The Florida Bar Tax Section recently made some excellent comments in response to the Internal…
16 October, 2024
We have counseled many clients with the IRS Form 3520 filings this year, which were due October 15, the extended due date. One common question that arose is how to sign and file the form.
Under the latest IRS guidance, Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts) can now be signed electronically but still must be filed on paper. The IRS has permanently extended the option for using electronic signatures on certain forms, including Form 3520, following a temporary allowance during the COVID-19 pandemic. This change reflects the IRS’s commitment to modernizing its processes and reducing administrative burdens for taxpayers.
Key Details:
- Electronic Signatures: The IRS allows taxpayers to use various forms of electronic signatures, such as:
- A typed name in a signature block.
- A scanned or digitized image of a handwritten signature.
- A signature input via a stylus on a touchscreen or an electronic signature pad.
- A signature generated by third-party software. See IRS.
- Forms eligible for electronic signatures include Form 3520, which is part of the IRS’s efforts to accommodate digital workflows while maintaining the security and integrity of tax filings The IRS incorporated these changes into the Internal Revenue Manual (IRM) Section 10.10.1, which governs the IRS’s e-signature program. See IRS
- Filing Method: Although you can sign Form 3520 electronically, e-filing is not available for this form. Taxpayers must print and mail the form to the IRS at the appropriate address (currently the IRS Center in Ogden, UT). This manual submission remains mandatory because Form 3520 is not among the forms eligible for the IRS’s e-filing system. See IRS.
Beware 3520 penalties. The penalties for failing to file Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts) can be quite severe, and they vary depending on the nature of the violation:
- Failure to Report Foreign Gifts or Bequests:
- If you receive a foreign gift or bequest exceeding the threshold (e.g., $100,000 from a non-resident alien or $16,388 from a foreign corporation in 2023) and fail to report it, the penalty is 5% of the value of the foreign gift for each month the failure continues, up to a maximum penalty of 25% of the gift’s value.
- Failure to Report Ownership of a Foreign Trust:
- If you are required to file Form 3520 due to ownership in a foreign trust and fail to do so, the penalty is 5% of the gross value of the portion of the trust’s assets attributable to your interest in the trust.
- Failure to Report Transactions with a Foreign Trust:
- If you are the U.S. owner of a foreign trust or have reportable transactions with a foreign trust and fail to report them, the penalty is 35% of the gross value of the property transferred to or distributions from the trust that should have been reported.
Category: Planning for Tax Minimization