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Form 3520A for US owned foreign trust

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Understanding Form 3520A: Compliance for US-owned foreign trusts

International tax laws and their adherence are crucial for US taxpayers who are have been registered themselves or are most likely to be considered as owners of foreign trust. To ensure compliance with internationally acclaimed tax laws, i.e. IRS, annual Information Return of Foreign Trust Having a U.S. owner is one of the crucial aspects, the details of which are disclosed in the excerpt ahead:

Who should File Form 3520A?

A US person who is considered to be the owner of any of the foreign trusts must fulfil his responsibility to file Form 3520A. To know who qualifies as an owner, let us dig into the following:

  1. Grantor: As an owner, if you have legally transferred your property to any of the foreign trusts, but you still have the power to revoke the trust, you may be considered a grantor. 
  2. Spouses of Grantors:If the grantor has any spouse, then the latter will also be considered owner. 
  3. Entities with US origins: if any of the corporations hold even the slightest interest in the trust, then they can also be considered owners. 

What Information is Required on Form 3520A?

Form 3520A is a detailed form comprising of in depth information and details about the US owner and the foreign trust in which he has invested. The key details of these are as follows: 

  1. Identifying Information: 

The detailed information about the foreign trust is one of the key details illustrated in Form 3520A. Moreover, in most cases, Employer Identification Number (EIN) is also mentioned, if applicable. 

  • Grantor Information:

The US citizen holding ownership of the foreign trust has its details mentioned in the form, such as name, SSN, and address associated with the grantor. 

  • Trust Assets:

The detailed information about the asset value, type, and other financials such as cash, real estate, stocks, etc. is also mentioned in detail in Form 3520A.

  • Distributions:

During the tax year, if any of the distribution has been received by the foreign trust shared by the US owner, it is also described in detail in Form 3520A. 

  • Grantor Powers: 

Any other information with regards to the ownership of the trust, is also described in detail. This information sheds light on the authority that the grantor or their spouse has with respect to the ownership of the trust.  

Bottom Line

As a US resident, investing in US owned foreign trusts is one of the ideal methods of investment. Not only does the value of the foreign trusts escalate over time, but it also enables you to be entitled to lesser tax liabilities (upon the fulfillment of certain conditions). 

However, as a layman, understanding US taxation is not easy. Moreover, these laws change over time; therefore, seeking expert guidance from authorized US tax advisors such as not only safeguards your investment in foreign trust but also saves you from the wrath of unwanted penalties.

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