What is IRS Form 3520-A? When is it required? How is one filed?

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Did a tax software program tell you that you need to file IRS Form 3520-A? Have you heard vague rumors that you might need one? Hi I’m Anthony Parent of IRS Medic. In this video we will explain the most likely reason you need to file a Form 3520-A, what goes into the form, and what to do if you are late and want to avoid the steep penalties in case you are audited by the IRS. And in some cases, the IRS doesn't even need to examine you to assess penalties.
Form 3520-A is an annual informational return of a foreign trust with a US owner. The surprise is that many foreign pensions and retirement plans are considered by the tax law to be foreign trusts. 90% of the 3520-A forms that our tax firm files are all for foreign pensions.
How can my foreign pension be a trust?
The law on Form 3520-A could be a lot clearer. In fact, the instructions for Form 3520-A fail to even mention the words “foreign pension” or “foreign retirement” anywhere. Schedule B mentions Form 3520, but completely fails to mention Form 3520-A. So if you are unfiled, you are in good company.
But this is what we do know. The IRS often takes the position that a foreign pension is something known as a grantor trust or an employee’s trust. The IRS’s treatment is not entirely consistent, which is why you may encounter different advice. But we are not here to tell you what you will get away with, but rather, what could happen to you if you don’t file a Form 3520-A.
What will happen if I don’t file a Form 3520-A?
Well you may get away with it. But if you are detected by the IRS, you could also be looking at a $10,000 penalty for each Form 3520-A you did not file. If unfiled or improperly filed, the IRS can examine your entire Form 1040 indefinitely. That’s right, the IRS can audit you back to when you first started this retirement plan if an Form 3520-A was required but not filed. Even if that was 20 years ago.
Suppose an American moved to Australia in 1999, with contributions to a superannuation starting the same year. If a Form 3520-A was required, or not filed or improperly filed, that is 20 $10,000 penalties the IRS could assess, for a total of $200,000 in penalties alone. In the last three years, we have seen the IRS begin to be assess aggressive penalties - so aggressive many taxpayers and tax professionals find themselves shocked and stunned.
There is another 3520-A penalty the IRS can assess. Yet it is as of today, it’s rare to see.The IRS can impose a penalty of 5% of the retirement plan’s value. So if you have say a Swiss pension valued at $1 million USD, you can be hit with additionally penalties including a $50,000 penalty for not filing a Form 3520-A. And htis can be assessed multiple times. But this type of penalty is not as common as it can not be automatically assessed, unlike the $10,000 Form 3520-A penalty which often can be.
Will I get hit with a Form 3520-A penalty?
If the IRS can assess a $10,000 Form 3520-A penalty with little or no effort, your chances of being penalized are much larger. So then the question is “when can the IRS assess a Form 3520-A penalty easily?“ The answer is when you file late outside of a program or when you have an obvious error.
We do know that the IRS has a hard time following its own procedures, and Form 3520-A penalties are no exception. We routinely need to correct an IRS that fails to mitigate or improperly assesses penalties of a taxpayer who has gone through a streamlined disclosure program.
When is a Form 3520-A due? Do I attach it to my tax return? Do I have to file an extension?
Form 3520A is due 3 months and 15 days after the end of the tax year for the trust/pension. This usually makes the Form 3520-A due on March 15th - a month before your tax return is due if you live in the US and three months before your tax return is due if you live overseas.
If you file an extension for your tax return, this extension does NOT carry over to Form 3520-A. An extension of time to file Form 3520 A (including the statements on pages 3 through 5) may be granted by filing Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns.
If the idea of IRS civil penalties causes you anxiety and the threat of an IRS criminal prosecution gives you so much anxiety you’ve forgotten about all about your other anxieties, listen carefully. Form 3520-A is hardly the only international form that our clients are missing or have filled out incorrectly. International tax compliance is nothing but a series of clever traps. So my advice would be to get legal advice from a tax law firm that specializes in individual international taxation and is a Leader in offshore disclosures.
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[@chrismccoy6925]

My husband and I own a fideicomiso in Mexico, a property trust. The trust is held by a Mexican bank. That property is being sold and we have received a down payment in 2018. I filed 2018 3520-A in February but now I think I should amend. But where do we put that down payment info on our 3520-A? We also received interest on the balloon loan which is on our Schedule B. Where do we enter that info? I have spent close to 100 hours on calling IRS, reading to no avail, looking for an accountant within driving distance ...I live in Santa Fe NM. Help, PLEASE!

[@sandis7278]

Maybe you should do a video on IRS form 7702G and 720..It is pretty similar to this....I know you talked about them in your 13 things tax professionals get wrong but you didn't touch on it in much detail. Do you have to file an 7702G just if you pay into or get foreign Social Security. It is an annuity in many situations..

[@Juanmartinez-qm9il]

How much do you charge for helping fill out forms? I am interested in your services

[@senseijoe8.292]

Thanks for the information. I was wondering something, have you along with Ametican Citizens Abroad, Republicans Overseas, Democrats abroad, etc been in contact with Congress? I believe a tax prepper who is as professional as you can be a great voice for Americans living overseas.