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

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

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!

Mexican Fideicomiso is not a Foreign Trust | International Tax Attorney

Mexican Fideicomiso is one of the most convenient ways for U.S. persons to purchase land in Mexico. Of course, one can purchase the land through a Mexican corporation, but such an arrangement will require additional tax planning and higher annual compliance costs, including potentially filing form 5471, Form 8938 and other forms. Therefore, most U.S. persons prefer to purchase land in Mexico through a Mexican Fideicomiso.

I am often asked a question about whether Mexican Fideicomiso should be considered a foreign trust for U.S. tax purposes. The answer to this questions is fairly straightforward, but it is important to point out a potential pitfall.

Main Rule: Mexican Fideicomiso is Not a Foreign Trust for U.S. Tax Purposes

The U.S. tax treatment of Mexican Fideicomiso was settled by the IRS in PLR 201245003 and, even more authoritatively, IRS Revenue Ruling 2013-14. In PLR 201245003 and Rev. Rul. 2013-14, the IRS decisively ruled that a Mexican Fideicomiso is not a foreign trust for U.S. tax purposes.

Main Rule Applies Only If a True Mexican Fideicomiso Relationship is Preserved

It is important to understand, however, that PLR 201245003 and Rev. Rul. 2013-14 apply only if the true Fideicomiso relationship is preserved. If this relationship is modified with other features and agreements, then the U.S. tax treatment of the new arrangement may actually change. For example, if the trustee of Mexican Fideicomiso suddenly acquires the ability to act independently and in complete disregard of the beneficiary’s instructions, the IRS may start treating this modified Mexican Fideicomiso as a foreign trust.

Contact Sherayzen Law Office for Help with Reporting of Your Foreign Assets and Foreign Income

If you have foreign assets or foreign income, you are facing a difficult challenge of trying to comply with the numerous complex U.S. tax requirements. It is very easy to make mistakes in this area; given the high penalties associated with noncompliance, the cost of remedying these mistakes may be high.

This is why you need the help of Sherayzen Law Office, an experienced international tax law firm that has helped hundreds of U.S. taxpayers around the globe to bring and maintain their tax affairs in full compliance with U.S. tax laws.

Contact Us Today to Schedule Your Confidential Consultation!

Taxation of Liquidating Trusts

Liquidating trusts are common in today’s business environment and it is highly important to understand how they are taxed in the United States. This article is a continuation of a series of articles on the general overview of U.S. taxation of different types of foreign and domestic trusts with the focus on liquidating trusts.

Liquidating Trusts: Definition

Regs. §301.7701-4(d) states that a trust will be considered a liquidating trust “if it is organized for the primary purpose of liquidating and distributing the assets transferred to it, and if its activities are all reasonably necessary to, and consistent with, the accomplishment of that purpose”.

Liquidating Trusts: Tax Treatment

Generally, liquidating trusts are treated as trusts for U.S. tax purposes, but only as long as the trust’s business activities do not become so big as to obscure the trust’s liquidating function. Id. If the latter becomes the case (i.e. the trust’s business activities will obscure its liquidating purpose), then the trust will be treated as a partnership or an association taxable as a corporation.

As Regs. §301.7701-4(d) states, “if the liquidation is unreasonably prolonged or if the liquidation purpose becomes so obscured by business activities that the declared purpose of liquidation can be said to be lost or abandoned, the status of the organization will no longer be that of a liquidating trust.”

Presumptively, Regs. §301.7701-4(d) will treat the following entities as liquidating trusts: bondholders’ protective committees, voting trusts, and other agencies formed to protect the interests of security holders during insolvency, bankruptcy, or corporate reorganization proceedings are analogous to liquidating trusts. However, if they are “subsequently utilized to further the control or profitable operation of a going business on a permanent continuing basis, they will lose their classification as trusts for purposes of the Internal Revenue Code”. Id.

It should be mentioned that, in Rev. Proc. 94-45, the IRS stated that it will treat organizations created under Chapter 11 of the Bankruptcy Code as liquidating trusts as long as all of the IRS extensive requirements are satisfied. Rev. Proc. 94-45 described in detail eleven IRS requirements.

Liquidating Trusts: IRS Review

In general, during the examination of a taxpayer’s classification of the entity as a liquidating trust, the IRS will engage in a two-step analysis. First, it will focus on the trust’s documents, its stated purpose and the powers of the trustees. Second, the IRS will analyze the actual operations of the trust.

The powers of trustees deserve special attention in liquidating trusts. Generally, granting to a trustee incidental business powers to prevent the loss of the value of distributed assets will not turn a liquidating trust into a corporation. However, where trustees are granted extensive powers to conduct business for a relatively large period of time, there is a significant risk that the IRS will re-classify a liquidating trust as a corporation or a partnership.