Nongrantor trust
The Form 3520-A instructions define a nongrantor trust by whether its assets are treated as owned by another person under the grantor trust rules. Partial trust treatment, beneficiary distributions and related reporting follow from that definition.
Definition and scope
A nongrantor trust is a taxable entity to the extent its assets are not treated as owned by another person under the grantor trust rules. That treatment can apply to only part of a trust's assets, so the same trust may have both grantor and nongrantor portions.[2]
The neighboring term, grantor trust, refers to assets treated as owned by someone other than the trust under those rules. The instructions likewise allow grantor trust treatment to apply to only a portion of the assets. The distinction therefore concerns the treatment of trust assets, and need not describe the entire trust in one way.[2]
For a foreign trust, the Form 3520 instructions use owner for a person treated as owning any trust assets under the grantor trust rules. A U.S. person treated as an owner is relevant to Form 3520-A reporting; the form gives information about the trust, its U.S. beneficiaries, and persons treated as owners of any portion.[2]
For a U.S. beneficiary receiving a distribution from a foreign nongrantor trust, the IRS overview says the beneficiary generally reports a share of the trust's distributable net income. It describes a Foreign Nongrantor Trust Beneficiary Statement as information about the taxability of distributions, and points to Form 3520 instructions for distribution reporting rules even when no statement is received.[7]
Form 3520 covers several foreign trust events. The IRS overview says it is generally required when a U.S. person creates or transfers property to a foreign trust, receives a distribution, or is treated as its owner under the grantor trust rules. The same list also includes loans involving a foreign trust and certain gifts or bequests from foreign persons.[7]
Form 3520-A is the annual information return for a foreign trust with at least one U.S. owner. Its instructions assign the filing and annual statement responsibilities to the foreign trust and the U.S. person treated as owner.
The IRS overview says a foreign trust not taxed as a grantor trust may be required to file Form 1040-NR for certain U.S.-source income or income effectively connected with a U.S. trade or business.
Questions and answers
Can only part of a trust be nongrantor?
Yes. The Form 3520-A instructions say a trust may be treated as nongrantor with respect to only a portion of its assets. They also describe grantor treatment as capable of applying to only a portion.[2]
What does the grantor trust term mean?
It applies to the extent trust assets are treated as owned by a person other than the trust under the grantor trust rules. The instructions allow this treatment for part of the assets.[2]
What does a U.S. beneficiary report from a foreign nongrantor trust?
The IRS overview says the beneficiary generally reports a share of the trust's distributable net income when receiving a distribution. The Form 3520 instructions also address distribution reporting if no beneficiary statement is received.[7]
What is Form 3520-A for?
It is the annual information return for a foreign trust with at least one U.S. owner. The return includes information about the trust, its U.S. beneficiaries, and U.S. persons treated as owners of portions of the trust.[2]
Related terms
- Distribution from a foreign trust: A foreign trust distribution triggers section 6048(c) reporting for the U.S. person who receives it.
- U.S. owner of a foreign trust: The Form 3520 instructions define a U.S. owner as a person treated as owning trust assets under grantor trust rules. Ownership can apply to part of a trust.
- Grantor: Form 3520 describes a grantor as a person who creates a trust, transfers property to it without full value, or is treated as an owner under specified rules.
- Foreign grantor trust beneficiary statement: A foreign grantor trust beneficiary statement is part of Form 3520-A. It reports distributions to U.S. beneficiaries and identifies the trust's owner.
Related guides and articles
- Grantor and nongrantor trust taxation: U.S. income tax rules distinguish grantor and nongrantor trusts for U.S. citizens. Sections 671 through 679 may assign ownership of all or part of a trust.
- Tax planning and compliance for foreign trusts: U.S. rules classify trusts and assign tax and reporting duties to U.S. citizens connected with foreign trusts, including forms, filing calendars and records.
- Section 6048 reporting for certain foreign trusts: Section 6048 foreign trust reporting for U.S. citizens, including definitions and reportable events, as well as ownership and distributions and the IRS forms.
Related pages
Sources and data notes
- Internal Revenue Service, Instructions for Form 3520. https://www.irs.gov/instructions/i3520. Retrieved .
- Internal Revenue Service, Instructions for Form 3520-A. https://www.irs.gov/instructions/i3520a. Retrieved .
- Internal Revenue Service, 26 CFR 301.7701-7 Trusts, domestic and foreign. https://ecfr.io/Title-26/Section-301.7701-7. Retrieved .
- Internal Revenue Service, 26 CFR 301.7701-4 Trusts. https://www.ecfr.gov/current/title-26/section-301.7701-4. Retrieved .
- Internal Revenue Service, 26 U.S.C. 679. https://uscode.house.gov/us/usc/119-118/t26/s679/. Retrieved .
- Internal Revenue Service, 26 U.S.C. 6048. https://uscode.house.gov/us/usc/119-118/t26/s6048/. Retrieved .
- Internal Revenue Service, Foreign trust reporting requirements and tax consequences. https://www.irs.gov/businesses/international-businesses/foreign-trust-reporting-requirements-and-tax-consequences. Retrieved .
Dates in this block record when each source was read for this page.