AICPA Submits Recommendations on Forms 3520 and 3520-A
Washington, D.C. (March 5, 2023) AICPA submitted comments to the Department of the Treasury and Internal Revenue Service (IRS) concerning Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts and Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner.
AICPA’s comments address two main categories: (1) the accuracy of the agency’s estimate of the burden of the collection of information; and (2) ways to enhance the quality, utility, and clarity of the information to be collected. In addition, AICPA provided additional broader recommendations relating to Form 3520 and Form 3520-A and administrative relief from reporting under Rev. Proc. 2020-17.
Included among the AICPA’s recommendations are the following:
IRS should utilize actual filing data from the most recent tax year available to provide more accurate burden estimates.
IRS should create a safe harbor for late filing of Forms 3520 and 3520-A, including providing relief similar to First Time Abate for Forms 3520 and 3520-A and providing more reasonable cause exceptions to the imposition of penalties (and reviewing and considering reasonable cause statements filed with returns prior to sending out penalty notices).
IRS should create a separate form for reporting large foreign gifts and inheritances along with instructions that clearly educate the public.
IRS should add a checkbox to Form 1040 asking taxpayers whether they received any gifts and inheritances from sources outside of the United States. If the answer is yes, then direct taxpayers to the appropriate form and instructions. This suggestion is similar to the Schedule B question concerning foreign bank accounts.
IRS should make clear to the public and tax professionals that the IRS is currently assessing maximum penalties for late and amended Forms 3520 relating to reporting foreign gifts and inheritances.
IRS should provide that the U.S. agent form only needs to be attached to Form 3520 and Form 3520-A every three years unless there has been a change.
IRS should allow e-filing of the Form 3520 and Form 3520-A, which could reduce the number of returns incorrectly being assessed late filing penalties.
IRS should provide more guidance on the issues of foreign trust reporting for foreign pensions.
IRS should provide broader administrative relief from reporting than set forth in Rev. Proc. 2020-17.
IRS should raise the thresholds in Rev. Proc. 2020-17 § 5.03(4) to an annual limit of $200,000 or less and a lifetime limit of $3,000,000 or less. The current limits in Rev. Proc. 2020-17 exclude too many taxpayers from the relief provided.
IRS should include an exemption from Form 3520 and Form 3520-A reporting for foreign pensions where deferral of tax on earnings is available under a tax treaty, as in the case of Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. See Treas. Reg. § 1.1298-1(c)(4).
About the American Institute of CPAs
The American Institute of CPAs® (AICPA®) is the world’s largest member association representing the CPA profession, with more than 421,000 members in the United States and worldwide, and a history of serving the public interest since 1887. AICPA members represent many areas of practice, including business and industry, public practice, government, education and consulting. AICPA sets ethical standards for its members and U.S. auditing standards for private companies, not-for-profit organizations, and federal, state and local governments. It develops and grades the Uniform CPA Examination, offers specialized credentials, builds the pipeline of future talent and drives continuing education to advance the vitality, relevance and quality of the profession.
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Contact: Veronica L. Vera
202-434-9215
Veronica.Vera@aicpa-cima.com