Services · Foreign Trusts
The most unforgiving forms in US tax, handled with care
Foreign trust reporting carries some of the steepest automatic penalties the IRS administers — and it reaches arrangements many families never thought of as trusts. We prepare these filings as a core practice area, not an annual surprise.
Transactions with foreign trusts
- Form 3520
US persons who create a foreign trust, transfer property to one, receive distributions from one, or receive large gifts or bequests from non-US persons generally must file Form 3520. The penalties for silence start at the greater of US$10,000 or a percentage of the amounts involved — for an information return on which no tax may be due at all.
We determine whether the form applies, prepare it precisely, and coordinate it with your income tax return so the two tell one consistent story.
Foreign grantor trust returns
- Form 3520-A
- Substitute 3520-A
- Foreign grantor trust statements
A foreign trust with a US owner must file Form 3520-A each year and issue statements to its US owners and beneficiaries. Where a foreign trustee will not cooperate, the obligation falls back on the US owner. We prepare the trust return, the owner and beneficiary statements, and substitute filings where needed.
Classification & structuring analysis
- Grantor / non-grantor analysis
- Court & control tests
Everything in foreign trust taxation hinges on two questions: is the trust foreign, and who owns it for US purposes? We analyse trust deeds and facts against the court and control tests and the grantor trust rules, and document the conclusion — so your filings rest on a reasoned position rather than a guess.
Distributions to US beneficiaries
- Throwback rules
- Form 4970
- DNI / UNI analysis
Distributions from a foreign non-grantor trust to a US beneficiary can trigger the throwback regime — accumulated income taxed at punishing rates with an interest charge running back years. We calculate the exposure, prepare the beneficiary reporting, and advise trustees on distribution timing that avoids manufacturing the problem in the first place.
Catch-up & penalty response
- Delinquent 3520 / 3520-A
- Reasonable cause statements
Many foreign trust problems surface years late — often when a family discovers that a pension, savings plan or inheritance carried a US filing requirement. We prepare delinquent submissions with reasonable cause statements and respond to IRS penalty notices with the facts and law organised properly.
FAQ
Foreign trusts — common questions
What counts as a “foreign trust” for US purposes?
Broadly, any trust that fails either the US court test or the US control test — which captures most trusts established outside the United States, and some arrangements that are not called trusts at all locally. Certain foreign pension and savings arrangements can also be treated as foreign trusts, which is how many taxpayers acquire a filing obligation without realising it.
I received a large gift or inheritance from a non-US relative. Do I need to report it?
If you are a US person and the gifts or bequests from a non-resident exceed US$100,000 in a year, you generally must report them on Form 3520. The gift itself is usually not taxable — but the penalty for failing to file the report can reach 25% of the amount received.
What is the difference between a grantor and a non-grantor trust?
In a grantor trust, the person who funded the trust is treated as owning its assets, and its income lands on their return; in a non-grantor trust, the trust is its own taxpayer and distributions carry the tax to beneficiaries — including, for foreign trusts, the punitive throwback rules on accumulated income. The classification drives every filing that follows, so we analyse it first.
The trustee will not give me information. Can I still comply?
This is common and the rules anticipate it: a US owner of a foreign grantor trust whose trustee will not file Form 3520-A must file a substitute statement themselves. We work with what can be obtained, document what cannot, and structure the filing to put you in the most defensible position available.
Work with us
A trust somewhere in the structure?
Foreign trust filings reward early attention and punish delay. Tell us what exists — even roughly — and we will identify what the IRS expects.