AICPA Comments on Suggestions for Changes to Form 3520 and Instructions

Sep 19, 2026

Letter from the American Institute of CPAs to the IRS Office of Servicewide Penalties requesting improvements to Form 3520, Form 3520-A, and related instructions. It outlines specific revisions covering U.S. agent assignment guidance, line-item instructions for trust types, clarification of reconciliation requirements in the balance sheet, extension and electronic-filing procedures, and rules for substitute returns. The letter also recommends additional changes, including e-filing, EIN guidance, attachment frequency for the U.S. agent form, and treaty-based reporting exemptions.

LanguageEnglish

CategoryLetters

FormatPDF

Pages5

Reading Time2 min

AccessFree to download

Detailed Recommendations

Updates when no U.S. agent is appointed

Line 29 and Line 30 trust-type guidance

Additional recommended changes

Detailed Recommendation 1 (instructions vs. form alignment)

August 14, 2023 Mr. Ryan K. Bessey Senior Program Analyst Office of Servicewide Penalties Internal Revenue Service Ogden Campus, M/S 4951 RE: Improvements to Form 3520 and Form 3520-A and Instructions Dear Mr. Bessey: On behalf of the American Institute ofCPAs (AICPA), we are writing to provide our suggestions for improvements to the Form 3520, Annual Return To Report Transactions With Foreign Trustsand Receipt of Certain Foreign Gifts, and Form 3520-A, Annual Information Return of Foreign Trust With a U. S. Owner, and instructions. We appreciate the dialogue we have had with the Internal Revenue Service (“IRS”) Office of Servicewide Penalties regarding many of the issues with Form 3520 penalties that practitioners and taxpayers face. We request that the Department of the Treasury (“Treasury”) and IRS consider the following recommendations regarding the Form 3520 and Form 3520-A and instructions. 1. In cases where a foreign trust did not appoint a U.S. agent, update Form 3520 instructions to agree with the directions provided on Form 3520, line 3, and Part I, Schedule B, lines 15 – 18. 2. Add to the instructions and to the Form 3520; Part III – for Line 29- “If you are filing Form 3520 with respect to a foreign nongrantor trust, check N/A,” and for Line 30- “If you are filing Form 3520 with respect to a foreign grantor trust, check N/A.” 3. Add to the instructions for Form 3520-A for Part III, Balance Sheet, a sentence such as “It isnot necessary or required to reconcile any differences between the book and tax basis of assets and liabilities.” Also, add a sentence to clarify that it is not necessary to reconcile changes in the fair market value of assets and liabilities between the beginning and end of the tax year. 4. For Form 3520, clarify that if a U.S. person required to file a Form 3520 has filed their Form 1040, U.S. Individual Income Tax Return, on or before the original due date, it is still possible to extend the due date for filing a Form 3520 by filing an extension (in the case ofan individual, a Form 4868, Application for Automatic Extension of Time to File U.S. Individual Income Tax Return) on or before the original due date of the U.S. person’s return (April 15 in the case of an individual) . 5. Clarify that a Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns, can be electronically filed to extend a Form 3520-A, and a Form 4868 can be electronically filed to extend a Form 3520. 6. In cases where a substitute Form 3520-A will be filed, clarify that no extension for Form 3520-A needs to be filed. Also, state that it is acceptable, but not required, ifa separate extension for Form 3520-A is filed in cases where a substitute Form 3520-A is filed. 7. Make additional AICPA recommended changes to the Form 3520 and Form 3520-A and instructions, 1 including: ▪ Allow e-filing of the Form 3520 and Form 3520-A, which could reduce the number of returns incorrectly being assessed late filing penalties. ▪ Make clear in the instructions to the Form 3520 when an employer identification number (EIN) is required. For example, clarify whether a foreign non-grantor trust needs to obtain an EIN if it has U.S. beneficiaries but otherwise does not derive any U.S. source income or have any connections to the United States. ▪ Provide that the U.S. agent form only needs to be attached to Form 3520 and Form 3520-A every three years unless there has been a change. ▪ Include an exemption from Form 3520 and Form 3520-A reporting for foreign pensions where deferral of tax on earnings is available under a tax treaty, as in the case of Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. See Treas. Reg. § 1.1298-1(c)(4) . Detailed Recommendations 1. In cases where a foreign trust did not appoint a U.S. agent, update Form 3520 instructions to agree with the directions provid

FAQs

What changes does the letter request for situations where a foreign trust did not appoint a U.S. agent?

It asks to update the Form 3520 instructions so they agree with the directions on Form 3520, line 3, and Part I, Schedule B, lines 15–18, noting that the current instructions are incorrect and taxpayers should follow the form.

What specific clarifications are requested for Form 3520 Part III lines 29 and 30?

The letter requests adding instruction text stating that for a foreign nongrantor trust, filers should check N/A on line 29, and for a foreign grantor trust, filers should check N/A on line 30.

Which operational and filing process improvements does AICPA recommend?

The letter recommends allowing e-filing of Form 3520 and Form 3520-A, clarifying extension options, and confirming that a substitute Form 3520-A does not require a separate extension for Form 3520-A (while an additional extension is acceptable but not required).

What additional substantive recommendations are included beyond instruction edits?

It recommends clarifying when an EIN is required, specifying that the U.S. agent form only needs attachment every three years unless there is a change, and adding an exemption from Form 3520 and Form 3520-A reporting for certain foreign pensions where treaty-based deferral is available.

Sep 19, 2026

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