If you are required but have not filed Form 3520-A for a foreign trust with a U.S. owner, you may consider filing under the Streamlined Filing Compliance Procedures (SFCP) to come into compliance with your U.S. tax obligations.
The SFCP is designed for U.S. taxpayers, including U.S. citizens living abroad, who have failed to file required U.S. tax returns or reports of foreign financial assets but whose failure to do so was not due to willful conduct. The program allows eligible taxpayers to correct past omissions with reduced or no penalties, depending on whether they are domestic or non-resident U.S. taxpayers.
If your failure to file Form 3520-A was due to non-willful conduct, you might be eligible to use the SFCP to come into compliance. Non-willful conduct is conduct that is due to negligence, inadvertence, or mistake or conduct that is the result of a good faith misunderstanding of the requirements of the law.
When using the SFCP, you will need to file delinquent Form 3520-A for the relevant years as part of your submission. This should be accompanied by a statement that explains the reason for the failure to file and asserts that the failure was non-willful.
One of the benefits of the SFCP is the potential reduction or elimination of penalties. For taxpayers who successfully use the SFCP, penalties related to the failure to file Form 3520-A may be reduced or waived if the taxpayer can demonstrate that their failure to file was non-willful.
In addition to filing any delinquent Form 3520-A, you should also need to file Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts.
Failing to file Form 3520-A when required can have significant consequences, but the SFCP offers a pathway to compliance for eligible taxpayers. Careful preparation and professional guidance are key to making a successful streamlined submission and minimizing potential penalties.
Learn more about Form 3520-A filing requirement here: Foreign Trust Reporting: A Tax Guide for Expats