1. The Question That Decides the Route
The streamlined procedures address a non-willful failure to report income, pay tax, and file required information returns. The submission is built around delinquent or amended income tax returns, with the information returns attached. The delinquent international information return procedures, by contrast, are a route for filing late information returns through normal filing procedures when nothing else needs to be fixed.
So the first question in most late Form 3520 engagements is not about the Form 3520 at all. It is whether the client's income tax returns for the affected years were correct. A late Part IV report of a gift from a parent abroad usually involves no tax: foreign gifts and bequests are generally not income to the recipient. A foreign trust or foreign account that produced unreported income is a different case, because the return itself has to change.
A common misstep runs in both directions: routing a tax-neutral late gift report through the streamlined procedures, with their certification and multi-year package, when a delinquent filing would do; or filing the late Form 3520 alone when the related income was never reported and the returns also need attention.
2. What Is at Stake: The Penalties
The penalties for Forms 3520 and 3520-A come from two different Code sections, and the distinction matters when evaluating exposure and relief.
| Failure | Statute | Penalty |
|---|---|---|
| Form 3520, Part IV (foreign gifts and bequests) | IRC § 6039F(c) | 5% of the amount of the foreign gift for each month the failure continues, up to 25%. The IRS may also determine the tax consequences of the receipt. |
| Form 3520, Parts I–III (foreign trust transactions) | IRC § 6677(a) | The greater of $10,000 or 35% of the gross reportable amount (for example, transfers to or distributions from the trust). |
| Form 3520-A (foreign grantor trust) | IRC § 6677(b) | The greater of $10,000 or 5% of the gross value of the trust assets treated as owned by the U.S. person. The U.S. owner bears this penalty if the trust does not file. |
Both statutes provide that no penalty applies where the failure was due to reasonable cause and not willful neglect (§ 6039F(c)(2); § 6677(d)). Under § 6677(d), the fact that a foreign jurisdiction would penalize disclosure of the required information is not reasonable cause. The IRS first-time abatement policy does not extend to penalties for Forms 3520 and 3520-A (IRM 20.1.1.3.3.2.1), so relief generally rests on reasonable cause or on the penalty terms of a procedure the client qualifies for.
For the reasonable-cause framework itself, see Form 3520 Penalty Relief & Reasonable Cause.
3. Step One: Confirm a Filing Was Actually Required
Before choosing a route, confirm that each year in question actually required a filing. Some apparent delinquencies are not.
- Gift thresholds. Part IV reporting applies to gifts and bequests from nonresident alien individuals and foreign estates totaling more than $100,000 for the year, aggregating related donors. Gifts from foreign corporations and foreign partnerships have a separate, indexed threshold: $18,567 for 2023, $19,570 for 2024, $20,116 for 2025 and $20,573 for 2026. See Gifts From Family Abroad: Form 3520 Part IV.
- Tax-favored foreign accounts. Rev. Proc. 2020-17 exempts certain tax-favored foreign retirement and non-retirement savings trusts from Form 3520 and 3520-A reporting. Some accounts clearly qualify; others are debated. See Canadian TFSA, FHSA & RESP: Form 3520 Reporting.
- Characterization. Whether an arrangement is a foreign trust at all, and whether the client is a grantor-owner or a beneficiary, drives which parts of Form 3520 apply and whether Form 3520-A is required.
Document each year's conclusion, including the years that turn out not to require a filing.
4. Route A: Delinquent International Information Return Submission Procedures
The IRS describes this route for taxpayers who have identified the need to file delinquent international information returns, who are not under a civil examination or criminal investigation by the IRS, and who have not already been contacted by the IRS about the delinquent information returns. Those taxpayers file the late returns through normal filing procedures.
How Forms 3520 and 3520-A are filed
Most delinquent international information returns are attached to an amended income tax return under these procedures. Forms 3520 and 3520-A are the exception: the IRS says they are filed according to their own instructions, which means a separate paper filing rather than an attachment to Form 1040-X. See Can Form 3520 or 3520-A Be E-Filed?
How penalties are handled
The procedures do not waive penalties. The IRS states that penalties may be assessed under existing procedures. For Forms 3520 and 3520-A specifically, the IRS states that reasonable-cause statements will be considered before a penalty is assessed, and asks filers to write "Reasonable Cause Statement attached" at the top of the first page of the form.
That pre-assessment review is the practical core of this route. A late Form 3520 filed without a reasonable-cause statement gives the IRS nothing to consider before it assesses, and the client is then left seeking abatement after the fact. The statement should address each year and each part of the form being filed late, and should be supported by the facts in the file.
Typical fits for this route include a late Part IV report of a gift or inheritance from family abroad, and a foreign trust whose income was correctly reported on the client's returns but whose Forms 3520 and 3520-A were not filed.
5. Route B: Streamlined Filing Compliance Procedures
The streamlined procedures are available to individuals, including estates of individuals, whose failure to report income, pay tax, and submit required information returns (including FBARs) resulted from non-willful conduct: negligence, inadvertence, or mistake, or conduct resulting from a good-faith misunderstanding of the law. The taxpayer must have a valid taxpayer identification number (or submit a complete ITIN application, if not eligible for an SSN), and is ineligible if the IRS has initiated a civil examination of the taxpayer's returns for any taxable year or the taxpayer is under criminal investigation.
There are two versions, and the residency facts decide which one applies.
| Foreign offshore (SFOP) | Domestic offshore (SDOP) | |
|---|---|---|
| Residency | U.S. citizens and green card holders: no U.S. abode and physically outside the United States at least 330 full days in one or more of the three most recent years. Others: did not meet the substantial presence test in one or more of those years. | Fails the non-residency requirement (for joint filers, at least one spouse fails it). |
| Prior returns | Delinquent original returns or amended returns, as applicable. | Must have previously filed U.S. returns for each of the covered years; amended returns (Form 1040-X). |
| Certification | Form 14653 | Form 14654 |
| Penalty | None. Compliant filers are not subject to failure-to-file, failure-to-pay, accuracy-related, information return, or FBAR penalties. | 5% miscellaneous offshore penalty in place of accuracy-related, information return, and FBAR penalties. |
Under both versions, the IRS states that the penalty protection does not apply if an examination determines the original noncompliance was fraudulent or the FBAR violation was willful, and penalties assessed before the submission are not abated.
Where Forms 3520 and 3520-A fit in the package
- Covered years: the three most recent tax years for which the U.S. tax return due date, including a properly applied-for extension, has passed. FBARs are filed for the most recent six years.
- Included, not separate: the IRS's examples of required information returns submitted with the returns for each covered year include Form 3520 (and, in the domestic procedures, Form 3520-A), with a copy of the certification attached to each return and information return.
- Labeling: the IRS instructs filers to write "Streamlined Domestic Offshore" or "Streamlined Foreign Offshore" in red at the top of each tax return and each information return in the submission, including each Form 3520 and 3520-A.
- Consistency: amounts on the Forms 3520, any substitute Form 3520-A, the income tax returns, Form 8938, and the FBARs should reconcile year by year.
- Years outside the window: the procedures speak to the covered years. Late forms for earlier years are a separate question to evaluate.
The 5% base and foreign trusts
The IRS describes the SDOP penalty as 5% of the highest aggregate year-end balance or value of foreign financial assets subject to it: generally, assets that should have been reported on Form 8938 or an FBAR during the covered periods, and assets whose income was not reported. The IRS pages do not separately address foreign trust interests. Whether, and at what value, a client's trust interest or trust-held accounts enter the base turns on the facts and should be worked through deliberately rather than assumed.
6. Route C: When Willfulness Is in Question
The streamlined procedures rest on a signed certification that the conduct was not willful, and the protection falls away if an examination later finds otherwise. Where the facts raise a real question about willfulness, neither procedure discussed here is a fit. The IRS Criminal Investigation Voluntary Disclosure Practice is a separate track with its own requirements, and the choice among these options is a matter for the client's counsel.
7. Filing Without Using a Procedure
Some taxpayers file late forms, or amend returns to pick up previously omitted income, without invoking either procedure. Practitioners sometimes call this a "quiet" disclosure. The returns are processed like any other late or amended filing, which has several consequences worth understanding:
- The penalty terms of the streamlined procedures (the waiver, or the 5% penalty in place of other penalties) apply only to qualifying streamlined submissions.
- A late Form 3520 or 3520-A filed without a reasonable-cause statement does not get the pre-assessment review the IRS describes for those forms, and any relief would be pursued after assessment.
- Penalties, if any, are determined under the general rules for each return and each year.
Whether that is acceptable depends on the client's facts, exposure, and tolerance for uncertainty.
8. Recent Changes Worth Knowing
- Reasonable cause before assessment. For years, late Forms 3520 commonly drew systemically assessed penalties, with reasonable-cause statements reviewed only on abatement. The IRS announced in late 2024 that it would review reasonable-cause statements for late Forms 3520 and 3520-A before assessing, and the current delinquent-return procedures say so.
- No-penalty language removed. Earlier versions of the delinquent information return procedures described circumstances in which penalties would not be imposed. The current version says penalties may be assessed under existing procedures.
- Delinquent FBAR page removed. On July 1, 2026, the IRS removed its Delinquent FBAR Submission Procedures page without a public explanation. The IRS's current list of offshore compliance options names the voluntary disclosure practice, the streamlined procedures, and the delinquent international information return procedures.
These procedures are administrative and can change without notice. Check the current IRS pages before relying on any of them.
9. Comparing the Routes by Fact Pattern
| Fact pattern | Route usually considered | What is filed |
|---|---|---|
| Late gift or inheritance report; no income omitted | Delinquent information return procedures | Form 3520 (Part IV) for each year, with a reasonable-cause statement |
| Foreign trust; income correctly reported; forms not filed | Delinquent information return procedures | Forms 3520 and 3520-A (or substitute 3520-A) for each year, with reasonable-cause statements |
| Foreign trust or accounts with unreported income; non-willful; client lives abroad | Streamlined foreign offshore (SFOP), if the non-residency test is met | Three years of returns with Forms 3520/3520-A, Form 14653, six years of FBARs |
| Same, but client lives in the United States and filed returns | Streamlined domestic offshore (SDOP) | Three years of Forms 1040-X with Forms 3520/3520-A, Form 14654, six years of FBARs, 5% penalty |
| Facts suggest willfulness | Counsel evaluates the voluntary disclosure practice | Determined by counsel |
| Already under examination or contacted about the forms | Neither procedure is available | Handled within the examination or in response to the contact |
The table is a starting point for analysis, not a determination. Mixed facts (for example, a tax-neutral gift in one year and unreported trust income in another) need year-by-year analysis.
10. Preparing the Late Forms
- One form per year. Each tax year has its own Form 3520 and, for a foreign grantor trust, its own Form 3520-A or substitute, prepared for that year's facts.
- Substitute Form 3520-A. When the foreign trust does not file Form 3520-A, the U.S. owner prepares a substitute and attaches it to the owner's Form 3520. See Substitute Form 3520-A.
- Due dates. Form 3520 follows the owner's income tax return due date, including extensions, and Form 3520-A is due by the 15th day of the third month after the trust's year-end. Year-by-year dates are in Form 3520 & 3520-A Due Dates by Year.
- Reasonable-cause statements. Tailor each statement to the year and the failure, and label the form as the IRS procedures describe.
- Consistency across the package. Reconcile the forms to the income tax returns, Form 8938, and FBARs for the same years.
11. Frequently Asked Questions (FAQ)
Can the streamlined procedures be used if only Form 3520 was filed late and no tax was owed?
The streamlined procedures address non-willful failures to report income, pay tax, and file required information returns, and the submission is built around delinquent or amended income tax returns with the information returns attached. When all income was reported and the only failure is a late Form 3520 or 3520-A, the late form is usually filed under the Delinquent International Information Return Submission Procedures with a reasonable-cause statement instead.
Does the 5% streamlined domestic penalty cover Form 3520 penalties?
According to the IRS, taxpayers who comply with the Streamlined Domestic Offshore Procedures are not subject to accuracy-related, information return, or FBAR penalties for the covered years and pay the 5% miscellaneous offshore penalty instead. The protection does not apply if an examination determines the original noncompliance was fraudulent or the FBAR violation willful, and penalties assessed before the submission are not abated.
Will the IRS consider a reasonable-cause statement before assessing a late Form 3520 penalty?
The IRS states in its delinquent international information return procedures that for Forms 3520 and 3520-A, reasonable-cause statements will be considered before a penalty is assessed. Filers are asked to write "Reasonable Cause Statement attached" at the top of the first page of the form. A penalty may still be assessed if the explanation is not accepted.
Is first-time abatement available for a late Form 3520?
No. The IRS first-time abatement policy does not extend to penalties for Forms 3520 and 3520-A (IRM 20.1.1.3.3.2.1). Relief for these penalties generally depends on reasonable cause or, for taxpayers who qualify, the penalty terms of the streamlined procedures.
How many years of Form 3520 are filed under the streamlined procedures?
The streamlined procedures cover the three most recent tax years for which the U.S. tax return due date, including a properly applied-for extension, has passed. Required information returns such as Forms 3520 and 3520-A are included for each of those years, and delinquent FBARs are filed for the most recent six years.
What if the foreign trust never filed Form 3520-A?
When a foreign grantor trust does not file Form 3520-A, the U.S. owner can prepare a substitute Form 3520-A and attach it to the owner's Form 3520 for the same year. Without it, the owner is exposed to the penalty under IRC section 6677(b), the greater of $10,000 or 5% of the trust assets treated as owned. In a streamlined submission, the substitute is included with that year's Form 3520.
Preparing Late Forms 3520 and 3520-A?
Agena Software prepares Forms 3520 and 3520-A, including the substitute Form 3520-A, for tax years 2023 through 2026, with a print-ready filing package for each year and an optional reasonable-cause statement, written by the preparer, for late Part IV (foreign gift) filings.