

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c. Any portion of a foreign trust’s assets were included in the estate of the decedent.

Generally, the person defined as the transferor is the responsible party (defined earlier) who must ensure that required information be provided or pay appropriate penalties.