Key Takeaways Form 3520 is required for US persons who receive distributions from, create, or transfer assets to a foreign trust Form 3520-A is the annual information return filed by the foreign trust itself (or the US owner on behalf of the trust) Penalties for failure to file are severe — up to 35% of the gross reportable amount per violation The reasonable cause exception can eliminate penalties, but must be properly documented and supported Foreign trust reporting overlaps with FBAR and FATCA requirements, requiring careful coordination Expert guidance from Neil Jesani Tax Resolution is essential for navigating these complex obligations Overview of Foreign Trust Reporting Foreign trust reporting is one of the most complex and heavily penalized areas of international tax compliance. The combination of steep penalties, broad reporting triggers, and the practical difficulty of obtaining information from foreign trustees makes this an area where professional guidance is not just helpful — it is essential. The IRS has made foreign trust compliance a priority enforcement area, and penalties are frequently assessed without regard to the taxpayer's intent or circumstances. What Is a Foreign Trust? A foreign trust is any trust that does not meet both of two requirements under IRC Section 7701(a)(31)(B): (1) a US court must be able to exercise primary supervision over the administration of the trust (the "court test"), and (2) one or more US persons must have the authority to control all substantial decisions of the trust (the "control test"). If either test is not met, the trust is classified as a foreign trust for US tax purposes. This definition captures a wide range of arrangements that may not look like traditional trusts. Foreign retirement plans, pension schemes, educational endowments, charitable organizations, and even certain investment structures in foreign countries may be classified as foreign...