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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. The rules describe Form 3520 entries and circumstances that can affect a foreign trust's U.S. beneficiary status.

When a loan or use is reportable

A U.S. person who is a foreign trust owner or beneficiary reports specified loans and uncompensated property use on Form 3520, Part III. The report applies whether or not the amount is taxable, and includes a loan received by a related U.S. person.[1]

Uncompensated use includes direct or indirect use of property owned by a foreign trust. The reportable amount is the fair market value of that use, including cases where payment does not reach fair market value within a reasonable time.[1]

Form 3520 reporting entries

Part III records a loan or property use received by the U.S. person or a related U.S. person. For property use, the instructions call for the fair market value of the use and first-use date, then the amount paid and the amount treated as a taxable distribution.[1]

For an uncompensated use entry, columns (c) through (e) are skipped. The amount paid for the use is entered in column (f), and column (g) reflects the difference between the use's fair market value and the amount paid.[1]

For a loan, the instructions ask whether an obligation given for it is a qualified obligation. The fair market value of an obligation is treated as zero unless it meets that definition. The form also calls for information on outstanding qualified obligations, including principal and interest payments.[1]

A U.S. person who received a distribution, loan, or uncompensated use completes the identifying information and Part III. An owner receiving a distribution from the portion of a trust treated as owned by that person completes only specified Part III lines.[1]

Tax treatment and trust status

Reportability does not by itself mean the full loan or use value is taxable. For property use, the instructions calculate the taxable distribution by subtracting the payment from fair market value. A loan or use can remain reportable even when it is not treated as a taxable distribution under the applicable rule.[1]

Certain loans or uncompensated use of trust property can cause a foreign trust to be treated as having a U.S. beneficiary. A U.S. transferor is generally treated as owner of the transferred portion when section 679 applies.[1]

Form 3520-A reports distributions, including uncompensated property use, by U.S. owner or beneficiary, with identifying and value details.[2]

The IRS states that exceptions to specified foreign trust filing rules do not remove other possible reporting obligations. These may include reporting specified foreign financial assets on Form 8938 and filing FinCEN Form 114, also called FBAR.[6]

Form 3520 Part I is used to report a U.S. person's transfers to a foreign trust and information about qualified obligations received from it. That transfer reporting is separate from the Part III loan and use entries.[4]

Questions and answers

How is uncompensated use of trust property entered?

The fair market value of the use and date of first use go in columns (a) and (b). The amount paid goes in column (f), and column (g) shows the difference between fair market value and the amount paid.[1]

When can a foreign trust be treated as having a U.S. beneficiary?

The conditions include certain direct or indirect loans of cash or marketable securities that are not repaid at a market rate of interest within a reasonable period, and property use without fair-market-value payment within a reasonable period. These conditions can cause a foreign trust to be treated as having a U.S. beneficiary, subject to applicable exceptions. Proposed regulations also provide an exception for certain nonloan property use if the trust receives fair market value within 60 days of the start of use. Grantor-trust treatment also depends on the conditions of section 679.[1]

What form reports a U.S. person's foreign trust transfer?

Part I of Form 3520 reports transfers to a foreign trust and information about qualified obligations received from the trust. Part III covers distributions, including qualifying loan and property-use amounts.[4]

Do these exceptions remove other foreign account reporting?

No. The IRS says the exceptions do not affect possible Form 8938 reporting for specified foreign financial assets or other reporting requirements, including FBAR.[6]

Related glossary terms

  • 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.
  • Uncompensated use of trust property: Uncompensated use of foreign trust property by a U.S. person or a related U.S. person is treated as a distribution at fair market value and is reportable.
  • Distribution from a foreign trust: A foreign trust distribution triggers section 6048(c) reporting for the U.S. person who receives it. Related reporting and tax terms explain how it is treated.

Related articles and guides

  • Foreign trust distributions: DNI and UNI: Foreign trust distributions can carry current distributable net income or accumulated undistributed net income, and each has its own U.S. tax treatment.
  • Form 8938 and Foreign Trust Assets: A U.S. citizen's guide to Form 8938: what counts as a specified foreign financial asset, when the form accompanies a tax return, and how filing thresholds vary.

Tools and official documents

  • IRS and FinCEN forms: reference pages: Reference pages for 15 IRS and FinCEN forms tied to foreign trusts, foreign accounts and entities, built from the official forms and their instructions.
Sources and data notes
  1. irs.gov, Instructions for Form 3520 (12/2025) | Internal Revenue Service. https://www.irs.gov/instructions/i3520. Retrieved .
  2. irs.gov, Instructions for Form 3520-A (12/2025) | Internal Revenue Service. https://www.irs.gov/instructions/i3520a. Retrieved .
  3. irs.gov, Form 3520 (2021). https://www.irs.gov/pub/irs-prior/f3520--2021.pdf. Retrieved .
  4. govinfo.gov, Federal Register, Volume 89 Issue 90 (Wednesday, May 8, 2024). https://www.govinfo.gov/content/pkg/FR-2024-05-08/html/2024-09434.htm. Retrieved .
  5. public-inspection.federalregister.gov, Federal Register, Proposed Regulations on Foreign Gifts and Related Foreign Trust Reporting (REG-124851-23), 8 May 2024. https://public-inspection.federalregister.gov/2024-09434.pdf. Retrieved .
  6. irs.gov, Foreign trust reporting requirements and tax consequences | Internal Revenue Service. https://www.irs.gov/businesses/international-businesses/foreign-trust-reporting-requirements-and-tax-consequences. Retrieved .
  7. irs.gov, Reminder to U.S. owners of a foreign trust | Internal Revenue Service. https://www.irs.gov/individuals/international-taxpayers/reminder-to-us-owners-of-a-foreign-trust. Retrieved .
  8. bviita.vg, https://bviita.vg/bvifars/. https://bviita.vg/bvifars/. Retrieved .
  9. irs.gov, Instructions for Form 708 (12/2025) | Internal Revenue Service. https://www.irs.gov/instructions/i708. Retrieved .
  10. fincen.gov, FinCEN Proposes Revising FBAR Rules for Certain Financial Professionals | FinCEN.gov. https://www.fincen.gov/news/news-releases/fincen-proposes-revising-fbar-rules-certain-financial-professionals. Retrieved .
  11. withersworldwide.com, UK US Tax Advisors, UK US Tax Treaty, Wills and Estate Planning Specialists. https://www.withersworldwide.com/en-gb/experience/our-practices/tax/us-uk-cross-border-tax-and-planning. Retrieved .
  12. careyolsen.com, Guernsey foundations | Carey Olsen. https://www.careyolsen.com/insights/briefings/guernsey-foundations. Retrieved .

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