2023 Form 3520 Deadline in 2024 | Foreign Trust Tax Lawyer & Attorney

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Form 3520 is one of the most important US international information returns. Due to its severe penalty structure, it is important to file it timely. In this brief essay, I will discuss the tax year 2023 Form 3520 deadline.

2023 Form 3520 Deadline: What is Form 3520

IRS Form 3520 is a US international information return used by the IRS to collect information related to foreign trusts, foreign gifts and foreign inheritance. In essence, Form 3520 collects four types of data from US taxpayers:

  • Certain transactions with foreign trusts;
  • Ownership of foreign trusts under the rules of sections 671 through 679;
  • Receipt of certain large gifts from foreign persons; and
  • Bequests from foreign persons

It is very important that you file Form 3520 timely, because late filing Form 3520 penalties can be very high. For example, a failure to timely disclose a reportable foreign gift on Form 3520 may result in a penalty as high as 25% of the value of the gift. Initial Form 3520 penalty for a failure to report a property transferred by a US transferor to a foreign trust may be as high as 35% of the gross value of the property.

2023 Form 3520 Deadline: Where to File

Form 3520 reporting is complicated by the fact that this form is not filed with a US tax return. Rather, for the tax year 2023, a Form 3520 with all required attachments should be mailed to the following address:

Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409

My recommendation is to mail your 2023 Form 3520 by US Certified Mail.

2023 Form 3520 Deadline: When to File

Generally, 2023 Form 3520 deadline will correspond to your US income tax return deadline. In other words, a US person must file his Form 3520 by and including the 15th day of the 4th month following the end of such person’s tax year for US income tax purposes. Same rule applies to Forms 3520 filed by an estate and on behalf of a US decedent. If the due date falls on a Saturday, Sunday, or legal holiday, file by the next day that is not a Saturday, Sunday, or legal holiday.

For individual taxpayers who reside in the United States, this usually means April 15. For example, your 2023 Form 3520 will be due on April 15, 2024.

Moreover, if you are a US citizen or resident and (a) you live outside of the United States and Puerto Rico and your place of business or post of duty is outside the United States and Puerto Rico, OR (b) you are in the military or naval service on duty outside of the United States and Puerto Rico, then your tax deadline will shift to the 15th day of the 6th month (i.e. June 15). In other words, if you satisfy either (a) or (b) above and you are either a US citizen or US resident, then your 2023 Form 3520 will be due on June 17, 2024 (because June 15 is a Saturday this year). You must include a statement with your 2023 Form 3520 showing that you are a U.S. citizen or resident who meets one of these conditions listed above.

Finally, if a US person is granted an extension of time to file an income tax return, the due date for filing Form 3520 shifts to the 15th day of the 10th month following the end of the US person’s tax year. In other words, if you are an individual who filed an extension on your US income tax return, then your 2023 Form 3520 will be due on October 15, 2024.

Contact Sherayzen Law Office for Professional Help With Your 2023 Form 3520 Deadline

If you are required to file a Form 3520 for the tax year 2023 (whether because you are an owner or a beneficiary of a foreign trust, you received a foreign gift or you received a foreign inheritance), contact Sherayzen Law Office for professional help. We have successfully helped US taxpayers around the world with their Form 3520 compliance, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

2021 Form 3520-A Deadline in 2022 | Foreign Trust Tax Lawyer & Attorney

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Form 3520-A is a very important US international information return. It can be very complex and has somewhat tricky filing requirements as well as significant noncompliance penalties. In order to avoid these penalties, you need to file a correct Form 3520-A timely. In this essay, I will discuss the 2021 Form 3520-A deadline in the calendar year 2022.

2021 Form 3520-A Deadline: Purpose of Form 3520-A

Form 3520-A occupies an important role in US international tax law. Its primary purpose is to supply certain information about a foreign trust with at least one US person who is treated as an owner of the foreign trust under the grantor trust rules found in the IRC (Internal Revenue Code) §§671-679.

Through Form 3520-A, the IRS collects not only the data about the foreign trust and its US beneficiaries, but also the information concerning interactions between the foreign trust and its US owners. Moreover, Form 3520-A indicates the amount of income a US owner must recognize on his US tax returns (irrespective of whether this income was distributed to the owner).

2021 Form 3520-A Deadline: Who Must File

As I mentioned above, the question of “who must file” Form 3520-A is quite tricky. Generally, a foreign trust with a US owner has responsibility to file Form 3520-A in order for the US owner to satisfy his annual information reporting requirements under IRC §6048(b). Hence, while a foreign trust officially must file Form 3520-A, in reality, it is the responsibility of each US person treated as an owner of any portion of a foreign trust to ensure that the trust files Form 3520-A and furnishes the required annual statements to its US owners and US beneficiaries.

What if the foreign trust fails to file the required Form 3520-A? Then, the US owner must complete a substitute Form 3520-A for the foreign trust and attach this substitute Form 3520-A to the US owner’s Form 3520.

2021 Form 3520-A Deadline: Penalties for Late Filing

If the foreign trust fails to file Form 3520-A timely and its US owner fails to submit a substitute Form 3520-A timely, then the US owner (I emphasize: not the foreign trust, but its US owner) will be subject to heavy Form 3520-A penalties.

The main penalty in this case would be $10,000 or 5% of the gross value of the foreign trust, whichever is higher. The “gross value” here means the portion of the foreign trust’s assets at the end of year treated as owned by US persons.

Additional penalties may apply if noncompliance lasts more than 90 days after the IRS mails a “failure to comply” notice. The US owner also may be subject to the underpayment penalties for failure to report income indicated on Form 3520-A. Finally, criminal penalties may be imposed under IRC §§7203, 7206 and 7207 for failure to file on time and for filing a false or fraudulent return.

2021 Form 3520-A Deadline: Where to File

The foreign trust needs to file Form 3520-A (including the statements on pages 3 and 5) at the following address:

Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409

I recommend mailing Form 3520-A by US Certified Mail. I want to emphasize for the US readers who are mailing their returns – do NOT attach Form 3520-A to your US tax return. It must be mailed separately from your US income tax return to the address I indicated above.

2021 Form 3520-A Deadline: When to File

The deadline for Form 3520-A can also be tricky. Generally, the due date for Form 3520-A is the 15th of the third month after the end of the trust’s tax year.

However, if you are filing a substitute Form 3520-A with your Form 3520, then your substitute Form 3520-A is due by the due date of Form 3520. The trust must also supply the Foreign Grantor Trust Owner Statement and Foreign Grantor Trust Beneficiary Statement to its US owners and US beneficiaries by the 15th of the third month after the end of the trust’s tax year, unless an extension is filed.

The foreign trust may file Form 7004 to request an automatic six-month Form 3520-A filing extension (it also applies to the aforementioned Statements). Note that filing Form 7004 is the only way to request this six-month extension. A common procedural tax trap is for people to file an income tax return extension (Form 4868) and think that this would apply to Form 3520-A. This is incorrect – you must separately file Form 7004 to get an extension on your Form 3520-A.

Thus, the current outstanding 2021 Form 3520-A deadline for a calendar-year filer is March 15, 2022. If Form 7004 is filed, then the extended 2021 Form 3520-A deadline for this filer would be September 15, 2022.

Contact Sherayzen Law Office for Professional Help With Your 2021 Form 3520-A Deadline

If you are required to file Form 3520-A or if you have not complied with your Form 3520-A reporting requirements in the past, you need to contact Sherayzen Law Office for professional help! Sherayzen Law Office is an international tax law firm that specializes in offshore voluntary disclosures (including the ones that involve Form 3520-A) and US international information returns compliance. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!

2021 Form 3520 Deadline in 2022 | Foreign Trust Tax Lawyer & Attorney

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The beginning of a new tax season starts the clock on completing the required US international information returns, including Form 3520. In this brief essay, I will discuss the tax year 2021 Form 3520 deadline.

2021 Form 3520 Deadline: What is Form 3520 ?

IRS Form 3520 is a US international information return used by the IRS to collect information related to foreign trusts, foreign gifts and foreign inheritance. In essence, Form 3520 collects four types of data from US taxpayers:

  • Certain transactions with foreign trusts;
  • Ownership of foreign trusts under the rules of sections 671 through 679;
  • Receipt of certain large gifts from foreign persons; and
  • Bequests from foreign persons.

It is very important that you file Form 3520 timely, because late filing Form 3520 penalties can be very high. For example, a failure to timely disclose a reportable foreign gift on Form 3520 may result in a penalty as high as 25% of the value of the gift. Initial Form 3520 penalty for a failure to report a property transferred by a US transferor to a foreign trust may be as high as 35% of the gross value of the property.

2021 Form 3520 Deadline: Where to File

Form 3520 reporting is complicated by the fact that this form is not filed with a US tax return. Rather, for the tax year 2021, a Form 3520 with all required attachments should be mailed to the following address:

Internal Revenue Service Center
P.O. Box 409101
Ogden, UT 84409

My recommendation is to mail your 2021 Form 3520 by US Certified Mail.

2021 Form 3520 Deadline: When to File

Generally, 2021 Form 3520 deadline will correspond to your US income tax return deadline. In other words, a US person must file his Form 3520 by and including the 15th day of the 4th month following the end of such person’s tax year for US income tax purposes. Same rule applies to Forms 3520 filed by an estate and on behalf of a US decedent. If the due date falls on a Saturday, Sunday, or legal holiday, file by the next day that is not a Saturday, Sunday, or legal holiday.

For individual taxpayers who reside in the United States, this usually means April 15. However, due to the fact that April 15 is a legal holiday this year, your 2021 Form 3520 will be due on April 18, 2022.

Moreover, if you are a US citizen or resident and (a) you live outside of the United States and Puerto Rico and your place of business or post of duty is outside the United States and Puerto Rico, OR (b) you are in the military or naval service on duty outside of the United States and Puerto Rico, then your tax deadline will shift to the 15th day of the 6th month (i.e. June 15). In other words, if you satisfy either (a) or (b) above and you are either a US citizen or US resident, then your 2021 Form 3520 will be due on June 15, 2022. You must include a statement with your 2021 Form 3520 showing that you are a U.S. citizen or resident who meets one of these conditions listed above.

Finally, if a US person is granted an extension of time to file an income tax return, the due date for filing Form 3520 shifts to the 15th day of the 10th month following the end of the US person’s tax year. In other words, if you are an individual who filed an extension on your US income tax return, then your 2021 Form 3520 will be due on October 17, 2022 (because October 15 falls on a Saturday this year).

Contact Sherayzen Law Office for Professional Help With Your 2021 Form 3520 Deadline

If you are required to file a Form 3520 for the tax year 2021 (whether because you are an owner or a beneficiary of a foreign trust, you received a foreign gift or you received a foreign inheritance), contact Sherayzen Law Office for professional help. We have successfully helped US taxpayers around the world with their Form 3520 compliance, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Hindu Undivided Family (HUF) US Tax Classification | Foreign Trust Lawyer

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This article continues a series of articles concerning US tax classification of unusual foreign entities; our focus is on the determination whether these entities should be classified as foreign business entities or foreign trusts. Today’s topic is the Hindu Undivided Family, the preferred legal entity for managing family estates for a large number of wealthy Indian families.

A word of caution, the description of the Hindu Undivided Family (“HUF”) provided below is necessarily a general one. This article sacrifices detail for the sake of clarity.

Hindu Undivided Family: Purpose

The main purpose of HUF is to manage family-owned property. I want to emphasize that this is not a property owned by one or two members individually or jointly; rather, the entire family owns the property.

Hindu Undivided Family: Lineal Descendants From a Common Ancestor

HUF is an entity that applies to and gives rights only to lineal descendants from a common ancestor as well as their wives and unmarried daughters. Married daughters are not considered members of their fathers’ families; instead, upon marriage, they become members of their husbands’ families.

These lineal descendants are called coparceners. They have the right to enjoy distributions from HUF and even have a right to demand partition in the HUF property.

Hindu Undivided Family: Management

The head of the family (called “karta”) manages the HUF property on behalf of the family. Usually, karta is a senior male, but recently women also started to occupy this role. Karta is prohibited from contributing property to HUF.

Hindu Undivided Family: Legal Classification Under Indian Law

HUF exists as a separate juridical entity for Indian tax purposes. It is defined on the basis of Hindu personal law. The Hindu personal law states that the joint and undivided family is a normal condition of Hindu society where all members of a Hindu family are living in a state of union.

It is important to emphasize this special legal position of HUF, because all other Indian entities are defined in the Indian company law. HUF is an exception in having Hindu personal law as its legal basis.

Hindu Undivided Family: Potential US Tax Classification

As of the time of this writing, the IRS has not ruled on the proper US tax classification of HUF. Therefore, at this time, we can only speculate about how the IRS will treat HUF under US tax law.

Under 26 CFR §301.7701-4(a) “trust” is defined as an arrangement created by will or by an inter vivos declaration whereby trustees take title to property for the purpose of protecting or conserving it for the beneficiaries under the ordinary rules provided in chancery or probate courts. Usually the beneficiaries of such a trust do no more than accept the benefits thereof and are not the voluntary planners or creators of the trust arrangement. However, the beneficiaries of such a trust may be the persons who create it and it will be recognized as a trust if it was created for the purposes of protecting or conserving the trust property for beneficiaries who stand in the same relation to the trust as they would if the trust had been created by others for them. Generally, an arrangement will be treated as a trust if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and, therefore, are not associates in a joint enterprise for the conduct of business for profit.

Thus, if it is established that HUF was created for the purpose of vesting trustees responsibility for the protection and conservation of property for beneficiaries and not to carry out business, then, it should be classified as a foreign trust under US tax law. If, however, the facts and circumstances in a particular case indicate that a HUF was established primarily for commercial purposes as opposed to the purpose of protecting or conserving property on behalf of the beneficiaries, then this HUF will most likely be classified as a business entity under §301.7701-2(a).

Additionally, there are certain additional features of HUF that may further support its classification as a foreign trust. For example, the role of karta appears to be analogous to a trustee in most cases, whereas coparceners are likely to be considered beneficiaries for US tax purposes (especially if they do not take any active role in the management of HUF property).

Thus, based on the analysis above, it appears that, in most cases, the IRS is likely to rule that HUF is a trust under US tax law. I want to emphasize the limitation “in most cases”; I believe that a US tax treatment of HUF will depend on the specific facts and circumstances concerning a specific HUF.

Hindu Undivided Family: US International Tax Compliance Implications

The precise US tax classification of HUF may have far-reaching consequences for US international tax compliance of coparceners who are US tax residents (i.e. green card holders or persons who satisfied the substantial presence test) and US citizens (collectively “US Persons”). A whole host of US international tax reporting requirements as well income tax requirements will apply to such individuals.

For example, if HUF is classified as a trust, then coparceners who are US persons may have to file Forms 3520 and 8938 as well as FBARs. Moreover, they may have to deal with the onerous consequences of the “throwback tax” on distributions of accumulated trust income. Other requirements may also apply in this situation.

If, however, HUF is classified as a corporation, then such coparceners may have to file Form 5471 and 8938. If this is a Controlled Foreign Corporation (“CFC”), they will have to deal with all kinds of anti-deferral regimes, including GILTI tax. If this is not a CFC, then the PFIC regime may be a problem. Again, additional requirements may apply in such situations.

If HUF is classified as a partnership, then Form 8865 will have to be filed every year and income from 8865 Schedule K-1 will have to be reported on such a coparcener’s US federal income tax return. Once again, additional requirements may apply in such situations.

Contact Sherayzen Law Office for Professional Help With Your US International Tax Obligations Concerning Hindu Undivided Family

If you are a coparcener who is a US Person, contact Sherayzen Law Office for professional help concerning your US international tax compliance. Sherayzen Law Office is a US-based tax law firm dedicated to helping clients in the United States and throughout the world with their US international tax compliance issues.

We have successfully helped hundreds of Indian clients with their US income tax compliance issues, and we can help you!

Contact Us Today to Schedule Your Confidential Consultation!

Liechtenstein Stiftung: US Tax Classification | Foreign Trust Tax Lawyer

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This article continues a series of articles on foreign trust classification with respect to various foreign entities. Today’s topic is the US tax treatment of a Liechtenstein Stiftung.

Liechtenstein Stiftung: Formation

A Liechtenstein Stiftung, or Foundation, is a legal entity under Liechtenstein law. It may be formed by filing a foundation charter or by will or testamentary disposition. A Stiftung is entered into the Register in Liechtenstein and must have a minimum amount of initial capital.

Liechtenstein Stiftung: Purpose

A Stiftung may be a family foundation established to provide benefits to members of a designated family or a charitable or religious foundation. A Stiftung cannot be organized to engage in the active conduct of a business, but Liechtenstein law provides that, in certain cases, commercial activities may be undertaken by a Stiftung if such activities serve its noncommercial purposes.

Liechtenstein Stiftung: Beneficiaries

A Stiftung exists for the benefit of those persons who are named as beneficiaries in its formation documents. The Founder transfers specific assets to the Stiftung that are then endowed for specific purposes. The assets pass from the personal estate of the Founder to the Stiftung.

Liechtenstein Stiftung: Governance

The Founder sets the objectives of a Stiftung and appoints its administrators which are organized into a Council of Members. The Founder may appoint himself as an administrator.

The duties and obligations of the administrators are set forth in the Stiftung’s articles and includes the conduct of the Stiftung’s affairs. This includes the investment and management of its assets and the distribution of income and/or capital to the beneficiaries as per the provisions of the Stiftung’s articles. Under Liechtenstein law, the administrators are responsible for the proper management and conservation of the Stiftung’s assets. The Founder may reserve for himself the right to discharge and appoint administrators.

Liechtenstein Stiftung: Limited Liability

A Stiftung only has legal liability up to the amount of its contributed capital and net assets and it cannot be made liable for liabilities in excess of them.

Liechtenstein Stiftung: Legal Background Under US Tax Law

26 CFR §301.7701-1(a) provides that the Internal Revenue Code (“Code”) prescribes the classification of various organizations for federal tax purposes. Whether an organization is an entity separate from its owners for federal tax purposes is a matter of federal tax law and does not depend upon whether the organization is recognized as an entity under local law.

26 CFR §301.7701-1(b) of the regulations provides that the classification of organizations that are recognized as separate entities is determined under §§301.7701-2, 301.7701-3, and 301.7701-4 unless a provision of the Code provides for special treatment of that organization.

26 CFR §301.7701-4(a) of the regulations provides that, in general, the term “trust” as used in the Code refers to an arrangement created by will or by an inter vivos declaration whereby trustees take title to property for the purpose of protecting or conserving it for the beneficiaries under the ordinary rules provided in chancery or probate courts. Usually the beneficiaries of such a trust do no more than accept the benefits thereof and are not the voluntary planners or creators of the trust arrangement. However, the beneficiaries of such a trust may be the persons who create it and it will be recognized as a trust under the Code if it was created for the purposes of protecting or conserving the trust property for beneficiaries who stand in the same relation to the trust as they would if the trust had been created by others for them. Generally, an arrangement will be treated as a trust under the Code if it can be shown that the purpose of the arrangement is to vest in trustees responsibility for the protection and conservation of property for beneficiaries who cannot share in the discharge of this responsibility and, therefore, are not associates in a joint enterprise for the conduct of business for profit.

Furthermore, 26 CFR §301.7701-4(a) provides that there are other arrangements which are known as trusts because the legal title to property is conveyed to trustees for the benefit of beneficiaries, but which are not classified as trusts for purposes of the Code, because they are not simply arrangements to protect or conserve the property for the beneficiaries. These trusts, which are often known as business or commercial trusts, generally are created by the beneficiaries simply as a device to carry on a profit-making business which normally would have been carried on through business organizations that are classified as corporations or partnerships under the Code. However, the fact that the corpus of the trust is not supplied by the beneficiaries is not sufficient reason in itself for classifying the arrangement as an ordinary trust rather than as an association or partnership.

Thus, the fact that any organization is technically cast in the trust form, by conveying title to property to trustees for the benefit of persons designated as beneficiaries, will not change the real character of the organization if the organization is more properly classified as a business entity under §301.7701-2. Hence, foreign entities must be analyzed on a case-by-case basis to determine their true classification under US tax law.

Liechtenstein Stiftung: US Tax Treatment

The IRS has determined that, generally (and it is important to emphasize the word “generally”), a Liechtenstein Stiftung should be classified as a trust under US tax law. IRS Chief Counsel Advice Memorandum, AM 2009-012. The IRS believes that, in most cases, “the Stiftung’s primary purpose is to protect or conserve the property transferred to the Stiftung for the Stiftung’s beneficiaries and is usually not established primarily for actively carrying on business activities.” Id.

If, however, the facts and circumstances in a particular case indicate that “a Stiftung was established primarily for commercial purposes as opposed to the purpose of protecting or conserving property on behalf of the beneficiaries, the Stiftung in such case may be properly classified as a business entity under §301.7701-2(a).” Id.

Thus, a taxpayer who is a beneficiary or Founder of a Liechtenstein Stiftung must retain a US international tax lawyer to examine the specific facts and circumstances in each case in order to determine the US tax classification of a particular Stiftung.

Contact Sherayzen Law Office for Professional Help Concerning Proper US Tax Classification of a Liechtenstein Stiftung

Determining the proper classification of a Liechtenstein Stiftung is very important for its beneficiaries and Founders who are US tax residents, because such classification will have a direct impact on these taxpayers’ US international tax compliance, including determining whether Form 3520 or Form 5471 has to be filed.

This is why, if you are a beneficiary and/or a Founder of a Liechtenstein Stiftung, contact Sherayzen Law Office for professional help with your US tax compliance. We have successfully helped US taxpayers from over 70 countries with their US international tax compliance issues, including classification of foreign business entities and foreign trusts. We can help you!

Contact Us Today to Schedule Your Confidential Consultation!