Part III—Distributions to a U.S. — 1225 Inst 3520 (PDF)

Complete Part III if you are a U.S. person who received a distribution from a foreign trust during the current tax year.

If you received an amount from a portion of a foreign trust of which you are treated as the owner, complete lines 24 and 27. If you received an amount from a foreign trust that would require a report under both Parts III and IV (gifts or bequests) of Form 3520, report the amount only in Part III.

Line 24. Report any cash or the FMV of other property that you received (actually or constructively, directly or indirectly) from a foreign trust during the current tax year, whether or not taxable, unless the amount is a loan to you from the trust or constitutes uncompensated use of trust property, both of which must be reported on line 25. For example, if you are a partner in a partnership that receives a distribution from a foreign trust, you must report your

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

allocable share of such payment as an indirect distribution from the trust.

Line 24, column (c). The filer is permitted to enter the basis of the property in the hands of the beneficiary (as determined under section 643(e)(1)), if lower than the FMV of the property, but only if the taxpayer is not required to complete Schedule A (lines 31 through 38) due to lack of documentation. For these purposes, lack of documentation refers to a situation in which the filer checked “No” on line 29 or 30 because (a) the beneficiary did not receive a Foreign Grantor Trust Beneficiary Statement or a Foreign Nongrantor Trust Beneficiary Statement from the trust, or (b) such statement did not contain all of the items specified under the instructions for line 29 or 30, later.

If you received a distribution from a foreign trust attributable to a gift or bequest from a covered expatriate, you may have to file Form 708, United States Return of Tax for Gifts and Bequests Received From Covered Expatriates. See sections 877A and 2801, and What’s new—Estate and gift tax, available at IRS.gov/ Businesses/Small-Businesses-Self-Employed/Whats- New-Estate-and-Gift-Tax .

Line 25. If you or a U.S. person related to you received a loan of cash or marketable securities, directly or indirectly, from a related foreign trust, or the uncompensated use of trust property (defined later), the amount of such loan or the FMV of the use of trust property will be treated as a reportable distribution, whether or not taxable. For this purpose, a loan to you by an unrelated third party that is guaranteed by a foreign trust is generally treated as a loan from the trust.

Line 25, column (e). Answer “Yes” if an obligation given in exchange for the loan is a qualified obligation (defined earlier).

Line 25, column (f). The FMV of an obligation is zero unless it is a qualified obligation. Therefore, in the case of obligations that are not qualified obligations, enter “-0-” in column (f).

Uncompensated use of trust property. If you or a U.S. person related to you, directly or indirectly, used any property of a foreign trust, the FMV of such use will be treated as a reportable distribution whether or not taxable. Report the FMV of the use of trust property in column (a) and the date of first use in column (b), skip columns (c) through (e), report the amount paid for such use in column (f), and enter the amount treated as a taxable distribution from the trust in column (g) by subtracting column (f) from column (a). See section 643(i) for more information.

Note: Under the HIRE Act, effective after March 18, 2010, if a foreign trust with a U.S. transferor is not already treated as a grantor trust under the rules of sections 671 through 679, the foreign trust will be treated as having acquired a U.S. beneficiary and will therefore be treated as a grantor trust, if it makes a loan of cash or marketable securities, directly or indirectly, to a U.S. person or allows a U.S. person, directly or indirectly, to use trust property, and the U.S. person does not repay the loan at a market rate of interest or pay the trust the FMV of the use of the property within a reasonable period of time. Accordingly, the loan or use of trust property will not be treated as a

taxable distribution under section 643(i) but will remain reportable on Part III of this Form 3520.

Line 26. If you checked “Yes” in column (e) of line 25, you must generally check “Yes” on line 26. By doing so, you agree to extend the period of 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 3 years after the maturity date of the obligation. When executed and filed, this form will be deemed to be agreed upon and executed by the IRS for purposes of Regulations section 301.6501(c)-1(d). You have a right to refuse to extend the period of assessment. See Pub. 1035 for a detailed explanation of your rights.

Line 27. Penalties may be imposed for failure to accurately report all distributions received during the current tax year. See Penalties , earlier.

Line 28. Provide information on the status of any outstanding obligation to the foreign trust that you reported as a qualified obligation in the current tax year. This information is required in order to retain the obligation’s status as a qualified obligation. If relevant, attach a statement describing any changes to the terms of the qualified obligation. If the obligation fails to retain the status of a qualified obligation, you will be treated as having received a taxable distribution under section 643(i) from the foreign trust. See section V.A of Notice 97-34 .

Line 29. Check “Yes” if you received a Foreign Grantor Trust Beneficiary Statement (page 5 of Form 3520-A) from the foreign trust with respect to a distribution. Attach the Foreign Grantor Trust Beneficiary Statement from the foreign trust and do not complete the rest of Part III with respect to the distribution.

If a U.S. beneficiary receives a complete Foreign Grantor Trust Beneficiary Statement with respect to a distribution during the tax year, the beneficiary should treat the distribution for income tax purposes as if it came directly from the owner. For example, if the distribution is a gift, the beneficiary should not include the distribution in gross income.

In addition to basic identifying information (see Identifying Information , earlier) about the foreign trust and its trustee, this statement must contain these items.

A statement that the trust will permit either the IRS or the U.S. beneficiary to inspect and copy the trust’s
The first and last day of the tax year of the foreign trust to which this statement applies.
An explanation of the facts necessary to establish that the foreign trust should be treated for U.S. tax purposes as owned by another person. The explanation should identify the Code section that treats the trust as owned by another person.
A statement identifying whether the owner of the trust is an individual, trust, corporation, or partnership.
A description of property (including cash) distributed or deemed distributed to the U.S. person during the tax year and the FMV of the property distributed.

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permanent books of account, records, and such other documents that are necessary to establish that the trust should be treated for U.S. tax purposes as owned by another person. This statement is not necessary if the trust has appointed a U.S. agent.

A statement as to whether the foreign trust has appointed a U.S. agent (defined earlier). If the trust has a U.S. agent, include the name, address, and TIN of the agent.

If any of the items required for the Foreign Grantor Trust Beneficiary Statement is missing, you must check “No.”

Also, if you answer “Yes” and the foreign trust or U.S. agent does not produce records or testimony when requested or summoned by the IRS, the IRS may redetermine the tax consequences of your transactions with the trust and impose appropriate penalties under section 6677. See section 6048(c)(2)(A).

Caution: If a foreign nongrantor trust or the question is not applicable, check “N/A.”

Line 30. Check “Yes” if you received a Foreign Nongrantor Trust Beneficiary Statement from the foreign trust with respect to a distribution. Attach the Foreign Nongrantor Trust Beneficiary Statement from the foreign trust. A Foreign Nongrantor Trust Beneficiary Statement must include the following items.

An explanation of the appropriate U.S. tax treatment of any distribution or deemed distribution for U.S. tax purposes or sufficient information to enable the U.S. beneficiary to establish the appropriate treatment of any distribution or deemed distribution for U.S. tax purposes.
A statement identifying whether any grantor of the trust is a partnership or a foreign corporation. If so, attach an explanation of the relevant facts.
A statement that the trust will permit either the IRS or the U.S. beneficiary to inspect and copy the trust’s permanent books of account, records, and such other documents that are necessary to establish the appropriate treatment of any distribution or deemed distribution for U.S. tax purposes. This statement is not necessary if the trust has appointed a U.S. agent.

Schedule A—Default Calculation of Trust Distributions If you answered “Yes” to line 30, you may complete either Schedule A or Schedule B. Generally, if you complete Schedule A in the current year, or did so in prior years, you must continue to complete Schedule A for all future years, even if you are able to answer “Yes” to line 30 in that future year. The only exception to this consistency rule is that you may use Schedule B in the year that a trust terminates, but only if you are able to answer “Yes” to line 30 in the year of termination.

Line 32. To the best of your knowledge, state the number of years the trust has been in existence as a foreign trust and attach an explanation of your basis for this statement. Consider any portion of a year to be a complete year. If this is the first year that the trust has been a foreign trust, do not complete the rest of Part III.

Line 33. Enter the total amount of distributions that you received during the 3 preceding tax years or the number of years the trust has been a foreign trust if fewer than 3 years. For example, if a trust distributed $50 in year 1, $120 in year 2, and $150 in year 3, the amount reported on line 33 would be $320 ($50 + $120 + $150).

Line 35. Divide line 34 by 3.0 or the number of years the trust has been a foreign trust if fewer than 3 years. Consider any portion of a year to be a complete year. For example, a foreign trust created on July 1, 2021, would be treated on a 2023 calendar year return as having 2 preceding years (2021 and 2022). In this case, you would calculate the amount on line 35 by dividing line 34 by 2.0. Do not disregard tax years in which no distributions were made. The IRS will consider your proof of these prior distributions as adequate records to demonstrate that any distribution up to the amount on line 31 is not an accumulation distribution in the current tax year.

Line 36. Enter this amount as ordinary income on your income tax return. Report this amount on the appropriate schedule of your income tax return (for example, Schedule E (Form 1040), Part III).

Line 37. If there is an amount on line 37, you must also complete line 38 and Schedule C—Calculation of Interest Charge to determine the amount of any interest charge you may owe.

The Foreign Nongrantor Trust Beneficiary Statement must also include items (1), (4), and (6), as listed in the line 29 instructions, earlier, in addition to the basic identifying information (see Identifying Information , earlier) about the foreign trust and its trustee.

If any of items required for the Foreign Nongrantor Trust Beneficiary Statement is missing, you must check “No.”

Caution: If a foreign grantor trust, or the question is not applicable, check “N/A.”

Schedule B—Actual Calculation of Trust Distributions You may only use Schedule B if:

Line 40a. Enter on line 40a the amount received by you from the foreign trust that is treated as ordinary income of the trust in the current tax year. Ordinary income is all income that is not capital gains. Report this amount on the appropriate schedule of your tax return (for example, Schedule E (Form 1040), Part III).

Lines 42a through 42d. Enter on these lines the applicable amounts received by you from the foreign trust

You answered “Yes” to line 30,
You attach a copy of the Foreign Nongrantor Trust Beneficiary Statement to this return, and
You have never before used Schedule A for this foreign trust or this foreign trust terminated during the tax year.

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that are treated as capital gain income of the trust in the current tax year. Report these amounts on the appropriate schedule of your tax return (for example, Schedule D (Form 1040)).

Line 45. Enter the foreign trust’s aggregate undistributed net income (UNI).

Example. A trust was created in 2018 and has made no distributions prior to 2024. Assume the trust’s ordinary income was $0 in 2023, $60 in 2022, $124 in 2021, $87 in 2020, $54 in 2019, and $25 in 2018. Thus, for 2024, the trust’s UNI would be $350. If the trust earned $100 and distributed $200 during 2024 (so that $100 was distributed from accumulated earnings), the trust’s 2025 aggregate UNI would be $250 ($350 + $100 − $200).

Line 46. Enter the foreign trust’s weighted undistributed net income (weighted UNI). The trust’s weighted UNI is its accumulated income that has not been distributed, weighted by the years that it has accumulated income. To calculate weighted UNI, multiply the undistributed income from each of the trust’s years by the number of years since that year, and then add each year’s result. Using the example from line 45, the trust’s weighted UNI in 2024 would be $1,260, calculated as follows.

2024 weighted UNI . . . . . . . . . . . . . . . . . . . . . $1,260

UNI at beginning of 2024 . . . . . . . . . . . . . . . . . + 350

Trust earnings in 2024 . . . . . . . . . . . . . . . . . . . + 100

Trust distributions in 2024 . . . . . . . . . . . . . . . . - 200

No. of

UNI from each year Weighted UNI

Year

years since that

year

2023 1 $ 0 $ 0 2022 2 60 120 2021 3 124 372 2020 4 87 348 2019 5 54 270 2018 6 25 150

TOTAL $350 $1,260

To calculate the trust’s weighted UNI for 2025, the trust could update this calculation, or the weighted UNI shown on line 46 of the 2024 Form 3520 could simply be updated using the following steps.

Begin with the 2024 weighted UNI.
Add UNI at the beginning of 2024.
Add trust earnings in 2024.
Subtract trust distributions in 2024.
Subtract weighted trust accumulation distributions in 2024. The weighted trust accumulation distributions are the trust accumulation distributions in 2024 multiplied by the applicable number of years from 2024.

Using the example above, the trust’s 2025 weighted UNI would be $1,150, calculated as follows.

Weighted trust accumulation distributions in 2024

($100 X 3.6) . . . . . . . . . . . . . . . . . . . . . . . - 360

2025 weighted UNI . . . . . . . . . . . . . . . . . . . . . $1,150

Line 47. Calculate the trust’s applicable number of years by dividing line 46 by line 45. This would be the weighted UNI divided by the annual UNI. Using the examples in the instructions for lines 45 and 46, the trust’s applicable number of years would be 3.6 (1,260/350) in 2024 and 4.6 (1,150/250) in 2025.

Note: Include as many decimal places as there are digits in the UNI on line 45. For example, using the example in the instructions for line 45, include three decimal places.

Schedule C—Calculation of Interest Charge Complete Schedule C if you entered an amount on line 37 or line 41a.

Line 49. Include the amount from line 48 of this form on line 1 of Form 4970, Tax on Accumulation Distribution of Trusts. Then, compute the tax on the total accumulation distribution using lines 1 through 28 of Form 4970. Enter on line 49 the tax from line 28 of Form 4970.

Note: Use Form 4970 as a worksheet and attach it to Form 3520.

Line 51. Interest accumulates on the tax (line 49) for the period beginning on the date that is the applicable number of years (as rounded on line 50) prior to the applicable date and ending on the applicable date. For purposes of making this interest calculation, the applicable date is the date that is mid-year through the tax year for which reporting is made. For example, in the case of a 2025 calendar-year taxpayer, the applicable date would be June 30, 2025.

For portions of the interest accumulation period that are prior to 1996 and after 1976, interest accumulates at a simple rate of 6% annually, without compounding. For portions of the interest accumulation period that are after 1995, interest is compounded daily at the rate imposed on underpayments of tax under section 6621(a)(2). This compounded interest for periods after 1995 is imposed not only on the tax, but also on the total simple interest attributable to pre-1996 periods.

If you are a calendar-year taxpayer and you use June 30 of the calendar year as the applicable date for calculating interest, use the table found on IRS.gov/ CombinedInterestRate to determine the combined interest rate and enter it on line 51. If you are not a calendar-year taxpayer or you choose to use the actual date of the distribution as the applicable date, calculate the combined

Alternatively, if you received only a single distribution during the tax year that is treated as an accumulation distribution, you may use the date of that distribution as the applicable date.

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interest rate using the above principles and enter it on line 51.

Line 53. Report this amount as additional tax (ADT) on the appropriate line of your income tax return. For example, Form 1040 filers include this amount as part of the total for the “Any other taxes” line on Schedule 2 (Form 1040) under Part II—Other Taxes.