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Responsible party

The Instructions for Form 3520 define the responsible party for specified events involving a foreign trust. The definition identifies who reports an event and how that role differs from an owner or U.S. agent.

Definition and role

The Instructions for Form 3520 define a responsible party as the grantor when an inter vivos trust is created, the transferor for another reportable event, or the decedent's estate executor in other cases. The instructions state that the executor may be a U.S. person or someone outside that category.[1]

A person identified as responsible for reporting a reportable event falls within one listed filing condition. The same condition separately covers a U.S. person who transfers property to a related foreign trust for an obligation, or holds a qualified obligation from that trust that remains outstanding.[1]

A reportable event includes creating a foreign trust by a U.S. person or transferring money or property to one, directly or indirectly. A transfer by reason of death is included in the event definition, but the responsible-party rule assigns the transferor only for reportable events other than transfers by reason of death. The executor is responsible in the other estate cases described by the definition.[1]

The instructions describe a grantor broadly for this purpose. The term includes a person who creates the trust or makes a gratuitous transfer to it, directly or indirectly. It also includes a person treated as owner of any part of a foreign trust's assets under sections 671 through 679, excluding section 678. A partnership or corporation making a gratuitous transfer generally leads to its partners or shareholders being treated as grantors, unless the transfer was for that entity's business purpose.[1]

The responsible party is distinct from the owner. The instructions define an owner by whether a person is treated as owning foreign trust assets under sections 671 through 679. They also define a U.S. agent by a binding contract with the foreign trust that authorizes the U.S. person to act for specified IRS records and testimony matters. Those roles can overlap, since the instructions say a U.S. grantor or U.S. beneficiary may serve as agent, but the definitions describe different functions.[1]

How the filing rule applies

The instructions say U.S. persons file Form 3520 to report certain foreign trust transactions, ownership under the grantor trust rules, and certain large gifts or bequests from foreign persons. A responsible party's event reporting is one route into the form's filing conditions, while U.S. ownership and specified distributions are addressed separately.[1]

A U.S. person treated as owner of any part of a foreign trust under sections 671 through 679 completes Part II even when no trust transactions occurred during the tax year. The instructions also say a substitute Form 3520-A may be required and attached to Form 3520.

The grantor definition can connect the roles, since someone treated as owner may also fall within the instructions' grantor description. But the responsible-party definition depends on the event and circumstance: creation, another reportable event, or an estate case.

Form 3520-A uses related terms, including U.S. owner and U.S. agent, and describes statements furnished to each U.S. owner treated as owner under grantor trust rules.

Questions and answers

Who is the responsible party when a foreign trust is created?

For creation of an inter vivos trust, the Instructions for Form 3520 identify the grantor as the responsible party. The instructions define grantor to include a person who creates the trust, with additional circumstances also included.[1]

Who is responsible for a transfer to a foreign trust?

For a reportable event other than a transfer by reason of death, the transferor is the responsible party. The event definition includes direct or indirect transfers of money or property by a U.S. person to a foreign trust.[1]

Who is responsible in an estate case?

The instructions assign responsibility to the decedent's estate executor in other cases. The executor can be a U.S. person or not.[1]

  • Section 6048: Section 6048 sets information reporting rules for certain foreign trusts. Its parts cover notice of events, U.S. owner duties and beneficiary distributions.
  • 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.
  • Transfer to a foreign trust: Form 3520 covers direct and indirect transfers of money or property to a foreign trust, including gratuitous transfers, alongside the U.S. ownership rules.

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Sources and data notes
  1. Internal Revenue Service, Instructions for Form 3520. https://www.irs.gov/instructions/i3520. Retrieved .
  2. Internal Revenue Service, Instructions for Form 3520-A. https://www.irs.gov/instructions/i3520a. Retrieved .
  3. Internal Revenue Service, 26 CFR 301.7701-7 Trusts, domestic and foreign. https://ecfr.io/Title-26/Section-301.7701-7. Retrieved .
  4. Internal Revenue Service, 26 CFR 301.7701-4 Trusts. https://www.ecfr.gov/current/title-26/section-301.7701-4. Retrieved .
  5. Internal Revenue Service, 26 U.S.C. 679. https://uscode.house.gov/us/usc/119-118/t26/s679/. Retrieved .
  6. Internal Revenue Service, 26 U.S.C. 6048. https://uscode.house.gov/us/usc/119-118/t26/s6048/. Retrieved .
  7. 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 .

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