Substituted 3520-A
Published on April 29, 2024
by Clark Stott
Clark Stott has been with Expat Tax Online since 2015. Being a dual national based in the UK, Clark has unique experience helping US citizens (and Accidental Americans) become tax compliant via the Streamlined Tax Amnesty program. Clark likes to help Americans in the UK keep their tax situations as simple as possible to avoid harsh IRS treatment.
Table of Contents
What is a Substituted 3520-A?
The Substituted 3520-A is an alternative version of the standard Form 3520-A, designed to offer a more convenient deadline for those needing to meet US tax obligations.
Typically, Form 3520-A is due by March 15, with a possibility to extend until September 15 using Form 7004. In contrast, the deadline for a Substituted 3520-A coincides with your standard 1040 tax return, making the process significantly smoother for expatriates.
For US citizens living abroad, this means the usual April 15 deadline is automatically extended to June 15, with an option to push it to October 15 using Form 4868. This is particularly beneficial as it avoids the severe US$10,000 penalty for late filings associated with the regular 3520-A.
What is Form 3520-A?
Form 3520-A collects information about the trust, its US beneficiaries, and any US citizen who is treated as an owner of any portion of the foreign trust. This is an essential document for US taxpayers who have transactions with or ownership of a foreign trust.
In simpler terms, if you are a US citizen and either own a foreign trust or receive distributions from it, the IRS requires detailed reporting of these activities through this form.
How should US owners of foreign trusts manage their Form 3520-A obligations for UK pensions?
US owners of foreign trusts, such as UK pensions, will need to be diligent in their tax filings, specifically with Form 3520-A, to avoid costly penalties.
The form is due by March 15 each year, and if an extension is necessary, you can file Form 7004 by the same date.
Additionally, obtaining an Employer Identification Number (EIN) for the trust is a requirement for filing. However, if you’re having trouble meeting the original deadline, consider the option of a Substituted 3520-A. This permits a later filing alongside your 1040 form, extending the deadline significantly to April 15, with a possibility to October 15.
Due to the complexity and significant penalties for misfiling, it is highly recommended to engage a tax professional who specializes in Foreign Grantor Trust issues. These professionals can help ensure compliance and make use of your annual pension statements to properly prepare your tax forms.
What if I’m way behind on my U.S. tax returns?
There is a special IRS program to help you catch up on your U.S. taxes safely, without fines and penalties
STREAMLINED AMNESTY
It’s for American citizens that didn’t know they had to file U.S. tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties. If you have children, we can backdate your Child Tax Credit Refund for 3 years.
Get a quote here.
How do I get an EIN from the IRS for my UK pension?
Here’s how you can secure an Employer Identification Number (EIN) for your UK pension trust:
- Prepare your annual pension statement: This document is essential as it contains details about your pension scheme.
- Contact the IRS: Use their international phone line (+1 267 941 1099) available from 6 AM to 11 PM EST.
- Provide a unique name for your trust: For example, if your pension provider is Hargreaves Lansdown and your initials are SM, you might name it “HL SM Trust.”
- Undergo a verification process: Answer questions about your trust during the call.
- Register for an EIN: The IRS representative will guide you through the registration process and typically provide the EIN by the end of the call.
- Duration: The whole process usually takes about 30 minutes.
Can I fill out a Form 3520-A myself?
Filling out Form 3520-A on your own is a detailed process that requires careful attention to the IRS’s requirements for foreign trusts with a US owner.
We always recommend using a tax professional with extensive experience with Foreign Grantor Trusts, but if you’re going to have a go at it yourself, here’s a simple guide to get you started:
- Obtain the Form: The first step is to download the latest version of Form 3520-A from the IRS website. Ensure you’re using the most current form to comply with the latest tax laws.
- Gather Necessary Information: You’ll need detailed information about the trust, including the trust’s name, address, and the tax identification number. Additionally, compile financial information such as the trust’s income, distributions made during the year, and a complete inventory of the trust’s assets at the end of the tax year.
- Complete the Trustee’s Section: Even if you are not the trustee, as the US owner, you are responsible for ensuring that the trustee’s sections are completed accurately. This includes the trust’s financial activities and the foreign trust’s statement of the US owner.
- Fill Out the Owner’s Information: As the US owner, provide your information in the designated sections. This includes your identification details and the nature of your ownership in the trust.
- Attach Required Statements: Form 3520-A requires certain statements to be attached, detailing the trust’s activities, distributions, and beneficiaries. Make sure these are complete and attached to your form.
- Review and Sign: Review the form thoroughly to ensure accuracy. Incorrect or incomplete information can lead to processing delays or penalties. Once satisfied, sign and date the form.
- File the Form: Consult the instructions for Form 3520-A for information on where to file. Remember, filing deadlines are critical to avoid penalties.
Can I extend the deadline for Form 3520-A?
Yes, you can. You can have a 6-month extension to file Form 3520-A by filing a properly completed Form 7004, “Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns,” with the foreign trust’s employer identification number (EIN) by the 15th day of the 3rd month after the end of the trust’s tax year.
What happens if I make a mistake on my Form 3520-A?
The IRS understands that errors can happen, but it’s important to address them as soon as possible. Here’s what could happen if mistakes go unchecked:
- Penalties: The IRS may impose penalties for inaccuracies on Form 3520-A. These can be significant, depending on the nature of the mistake and the perceived intent behind it. For instance, failing to report a foreign trust’s activities accurately could result in penalties amounting to a percentage of the transactions involved.
- Audits and Inquiries: Mistakes can also trigger audits or inquiries from the IRS, leading to a more thorough examination of your tax returns and financial affairs.
- Corrective Actions: If you discover a mistake on your Form 3520-A after filing, you should take immediate steps to correct it. This usually involves filing an amended form along with a detailed explanation of the mistake and why it happened.
Should I get help with my Form 3520-A?
It’s highly advised to do so. If your transactions with foreign trusts or the receipt of foreign gifts involve numerous entities or complicated arrangements, the guidance of a tax expert can be invaluable, as they can offer several benefits, from ensuring accurate and compliant filings to providing advice on minimizing your tax liabilities.
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