Lancaster & Reed has been serving the needs of trust owners for over 30 years. Our goal is to cut through the fog of complicated regulations and to provide streamlined and cost effective tax compliance services for both trustee and owner. We specialize in providing U.S. tax compliance services for high net worth, international families including their foreign trusts. Put our experience to work for you!
Annual Information Return of Foreign Trust with a U.S. Owner, Form 3520-A
If you are considered the “owner” of a foreign trust you must file Form 3520-A on an annual basis and report all income as if the income producing assets were held directly by you. This is true even if the trust holds all assets via an underlying holding company (see CFC below). Form 3520-A requires a complete set of financial statements for the trust (balance sheet & income statement) annually. The balance sheet is required to be reported on a fair market value (FMV) basis while the income statement is presented on a U.S. income tax basis. The penalty for noncompliance can be up to 5% of trust assets for any year not reported. Given the significant penalty for noncompliance ensuring proper reporting is of utmost importance. At Lancaster & Reed we have assisted hundreds of trust owners in reporting their offshore trusts including multiple, complex trusts with assets totaling in excess of $125M USD. Our experience means no “learning curve” and that your returns are prepared in an accurate and cost effective manner.
Annual Return to Report Transactions with Foreign Trusts, Form 3520
For the U.S. owner of a foreign trust, Form 3520 must be filed in each year. However as the significant portion of data is contained in Form 3520-A, Form 3520 becomes an limited scope filing.
Other considerations for trust reporting:
Controlled Foreign Corporation (CFC), Form 5471
In many cases a foreign trust may hold its investments in an underlying holding company (CFC). For a foreign trust with a U.S. beneficiary the activity of the CFC may be attributed to the U.S. beneficiary in whole or part. See CFC page here for more information.
Passive Foreign Investment Companies (PFICs), Form 8621
Routinely, foreign trust mandates for portfolio management include proper diversification which entails common or mutual fund investing. For U.S. income tax reporting foreign investment funds typically fall into PFIC classification requiring a special reporting regime. See PFIC page here for more information.
Foreign Bank Account Report (FBAR), Form TD F 90-22.1, 114, 114a
The owner of a foreign trust must file an FBAR annually by June 30th to report all foreign bank and financial accounts. See FBAR page here for more information.
Specified Foreign Financial Assets (SFFAs), Form 8938
Expanded informational reporting as a result the Foreign Account Compliance Tax Act (FATCA) introduced yet another informational form requiring in some cases duplicative reporting of SFFAs. Form 8938 may be required to be filed by the U.S. beneficiary of a foreign nongrantor trust when distributions are received and in certain cases even in years where no distributions are received. See SFFA Form 8938 page here for more information.