Rev. Proc. 2020-17 and foreign trust reporting

Rev. Proc. 2020-17 addresses foreign trusts: its scope, trust definitions, eligibility conditions and relationship to U.S. reporting.

Scope of Rev. Proc. 2020-17

Rev. Proc. 2020-17 is a revenue procedure issued by the Department of the Treasury and the Internal Revenue Service. It addresses section 6048 information reporting for certain U.S. citizens and resident individuals with transactions involving, or ownership of, specified foreign trusts.^[1]

The exemption applies to eligible individuals and two categories of trusts: tax-favored foreign retirement trusts and tax-favored foreign nonretirement savings trusts. The procedure also defines those categories and explains that an eligible individual must meet U.S. federal income tax filing and income reporting requirements for the relevant period.^[1]

Rev. Proc. 2020-17 provides an exemption from section 6048 reporting for qualifying transactions and ownership. Its stated scope covers an eligible individual who otherwise would have been required to report such a transaction or ownership under that section.^[1]

Trust definitions and conditions

A tax-favored foreign retirement trust must operate almost exclusively to provide pension or retirement benefits, with ancillary or incidental benefits, and meet additional requirements under the trust jurisdiction's laws. The conditions involve tax-favored treatment, annual information reporting, contribution limits, and restrictions on withdrawals.^[1]

For retirement trusts, the procedure describes contribution limits that may be based on earned income, an annual cap of $50,000, or a lifetime cap of $1,000,000. It also addresses employer-maintained plans and permits certain transfers from another qualifying retirement trust in the same jurisdiction, subject to conditions.^[1]

A tax-favored foreign nonretirement savings trust must operate almost exclusively to provide medical, disability, or educational benefits, or earn income for those benefits. Its listed conditions include tax-favored treatment, reporting to relevant authorities, contribution limits of $10,000 annually or $200,000 over a lifetime, and benefit-related withdrawal conditions.^[1]

How U.S. reporting relates

Section 6048 generally covers a U.S. person's transfers to, ownership of, and distributions from foreign trusts. Forms 3520 and 3520-A are the forms used for section 6048 information reporting.^[1]

The exemption is limited to section 6048 reporting and eligible individuals. The procedure says it does not change reporting duties under section 6038D or other U.S. law, including the FBAR filing requirement on FinCEN Form 114.^[1]

Section 6038D concerns specified foreign financial assets, and the procedure notes that a person reporting under that section on Form 8938 may also have similar identifying information to report under section 6048. The exemption therefore does not itself settle whether other reporting forms apply.^[1]

Official text

The official text is published by the Internal Revenue Service in the Internal Revenue Bulletin. The document's drafting information identifies the Office of Associate Chief Counsel (International) as the author's office.^[1]

Questions and answers

Who can use the section 6048 exemption under Rev. Proc. 2020-17?

It applies to an individual who is, or was, a U.S. citizen or resident and meets the procedure's federal income tax filing and income reporting conditions. The qualifying trust must also fit one of the document's two defined categories.^[1]

Which foreign trusts does the procedure define?

It defines tax-favored foreign retirement trusts and tax-favored foreign nonretirement savings trusts. Each category has purpose and jurisdictional requirements, along with other conditions described in the procedure.^[1]

Does the exemption cover Form 8938 or FBAR reporting?

No. The procedure says it does not affect section 6038D or other U.S. reporting obligations, including filing FinCEN Form 114. It also identifies Form 8938 as the form for section 6038D information reporting.^[1]

Where can a reader find the official text?

The procedure states that it is published in the Internal Revenue Bulletin.

Related glossary terms

Discretionary trust: A discretionary trust leaves distribution decisions to the trustee. It differs from a fixed interest trust and from a protective trust in who controls payments.