Related person
The Form 3520 instructions describe who may count as a related person and where that relationship matters in foreign trust reporting. For a U.S. citizen, the term can connect family or corporate relationships to trust transactions and gift reporting.
Meaning in the Form 3520 instructions
The Instructions for Form 3520 describe a related person as someone related to the reader under sections 267 and 707(b), including certain family members and corporations with majority ownership. The examples include siblings, a spouse, ancestors, descendants, their spouses, and a corporation in which the reader directly or indirectly owns more than half the outstanding stock by value. The instructions point to section 643(i)(2)(B) and regulations under sections 267 and 707(b) for further meaning.[1]
The phrase is broader than the examples listed. The instructions say the examples are not exhaustive, so the examples do not supply a complete list of every relationship that may qualify.[1]
Connection to a foreign trust
The instructions use a related-person rule alongside the separate phrase person related to a foreign trust. A person falls into that latter category if, apart from the transfer being examined, that person is a grantor or beneficiary of the trust, or is related to one of them. Thus the trust-related definition starts with a person's role in relation to the trust, or a relationship to its grantor or beneficiary.[1]
This distinction appears in the Form 3520 discussion of loans, use of trust property, and outstanding obligations. The instructions describe filing circumstances for a U.S. person who is an owner or beneficiary when a related U.S. person receives a trust loan or uncompensated use, or when the trust holds that person's outstanding qualified obligation. Whether reporting applies therefore depends on each person's role and the transaction involved, not simply on being family.[1]
A qualified obligation is a neighboring defined term in this discussion. The instructions define it through several conditions, including a written agreement, a term no longer than five years, and payments denominated in U.S. dollars. Form 3520 also refers readers from these transaction rules to definitions of U.S. person, U.S. beneficiary, and related person.[1]
Gift aggregation and scope
The instructions also use the relationship concept when explaining the threshold for reporting gifts or bequests from foreign persons. For the $100,000 threshold, gifts from different nonresident aliens and foreign estates are aggregated when the recipient knows, or has reason to know, those persons are related, or knows one acts as another's nominee or intermediary. This gift rule is a separate context from the trust-loan examples.[1]
For the family and corporate examples, the instructions cross-reference the statutory and regulatory definitions instead of spelling out every possible relationship. The term's application depends on the statutory and regulatory provisions and the particular rule in which it appears. The separate foreign-trust definition also makes the timing point explicit: the person's connection to the trust is assessed without regard to the transfer at issue.[1]
Questions and answers
When can gifts from different people be combined for the threshold?
The instructions say gifts from different foreign nonresident aliens and foreign estates are aggregated if the recipient knows, or has reason to know, those persons are related. They also include a case where one person acts as a nominee or intermediary for another.[1]
Related terms
- Foreign gift: A foreign gift is a gift or bequest received from a foreign person or estate. Certain receipts may require a U.S. person to report them on Form 3520, Part IV.
- Foreign trust loan: Form 3520 filing rules address a loan received by an owner or beneficiary, or a related U.S. person, and outstanding qualified obligations from the trust.
- Qualified obligation: The Form 3520 instructions define a qualified obligation through written terms, a maximum term, U.S. dollar payments, an interest yield, and ongoing reporting.
- U.S. person: A U.S. person includes a U.S. citizen or resident alien, a domestic partnership or corporation, a domestic trust, or an estate other than a foreign estate.
Related guides and articles
- Foreign trust loans and use of property: For a U.S. citizen, IRS instructions treat certain loans from a related foreign trust and uncompensated use of trust property as reportable distributions.
- 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.
- Foreign gifts and trust distributions: Form 3520 reports foreign trust distributions and certain gifts from foreign persons. Reporting does not by itself determine whether a receipt is taxable.
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.