The IRS has issued guidance (Rev. Proc. 2020-17
) providing an exemption for U.S. taxpayers with certain types of tax-favored foreign retirement trusts and nonretirement savings trusts from filing Forms 3520 and 3520-A.
The guidance also provides a procedure to obtain penalty abatement and penalty refunds for taxpayers that filed delinquent Forms 3520 or 3520-A for those particular trusts.
Generally, under Section 6048, taxpayers are required to report certain transactions with certain foreign trusts, subject to exceptions. The failure to timely report those transactions on Forms 3520 or 3520-A, can result in significant penalties under Section 6677, among other things.
In Rev. Proc. 2020-17, the government determined that because applicable tax-favored foreign trusts generally are subject to written restrictions, such as contribution limitations, conditions for withdrawal and information reporting, which are imposed under the laws of the country in which the trust is established, and because there may be separate reporting by U.S. taxpayers, the information reporting obligation on Forms 3520 and 3520-A could be exempted if the foreign trusts met certain requirements.
U.S. taxpayers must be otherwise compliant with all filing requirements and have reported as income, to the extent required, on an original or amended tax return any distributions, contributions or the earnings of a foreign retirement or nonretirement savings trust. If those trusts meet the definitional requirements of the revenue procedure, then those U.S. taxpayers would not be obligated to report those trusts on Forms 3520 and 3520-A.
The requirements of the particular tax-favored foreign retirement trust or tax-favored foreign non-retirement savings trust are described in Sections 5.03 and 5.04. The IRS has not published a specific list of such impacted trusts, so taxpayers must make a determination of whether a particular trust meets the exemption requirements.
Subject to the statute of limitations for refund or credit, a U.S. taxpayer that has been penalized for a delinquent filing of Form 3520 or 3520-A for a covered trust may file Form 843, “Claim for Refund and Request for Abatement,” with the Ogden, Utah, Service Center explaining why the particular trust meets the requirements of the revenue procedure.
Importantly, Rev. Proc. 2020-17 does not affect any reporting obligations for Form 8938, “Statement of Specified Foreign Financial Assets,” or FinCEN Form 114, “Report of Foreign Bank and Financial Accounts (FBAR).”
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