Form 3520 & 3520-A: Foreign Trust Reporting for US Expats

Most US expats have heard of FBAR. Far fewer know about Form 3520 — the annual return the IRS requires for US persons who hold certain foreign accounts treated as trusts, receive distributions from them, or receive large gifts from foreign persons. The forms carry no income tax — they are pure information returns. But the penalties for missing them start at $10,000 per form per year and can reach 35% of the trust's gross value. This guide explains what triggers each form, which expat accounts are affected in 2026, and how to fix years of non-filing.

What Form 3520 Is — and What It Is Not

Form 3520 is the Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.² It is not an income tax return. Filing it creates no income tax liability by itself. Its purpose is to inform the IRS about US persons' transactions with foreign trusts and large foreign gifts — so the IRS can verify that related income is being taxed correctly on the Form 1040.

The confusion that creates compliance problems: US expats correctly understand that they owe little or no US income tax (because FTC or FEIE eliminate the liability). They then skip Form 3520 because "I don't owe anything." The error is conflating income tax liability with information return obligations. The two are independent. You can owe $0 in income tax and still owe Form 3520 — and the penalty for missing it is real regardless of how much tax you owe.

The Four Parts That Trigger Form 3520

Form 3520 has four distinct parts. You file only the parts that apply to your situation:

Part I — Transfers to a Foreign Trust

Required if you, as a US person, transferred money or property to a foreign trust during the year. This includes:³

• Opening a new foreign trust account and depositing funds (creating or contributing to a TFSA, assurance-vie, Riester, Pillar 3a, etc.)
• Making annual contributions to an existing foreign trust
• Transferring appreciated property (stock, real estate) to a foreign trust

The penalty for failure to report Part I transactions: the greater of $10,000 or 35% of the gross value of the property transferred. Continuation penalty: $10,000 per additional 30-day period after a 90-day IRS notice with no maximum.

Part II — US Owner of a Foreign Trust

Required if you are treated as the owner of a foreign trust under the grantor trust rules of IRC §§ 671–679. Under these rules, a US person who can control the trust's income or principal — or who transferred assets to the trust under certain conditions — is treated as if they personally own the trust's assets for US tax purposes.

Being the grantor of a foreign trust means the trust's income flows through to your Form 1040 as your own income, regardless of whether you actually received distributions. A US person holding a TFSA or assurance-vie is both grantor and beneficiary — meaning Part I (contributions) and Part II (ownership) typically both apply in the same year.

Part II is enforced primarily through Form 3520-A (see below). The penalty for a US owner who fails to ensure a Form 3520-A is filed: the greater of $10,000 or 5% of the gross value of all trust assets at year-end.

Part III — Distributions from a Foreign Trust

Required if you received a distribution from a foreign trust during the year — including distributions from trusts you hold as beneficiary rather than grantor. The penalty for missing Part III: the greater of $10,000 or 35% of the gross value of the distribution.

One important nuance: if you are the grantor of the trust (Part II applies) and you take money out of the account, the IRS characterizes this as a distribution, which triggers Part III in addition to Parts I and II. An expat drawing down a TFSA or Pillar 3a would technically have all three parts in a single year.

Part IV — Foreign Gifts and Inheritances

Required if you received money or property from a foreign person that the IRS could characterize as a gift, bequest, or inheritance above certain thresholds:¹

Part IV reports receipt only — no US gift tax is imposed on the recipient. Foreign gifts are not US income. The purpose is visibility: the IRS wants to know when a US person receives large transfers from foreign persons, particularly to verify that the transfer is genuinely a gift and not a disguised foreign business payment or untaxed income.

The penalty for failing to report a foreign gift or inheritance: 5% of the amount of the gift per month of non-compliance, capped at 25% total.

Form 3520-A — The Foreign Trust's Own Return

Form 3520-A is the Annual Information Return of Foreign Trust With a US Owner.⁴ It is the foreign trust's own filing obligation — distinct from Form 3520, which is the US owner's filing. Where Form 3520 reports your transactions with the trust, Form 3520-A reports the trust's income, assets, and distributions on a standardized format that the IRS uses to verify the grantor's 1040.

Who files Form 3520-A?

Technically, the trustee of the foreign trust is supposed to file Form 3520-A. In practice, the trustee of a TFSA at a Canadian bank, a Pillar 3a account at a Swiss insurer, or an assurance-vie at a French bank has no idea they have a US filing obligation — and they are not going to file one. The US owner bears the responsibility for ensuring Form 3520-A gets filed, even if that means filing a "substitute Form 3520-A" themselves on behalf of the foreign trust.

The US owner who fails to ensure Form 3520-A is filed faces the same penalty: the greater of $10,000 or 5% of the gross value of the trust's assets at year-end.

Deadline difference

Form 3520-A is due March 15 for calendar-year trusts — one month before Form 3520. Extension to September 15 is available with Form 7004. The different deadline is a source of compliance failures: practitioners focused on the April 15 Form 3520 deadline sometimes miss the March 15 Form 3520-A requirement for the same year.

Which Expat Accounts Trigger Form 3520 and 3520-A?

The following table summarizes common foreign financial accounts held by US expats and whether Form 3520 / 3520-A obligations apply. "Contested" means the IRS has not formally ruled and practitioners take different positions; conservative practice is to file.

Foreign Gifts: Part IV in Detail

Part IV of Form 3520 applies when you receive a large gift, inheritance, or bequest from a foreign person. The common situations for US expats:

• Inheritance from foreign parents or grandparents. If a non-US parent dies and leaves you assets worth more than $100,000 — cash, real estate, securities — Form 3520 Part IV is required. The inheritance is not US income and triggers no US income tax. It simply needs to be reported.
• Gift from a foreign-national spouse. Non-US spouses can give each other up to $194,000 per year (2026) free of US gift tax. But if the transfer in a single year exceeds $100,000, Form 3520 Part IV is required to report receipt even though it isn't taxable. (The $194,000 gift tax annual exclusion for non-citizen spouses under IRC §2523(i) governs whether gift tax is owed by the donor; the $100,000 threshold governs whether the recipient must report on Form 3520.)
• Payment from a foreign employer or foreign business entity. If you receive a payment from a foreign corporation that the IRS could characterize as something other than wages — a bonus structured as a "gift," a payment between related entities — and the aggregate exceeds $20,573 in 2026, Part IV applies. The IRS pays close attention to these because they can disguise unreported income.

Penalties in Detail

The penalty structure for Form 3520 is steeper than most information returns:⁷

The interaction matters: a US expat with a TFSA and an assurance-vie who has never filed in five years faces separate penalties for each form, each trust, each year. The stack can reach hundreds of thousands of dollars on paper before any income tax is involved. This is why the fix path matters — see below.

Filing Deadlines and Logistics

Several logistical details that create compliance failures:

• Form 3520 is filed separately from your income tax return. It goes to the IRS Service Center in Ogden, Utah (P.O. Box 409101, Ogden, UT 84409), not attached to your 1040. Many taxpayers who use an electronic filer for their 1040 don't realize Form 3520 cannot be e-filed and must be paper-mailed separately.
• Form 3520-A is due March 15 (September 15 with extension) — one month before Form 3520. Missing the earlier Form 3520-A while thinking you have until April 15 is a common mistake.
• Extensions apply but must be requested. A 6-month extension for Form 3520 (to October 15) is automatic if you have an extension for your Form 1040. Form 3520-A extension (to September 15) requires a separate Form 7004 filed by the foreign trust — which, again, the US owner typically files on the trust's behalf.
• You can be required to file even if you owe $0 US income tax. A US citizen in a high-tax country with FEIE or FTC eliminating all income tax liability still owes Form 3520 for a TFSA or assurance-vie. The income tax and the information return obligations are entirely independent of each other.

How to Fix Non-Compliance

If you've held a TFSA, ISA, assurance-vie, or similar account for years without filing Form 3520 and 3520-A, the path forward depends on whether your failure was willful or non-willful.

Delinquent International Information Return Submission Procedures (DIIRS)

The IRS offers specific procedures for US persons who are otherwise compliant with their income tax returns and FBARs but failed to file required international information returns (Forms 3520, 3520-A, 5471, 8865, 8621, etc.). Under the DIIRS, you can file the missing forms with a reasonable cause statement attached. If the IRS accepts your reasonable cause explanation, penalties are waived.

Reasonable cause for Form 3520 failures is plausible for many expats: the IRS has never formally ruled on TFSA treatment; Rev. Proc. 2020-17 is complex and the exemptions are hard to parse; and the two-form / two-deadline structure creates confusion that tax professionals themselves regularly get wrong.

IRS Streamlined Foreign Offshore Procedures (SFOP)

If you are also behind on your income tax returns and FBARs — not just Form 3520 — the IRS Streamlined Foreign Offshore Procedures are the catch-up mechanism. SFOP covers a package of filings: 3 years of returns, 6 years of FBARs, and all required information returns (Forms 3520, 3520-A, 8621, 5471) for those years. Under SFOP, the miscellaneous offshore penalty is 0% for qualifying expats, regardless of the theoretical penalty exposure.

The key is the non-willfulness certification on Form 14653. The failure to file Form 3520 because you didn't know your TFSA or ISA was classified as a foreign trust — or didn't know the form existed — is generally non-willful conduct qualifying for SFOP.

Act Before the IRS Acts First

SFOP and DIIRS close the moment the IRS opens a civil examination or criminal investigation into your tax situation. FATCA information-sharing means the IRS already has data on your foreign accounts via the foreign bank's IGA reporting. The voluntary catch-up window exists only as long as the IRS hasn't formally initiated contact. The practical message: if you hold accounts that likely trigger Form 3520 obligations you haven't met, address them proactively — not after receiving an IRS notice.

Why You Need a Specialist

The overlap between Form 3520, PFIC rules, §402(b) employer pension treatment, and FBAR creates a web of interactions that generic domestic tax preparers consistently miss. The specific issues where errors are most expensive:

• Rev. Proc. 2020-17 eligibility — whether your employer's pension plan in a specific country qualifies requires analyzing the foreign plan's structure against the revenue procedure's criteria. Getting this wrong in either direction (filing unnecessarily or skipping when required) is common.
• Retroactive PFIC calculations for trust assets — if the foreign trust holds foreign funds, those funds are typically PFICs, and the SFOP submission for back years must include Form 8621 calculations for each PFIC, each year. The §1291 default method requires interest calculations back to the year of acquisition — a computation that cascades across the entire submission.
• Reasonable cause narrative quality — a generic "I didn't know" statement is insufficient for DIIRS. The Form 14653 or reasonable cause statement must be specifically individualized to your facts, the IRS's publication history, and the genuine ambiguity in the law. Practitioners with expat-specific experience know what the IRS expects.
• FEIE vs FTC interaction with grantor trust income — if you're the grantor of a TFSA or Pillar 3a, the income from those trusts flows onto your 1040 as your own income and interacts with your FEIE election, FTC baskets, and IRA contribution eligibility. Optimizing the overall position requires coordinating all three.

Sources

1. IRS — Gifts from Foreign Persons (Form 3520 Part IV thresholds). Foreign individual/estate threshold: $100,000 (not inflation-adjusted). Foreign corporation/partnership threshold: $20,116 for tax year 2025; $20,573 for tax year 2026 (annually inflation-adjusted per IRC §6039F(d)). Source: Instructions for Form 3520 (Rev. December 2025).
2. IRS — About Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts. Overview of Form 3520 filing requirements, triggering events (Parts I–IV), and filing instructions. Filing address: P.O. Box 409101, Ogden, UT 84409.
3. IRS — Foreign Trust Reporting Requirements and Tax Consequences. Overview of §6048 reporting obligations for US transferors, US owners (grantor trust rules §671–679), and US beneficiaries receiving distributions. Penalty structure for Parts I, II, and III. Continuation penalty ($10,000/30-day period) after 90-day notice.
4. IRS — About Form 3520-A, Annual Information Return of Foreign Trust With a US Owner. Form 3520-A obligation, March 15 due date for calendar-year trusts, extension to September 15 via Form 7004. US owner's responsibility to ensure filing when foreign trustee does not file.
5. IRS Rev. Proc. 2014-55 — Exemption for Canadian RRSP and RRIF from §6048 Reporting. US persons holding Canadian RRSPs or RRIFs are not required to file Form 3520 or Form 3520-A for those accounts. The exemption applies only to RRSPs and RRIFs — TFSAs and FHSAs are not covered.
6. IRS Rev. Proc. 2020-17 — Relief from §6048 Reporting for Certain Foreign Retirement Plans. Exempts from Form 3520 / 3520-A obligations US persons participating in "applicable tax-favored foreign trusts" — defined as foreign employer-sponsored retirement plans that are broadly available and mandatory or near-mandatory under local law, and foreign individual retirement plans analogous to US IRAs. Does not cover general savings accounts (TFSAs, ISAs), personal insurance wrappers (assurance-vie), or self-managed structures (SMSFs).
7. IRS — International Information Reporting Penalties. Penalty structure for Form 3520 Parts I, II, III, IV and Form 3520-A. Initial penalties: greater of $10,000 or 35% of gross reportable amount (Parts I/III); greater of $10,000 or 5% of gross trust value (Part II / Form 3520-A); 5%/month max 25% (Part IV). Continuation penalty: $10,000 per 30-day period after 90-day IRS notice (no cap, Parts I–III and 3520-A).

Form 3520 and 3520-A rules are based on IRC §§ 671–679 (grantor trust), § 6048 (reporting), and § 6677 (penalties), plus IRS Instructions for Form 3520 (Rev. December 2025). Rev. Proc. 2020-17 and Rev. Proc. 2014-55 provide the primary regulatory exemptions. All penalty exposure and compliance path options should be reviewed with a qualified US international tax specialist. Values and thresholds verified June 2026.