Substitute Form 3520-A: A Step-by-Step Guide for Practitioners

Under Internal Revenue Code § 6048(b)(1), the primary statutory obligation to file Form 3520-A rests on the trustee of the foreign trust. The trustee must file the return annually by the 15th day of the 3rd month following the close of the trust’s tax year (March 15 for calendar-year trusts) and furnish statements to each U.S. owner and beneficiary.

In cross-border practice, foreign trustees—including offshore fiduciaries, foreign wealth managers, and custodians of foreign savings arrangements—frequently refuse or fail to prepare U.S. tax returns. Under IRC § 6677(b), the IRS imposes failure-to-file penalties directly on the U.S. owner.

To enable U.S. owners to meet their reporting obligations when the trustee does not act, the Instructions for Form 3520 (Part II, line 22) and the Instructions for Form 3520-A specify that the U.S. owner should complete and attach a Substitute Form 3520-A to their timely filed Form 3520.

Before undertaking the preparation required for a Substitute Form 3520-A, walk through this 4-step decision sequence:

1. Step 1: Is there a foreign trust?
   Determine whether the vehicle is classified as a foreign trust under Treas. Reg. §§ 301.7701-4 and 301.7701-7 (the court and control tests). Note that foreign savings vehicles (such as Canadian TFSAs or certain unregistered plans) are commonly analyzed by practitioners as foreign grantor trusts.
2. Step 2: Is the client treated as an owner under §§ 671–679?
   Grantor trust rules apply if a U.S. person transferred property to a foreign trust with U.S. beneficiaries (§ 679) or retained powers over income or corpus (§§ 671–677). If the client is purely a beneficiary who does not own any portion of the trust, Form 3520 Part III applies, but not Form 3520-A.
3. Step 3: Did the foreign trustee file a timely Form 3520-A?
   Ask the trustee whether Form 3520-A was filed and request a copy of the Foreign Grantor Trust Owner Statement (Pages 3–4). If the trustee timely filed and furnished this statement, check "Yes" on Form 3520 Part II Line 22, attach the Owner Statement, and do not prepare a substitute return.
4. Step 4: Is the arrangement exempt under Rev. Proc. 2020-17 or an applicable treaty?
   Certain tax-favored foreign retirement trusts and savings trusts (such as Canadian RRSPs/RRIFs under Rev. Proc. 2014-55, or RESPs/RDSPs meeting Rev. Proc. 2020-17 criteria) are exempt from Form 3520 and 3520-A reporting. If exempt, no filing is required. However, Canadian TFSAs generally fall outside Rev. Proc. 2020-17 relief because withdrawals are unrestricted. See our reference guide: Foreign Retirement Accounts & Form 3520 Reporting Guide.

Outcome: If the client is a U.S. owner of a non-exempt foreign trust and the trustee will not file a timely standalone return, preparing a Substitute Form 3520-A satisfies the owner's statutory duty under § 6048(b).

Assemble the following source documentation before preparing the return:

Line 1b of Form 3520-A requires an Employer Identification Number (EIN) for the foreign trust. A foreign trust cannot use the grantor’s Social Security Number (SSN) or Individual Taxpayer Identification Number (ITIN) on Line 1b. Entering an SSN or ITIN on Line 1b creates an identification mismatch on IRS processing systems.

The IRS online EIN application is restricted to entities whose principal business, office, or legal residence is located in the United States or U.S. territories; it cannot be used for foreign trusts or foreign entities, even if the grantor or responsible party has a U.S. SSN or ITIN. Practitioners obtain an EIN for a foreign trust by submitting Form SS-4 (Application for Employer Identification Number):

• By Telephone: Call the IRS International EIN Operation at +1 (267) 941-1099 (not a toll-free number), Monday through Friday, generally 6:00 a.m. to 11:00 p.m. Eastern Time (verify current hours on IRS.gov). An authorized representative can receive the EIN immediately.
• By Fax: Fax completed Form SS-4 to +1 (304) 707-9471 (the IRS typically faxes back an EIN within 4 business days).
• By Mail: Mail Form SS-4 to Internal Revenue Service, Attn: EIN International Operation, Cincinnati, OH 45999.

For more details, see the Trust EIN Section of the Form 3520-A Guide.

At the top of Page 1 of Form 3520-A, check the box labeled:

Then complete Part I (General Information):

• Tax Year: Enter the calendar tax year beginning and ending dates at the top of Page 1.
• Lines 1a & 1b: Legal name of the foreign trust, along with the foreign trust’s EIN.
• Lines 1c–1h: Foreign address of the trust (or foreign custodian address), including official IRS country codes. Line 1d reports the date the trust was created.
• Lines 4a–4g: Legal name, foreign address, and foreign identification number (if any) of the foreign trustee or custodian.
• Excepted Specified Foreign Financial Assets Checkbox: Under the tax year header, check this box only if the U.S. owner is reporting the trust on Form 8938 pursuant to Treas. Reg. § 1.6038D-7.

On Page 1, Line 2 asks whether the foreign trust appointed an authorized U.S. agent under IRC § 6048(b)(2). In typical practitioner practice, foreign financial institutions and foreign trusts do not appoint a U.S. agent.

When Line 2 is answered "No", filers must complete the document disclosure table on lines 2a through 2e:

• Line 2a: Summary of all written and oral agreements and understandings relating to the trust
• Line 2b: The trust instrument
• Line 2c: Memoranda or letters of wishes
• Line 2d: Subsequent variances to original trust documents
• Line 2e: Organizational chart and other trust documents

For each line 2a–2e, the form provides columns for "Yes", "No", "Attached Previously", and "Year Attached".

Part II reports all gross income and allowable expenses of the foreign trust under U.S. income tax principles:

• Lines 1–8 (Gross Income): Line 1 (Interest), Line 2 (Ordinary Dividends), Line 5a/5b (Short-Term and Long-Term Capital Gains), Line 6 (Ordinary Gains), Line 7 (Other Income), Line 8 (Total Income).
• Lines 9–15 (Expenses): Interest, foreign taxes, amortization, trustee and advisor fees, and other expenses.

Part III lists the assets, liabilities, and net worth of the foreign trust at the beginning of the tax year and end of the tax year:

• Line 1 (Cash): Cash accounts and certificates of deposit (CDs).
• Line 6 (Marketable Securities): Stocks, bonds, mutual funds, and ETFs.
• Line 11 (Total Assets): Sum of cash, securities, and other trust assets.
• Line 16 (Total Liabilities): Payables and debts.
• Line 20 (Total Net Worth): Contributions to corpus and accumulated undistributed trust income.

A separate Foreign Grantor Trust Owner Statement must be prepared for each U.S. owner:

• Page 3: General identification, Line 7 (written explanation of grantor trust facts and law), Line 8 (list of attached trust documents), and Line 9 (gross value of the portion of the trust treated as owned by the U.S. owner at year-end).
• Page 4: Statement of Foreign Trust Income Attributable to U.S. Owner (Lines 1–8 Income, Lines 9–15 Expenses).

When filing a substitute return, the U.S. owner keeps a copy of Pages 3 and 4 with their records. The income items on Page 4 flow directly to the owner’s individual Form 1040 (interest and dividends to Schedule B, capital gains to Schedule D).

Page 5 is furnished to each U.S. beneficiary who received a distribution from the foreign trust during the year. It documents that the distribution originated from a foreign grantor trust, enabling the beneficiary to report it properly on Form 3520 Part III, where grantor trust distributions are generally not subject to the accumulation distribution rules or throwback tax under IRC § 667 / Form 4970.

Follow this protocol to assemble and file the substitute package:

1. Signing the Substitute Return:
   The U.S. owner signs the declaration under penalties of perjury at the bottom of Page 1. Under the Form 3520-A instructions, the U.S. owner’s name and taxpayer identification number (TIN) must be provided on the "Title" line of the signature box (for example: "U.S. Owner / Grantor — SSN: XXX-XX-XXXX"). If prepared by a paid preparer, the preparer completes the Paid Preparer block.
2. Form 3520 Part II Line 22 Tie-In:
   On the taxpayer’s Form 3520, navigate to Part II (U.S. Owner of a Foreign Trust):
   Line 22: "Did the foreign trust file Form 3520-A for the current tax year?" → Check "No".
   Attach the completed Substitute Form 3520-A behind Form 3520.
3. Physical Assembly & Mailing:
   A common assembly order is: Form 3520 → Substitute Form 3520-A → Owner Statement (Pages 3–4) → Attachment statements (trust agreement, org chart, FX schedule). Mail the complete package to:
   Internal Revenue Service Center
   P.O. Box 409101
   Ogden, UT 84409 USA
   (For Private Delivery Services: IRS Submission Processing Center, 1973 Rulon White Blvd., Ogden, UT 84201). Practitioners commonly use USPS Certified Mail with Return Receipt or designated PDS to establish proof of timely mailing under IRC § 7502.

Once the baseline substitute return has been established, ongoing annual compliance follows a consistent cycle:

• Roll Forward the Balance Sheet: Ensure that the prior year’s ending FMV on Part III matches the current year’s beginning FMV.
• Refresh Line 2 & Line 8 Document History: Instead of re-attaching large trust instruments, reference the prior tax year and return with which the documents were submitted, and attach only newly executed amendments or account revisions.
• Maintain Consistent FX Methodology: Use the same currency conversion methodology from year to year.

Under IRC § 6677(b), if the foreign trust fails to file Form 3520-A or provide required statements, the U.S. owner is personally liable for an initial penalty equal to the greater of $10,000 or 5% of the gross value of the portion of trust assets treated as owned. Continuing failures after 90 days from IRS notice accrue additional $10,000 penalties per 30-day period.

If a return was missed in a prior year, penalties may be abated upon showing reasonable cause under IRC § 6677(d). Note that foreign secrecy laws do not constitute reasonable cause, and trustee uncooperativeness is rarely sufficient on its own. For detailed guidance on drafting penalty abatement requests and navigating software-reliance defenses, see our references:

• IRS Form 3520 Reasonable Cause Penalty Waiver Guide
• Software-Reliance Reasonable Cause Defense: Huang v. United States

The following example illustrates how financial data from a Canadian Tax-Free Savings Account (TFSA) flows into a Substitute Form 3520-A and Form 3520: