What this line means
A yes-or-no question: did you receive a distribution from, or were you the grantor of or transferor to, a foreign trust during the year? Answering “yes” triggers a separate filing requirement — Form 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts). The question captures three distinct roles: you created the trust, you transferred assets into it, or you received money from it.
Does this apply to you?
- You received a distribution from a trust organized outside the United States
- You transferred money or property to a foreign trust during the year
- You are the grantor (creator) of a foreign trust that still exists
- You received a gift or inheritance from a foreign person or estate exceeding $100,000
Easy to overlook
Form 3520 has its own filing deadline and steep penalties Form 3520 is due by the tax return deadline (including extensions), but it is filed separately from your 1040. The penalty for failing to file Form 3520 is 35% of the gross value of any distribution received from a foreign trust, or 35% of the gross value of property transferred to a foreign trust. 1 These penalties apply per form, per year, and the IRS assesses them automatically when the form is missing. IRS Form 3520 instructions — Annual Return To Report Transactions With Foreign Trusts
Beneficiaries who receive regular payments often do not realize the trust is foreign If a family trust was established in another country and sends you periodic distributions, those distributions trigger Form 3520 reporting. Beneficiaries who have received the same payment for years without filing Form 3520 face accumulated penalties. The obligation exists regardless of whether the distribution is taxable. 2 General filing pattern — foreign trust reporting omission by beneficiaries
Watch out for this
Confusing the line 8 foreign trust question with the line 7a foreign accounts question. They are separate requirements with separate forms. Foreign accounts trigger FinCEN Form 114 (FBAR). Foreign trusts trigger Form 3520. A filer with both a foreign bank account and a foreign trust distribution answers “yes” to both questions and files both forms.
Footnotes
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IRS Form 3520 Instructions, Annual Return To Report Transactions With Foreign Trusts. https://www.irs.gov/instructions/i3520 ↩
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IRS Publication 54, Tax Guide for U.S. Citizens and Resident Aliens Abroad. https://www.irs.gov/pub/irs-pdf/p54.pdf ↩