IRS Turns Focus On Foreign Trust Reporting Including Form 3520-A

Forbes

04-07-2025

IRS Form 3520-A
In recent months, the IRS has revised a public announcement and issued an LB&I Practice Unit concerning information returns and penalties associated with foreign trusts. The public announcement attempts to educate taxpayers of the Form 3520-A reporting obligation, and the Practice Unit seeks to educate IRS examiners of the Form 3520-A penalties. Both are discussed more below.
Form 3520-A Public Announcement
The announcement, revised April 15, 2025, provides a summary of the Form 3520-A reporting requirement, including the 'who, when, and where' related to the information return.
Form 3520-A LB&I Practice Unit
The IRS released the LB&I Practice Unit on May 1, 2025. Although the Practice Unit relates to both Form 3520 and Form 3520-A penalties, the below summary taken from the Practice Unit focuses solely on the Form 3520-A penalties.
Compliance Options
U.S. persons with missed Form 3520-A filings have options. In many instances, these taxpayers may qualify for relief under the IRS' Streamlined Filing Compliance Procedures (SFCP). To qualify, however, the taxpayer must have unreported foreign income from certain reportable foreign assets and demonstrate non-willfulness, among other requirements.
Taxpayers who fail to meet the requirements of the SFCP should consider the IRS' Voluntary Disclosure Program (VDP). Although the VDP has higher penalties and a longer lookback period compared to the SFCP, the VDP can reduce criminal risks, particularly compared to another compliance option known as a 'quiet disclosure.'
Finally, the Delinquent International Information Return Submission Procedures (DIIRS) is another option for U.S. persons who missed a Form 3520-A filing deadline and who do not qualify for the SFCP. Under these procedures, the taxpayer submits the late Form 3520-A with a reasonable cause statement. Under more recent guidance, the IRS no longer assesses an automatic late-filing penalty in these circumstances—instead, the agency reviews the reasonable cause determination to decide whether the penalty should be imposed. If the IRS imposes the penalty, even with the reasonable cause statement, the taxpayer may request review of the penalty determination with the IRS Independent Office of Appeals.