On March 2, 2020, the IRS released Revenue Procedure 2020-17 which exempts certain U.S. citizens and resident individuals who have ownership of or transactions with tax-favored foreign retirement and non-retirement savings trusts from reporting requirements. Taxpayers who qualify for this relief will no longer have to report these trusts on certain U.S. tax filings, and may even qualify for a refund of any previous penalties for reporting compliance failure. The new procedure is intended to reduce the administrative burdens and related costs tied to reporting trusts for eligible taxpayers.
Trusts that are eligible for this relief will not need to be reported on Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, or on Form 3520-A, Annual Information Return of Foreign Trust with a U.S Owner. It should be noted that this relief is only available for Form 3520 and Form 3520-A and does not exempt other filings that may be required such as Form 114 (Report of Foreign Bank and Financial Accounts) or Form 8938 (Statement of Specified Foreign Assets).
The Revenue Procedure will be effective as of March 16, 2020 (when it will be published in the Internal Revenue Bulletin) and will generally apply to all prior open tax years. Taxpayers who would otherwise be required to file Form 3520, due by April 15, 2020, and/or Form 3520-A due by March 16, 2020 for the 2019 tax year, will now no longer be required to file these forms if they qualify for this relief.
This is welcome news for eligible U.S. citizens and residents who own or transfer money to tax-favored foreign retirement trusts and have previously been subject to these filing requirements.
The exemption applies only to trusts that are established and operate exclusively or almost exclusively to provide pension or retirement benefits, or to provide medical, disability or educational benefits. There are specific requirements that must be met for which the taxpayer must evaluate.
If you’re wondering if this change will affect you and for more information, contact Weaver.