IRS Reduces Administrative Burden (for the first time) of Filing Some Forms 3520 and/or Forms 3520-A

A Revenue Procedure just released by the U.S. Internal Revenue Service (IRS) provides U.S. persons an exemption from the information reporting requirements for certain tax-favored foreign retirement and non-retirement savings trusts. Taxpayers who would otherwise be required to file Form 3520 and/or Form 3520-A, will not now be required to file these forms if they qualify for the relief set out in the Revenue Procedure.

On March 2, 2020, the IRS released Rev. Proc. 2020-17 that provides an exemption from the information reporting requirements for certain tax-favored foreign retirement trusts and tax-favored foreign non-retirement savings trusts.

Prior to the issuance of this Revenue Procedure, there has been very little guidance from the IRS on the filing requirements for most foreign retirement accounts.  The IRS guidance provides much-needed relief by removing the file Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts) or Form 3520-A  (Annual Information Return of Foreign Trust With a U.S Owner) filing requirements for US persons who hold assets in foreign pensions and other retirement plan foreign trusts.  Providing the taxpayer is eligible for the relief, this should reduce the administrative burdens and related costs tied to filing these forms. Taxpayers will still have to research and review each account to determine whether it meets the exemption eligibility requirements to be classified as a “tax-favored foreign trust.”

This is great news because this area of tax law is very complex and has numerous complex international tax forms.  This is the first time the IRS has actually reduced the administrative burdens and related costs tied to filing these forms.

While the relief does not affect the Form 8938 filing requirement or any reporting obligations under any other provision of U.S. law, including the requirement to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR).  Taxpayers who have not filed to file any such international forms should seek competent legal counsel immediately to avoid or reduce the high penalty exposure of non-filing.