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U.S. person

The Form 3520 instructions define who counts as a U.S. person for several foreign trust reporting rules. The term can include people and certain domestic entities.

Definition in the Form 3520 instructions

The IRS instructions for Form 3520 describe a U.S. person as a U.S. citizen or resident, a domestic partnership or corporation, an estate other than a foreign estate, or a domestic trust.[1]

Resident alien status is determined under separate IRS guidance. The term therefore reaches beyond citizens, and its listed categories also include certain domestic entities and estates.[1]

Where the term appears

Form 3520 uses the term for reporting certain transactions with foreign trusts, ownership under the grantor trust rules, and receipt of certain large gifts or bequests from foreign persons. A U.S. person who receives a foreign trust distribution reports it in Part III, while transfers to a foreign trust are reported in Part I and U.S. ownership in Part II.[1]

Form 3520-A relates to a foreign trust with at least one U.S. owner. Form 3520-A provides information about the trust, its U.S. beneficiaries, and each U.S. person treated as an owner under the grantor trust rules.[2]

These labels describe different roles. A U.S. person is the broader category; a U.S. owner is a person treated as owning trust assets under the grantor trust rules, while a U.S. beneficiary generally includes a U.S. person who could benefit directly or indirectly.[2]

Conditions and exceptions in the rules

For section 679, a foreign trust is generally treated as having a U.S. beneficiary unless its terms prevent income or principal from benefiting any U.S. person during the year, and a termination during that year could not direct income or principal to a U.S. person. A contingent future interest still counts as an accumulation for that person's benefit.[5]

The statute also disregards a beneficiary for this rule on a transfer if that person first became a U.S. person more than five years after the transfer. A loan or use of trust property by a U.S. person is generally treated as a payment for this beneficiary test, except to the extent repayment or fair market value payment occurs within a reasonable period.[5]

Accordingly, the term's application depends on the specific rule and role at issue. The definition identifies who may fall within the category, while provisions such as section 679 attach conditions for deciding whether a trust has a U.S. beneficiary.[5]

The Form 3520 instructions define a domestic trust by two tests: a U.S. court can exercise primary supervision over its administration, and one or more U.S. persons control all substantial decisions. A foreign trust is any trust that does not meet the domestic trust definition.[1]

Questions and answers

Does the term U.S. person mean only a U.S. citizen?

No. The Form 3520 instructions also include U.S. residents, domestic partnerships and corporations, certain estates, and domestic trusts.

Is every U.S. person a U.S. owner of a foreign trust?

No. A U.S. owner is a person treated as owning trust assets under the grantor trust rules.

When does section 679 treat a foreign trust as having a U.S. beneficiary?

Generally, the trust is treated as having one unless its terms and the possibility of termination both rule out income or principal benefiting a U.S. person. A contingent interest can still count as an accumulation for that person's benefit.[5]

Does a later change to U.S. person status matter for a transfer?

For section 679, a beneficiary is disregarded for a transfer if the beneficiary first became a U.S. person more than five years after that transfer.[5]

  • Section 679: Section 679 addresses certain transfers by U.S. persons to foreign trusts. It treats some property transfers as ownership when the trust has a U.S. beneficiary.
  • Foreign grantor trust: A foreign grantor trust is a foreign trust treated as owned by a grantor, often a U.S. person. Ownership brings Form 3520 and Form 3520-A reporting duties.
  • U.S. owner of a foreign trust: The Form 3520 instructions define a U.S. owner as a person treated as owning trust assets under grantor trust rules. Ownership can apply to part of a trust.
  • U.S. beneficiary of a foreign trust: A U.S. beneficiary of a foreign trust is generally a U.S. person who could benefit from the trust directly or indirectly, a status that affects distributions, ownership and reporting.
Sources and data notes
  1. Internal Revenue Service, Instructions for Form 3520. https://www.irs.gov/instructions/i3520. Retrieved .
  2. Internal Revenue Service, Instructions for Form 3520-A. https://www.irs.gov/instructions/i3520a. Retrieved .
  3. Internal Revenue Service, 26 CFR 301.7701-7 Trusts, domestic and foreign. https://ecfr.io/Title-26/Section-301.7701-7. Retrieved .
  4. Internal Revenue Service, 26 CFR 301.7701-4 Trusts. https://www.ecfr.gov/current/title-26/section-301.7701-4. Retrieved .
  5. Internal Revenue Service, 26 U.S.C. 679. https://uscode.house.gov/us/usc/119-118/t26/s679/. Retrieved .
  6. Internal Revenue Service, 26 U.S.C. 6048. https://uscode.house.gov/us/usc/119-118/t26/s6048/. Retrieved .
  7. Internal Revenue Service, Foreign trust reporting requirements and tax consequences. https://www.irs.gov/businesses/international-businesses/foreign-trust-reporting-requirements-and-tax-consequences. Retrieved .

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