Relief from filing Forms 3520-A and 3520 for certain tax-favored foreign trusts

Under Rev. Proc. 2020-17, the IRS exempts qualifying transactions with, and ownership of, applicable foreign retirement and savings trusts from IRC §6048 reporting. That tax-favored foreign trust reporting relief also removes the §6677 penalties tied to those forms.

The IRS foreign trust reporting requirements page confirms that Forms 3520 and 3520-A are not required for Canadian RRSPs and RRIFs, certain Rev. Proc. 2020-17 trusts, and certain trusts described in the 2024 proposed regulations. Going into the 2026 filing season, the proposed rules may be relied on only if applied consistently and do not replace Rev. Proc. 2020-17 until finalized.

Three points sum up the relief:

• Who qualifies: An eligible individual under Rev. Proc. 2020-17 §5.02 is a US citizen or resident who is in compliance, or comes into compliance, with the US income tax returns due for the relevant period, and who has reported on those returns any trust contribution, earning, or distribution that US tax law required to be reported.
• What relief covers: relief from filing Form 3520 for plans meeting each Rev. Proc. 2020-17 condition, plus RRSPs, RRIFs, and certain trusts under the 2024 proposed regulations. The trustee-side return, Form 3520-A, is covered by the same scope.
• What still applies: FBAR, Form 8938, Form 8621 for non-US mutual funds, Schedule B, Part III, and US tax on income earned inside the account.

How to interpret relief requirements

To qualify, a plan must be either a tax-favored foreign retirement trust or a tax-favored foreign non-retirement savings trust meeting every condition in Rev. Proc. 2020-17. Retirement plans face an annual contribution cap of $50,000 or a lifetime cap of $1,000,000; non-retirement savings plans (medical, disability, or education) face an annual cap of $10,000 or a lifetime cap of $200,000.

Section 3: retirement trusts

Section 3 of Rev. Proc. 2020-17 lists six conditions a foreign retirement plan must meet for the Rev Proc 2020-17 foreign trust exemption. The contribution test under §03(4) is the most restrictive: contributions must be capped by a percentage of earned income, OR limited to $50,000 or less annually, OR limited to $1,000,000 or less on a lifetime basis. The cap reflects the maximum allowed by plan rules, not the participant's actual contribution.

Section 4: non-retirement savings trusts

Section 4 covers plans operating exclusively or almost exclusively to provide medical, disability, or educational benefits. The contribution test under §04(4) limits contributions to $10,000 or less annually, or $200,000 or less on a lifetime basis. Many otherwise qualifying plans meet five of six conditions but fail this dollar threshold.

What the 2024 proposed regulations changed

Proposed regulations REG-124850-08, published May 8, 2024, expand the Form 3520 exemption foreign trust framework. Taxpayers may rely on the proposed rules for tax years ending after May 8, 2024, if applied consistently, but the final rules will take effect prospectively from the date the regs are finalized.

The proposed regs widen relief in two main ways: a new de minimis savings trust category and inflation-indexed thresholds. The proposed regulations also add special rules for dual resident taxpayers who claim treaty-based nonresident treatment; that is, separate from the new de minimis savings trust category and the inflation-indexed thresholds.

 

Until final regulations are issued, Rev. Proc. 2020-17 remains the baseline rule, but eligible taxpayers may rely on the May 8, 2024, proposed regulations for tax years ending after that date and before the final regs' applicability date, provided they apply the proposed rules in full and consistently.

Who qualifies as an eligible individual?

Under Rev. Proc. 2020-17 §5.02, an eligible individual is a US citizen or resident who is, or comes into, compliance with the US income tax returns due for the relevant period, and who has reported on those returns any trust contribution, earnings, or distributions that US tax law required to be reported.

Anyone who fails either check loses access to the IRS relief foreign trust reporting regime, even if the plan itself qualifies.

Three conditions must all be satisfied to claim the exemption:

• US tax status: the person is, or at any time was, a US citizen or resident under §7701(a)(30)(A).
• Filing compliance: the person is current on every required US federal income tax return for any year still open under §6501, or comes into compliance through a program such as the Streamlined Filing Compliance Procedures.
• Income reporting: every contribution to, earnings of, and distribution from the foreign trust has been reported on the relevant US return for each year the person held the account.

The compliance test is an annual one. A person who lapses on a future return can lose eligibility going forward, and any unreported income inside the trust must be cured before the relief can be relied on.

Form 3520 vs Form 3520-A: what relief actually removes

Form 3520 is the US owner's annual return for transactions with, or ownership of, a foreign trust. Form 3520-A is the foreign trust's annual information return filed by the trustee, with the US owner responsible for ensuring it is filed.

The Form 3520-A exemption under Rev. Proc. 2020-17 and the 2024 proposed regulations remove both filings for qualifying plans, but they do not touch FBAR, Form 8938, or US income tax on the account.

Relief eliminates the §6048 forms and the §6677 penalties tied to them, but every other reporting duty and the underlying income tax still apply.

 

A Form 3520 penalty generally starts at the greater of $10,000 or 35% of the gross value for unreported transfers to, or distributions from, a foreign trust. For Form 3520-A failures tied to a US owner’s grantor-trust reporting, the initial penalty is generally the greater of $10,000 or 5% of the gross value of the trust portion treated as owned by the US person.

The foreign trust reporting exemption US taxpayers gain under Rev. Proc. 2020-17 removes both forms, and with them the §6677 exposure tied to those forms.

What this means for expats

The plan's name on a local pension statement does not determine whether the exemption from Form 3520 for a foreign trust applies. What matters is the plan's structure under US tax law and whether it meets the contribution or value tests for the specific tax year.

Four questions, in order, settle most cases.

1. Is the plan a Canadian RRSP or RRIF?

Canadian RRSPs and RRIFs are carved out under Rev. Proc. 2014-55, and the IRS Form 3520 instructions repeat that carve-out; no separate election is required for that exemption. FBAR and Form 8938 still apply.

2. Is the plan employer-sponsored?

Occupational pensions usually cap contributions as a percentage of earned income but skip annual or lifetime dollar caps, which is where many fail Rev. Proc. 2020-17.

These are typically non-grantor employer trusts, so Form 3520-A is not required regardless. Distributions and treaty-based foreign pension treatment are separate questions.

3. Is the plan an individual retirement or savings vehicle?

Individual plans like UK SIPPs, Swiss Pillar 3a, Irish PRSAs, and Australian super are tested against Section 3 (retirement) or Section 4 (medical, disability, education) of Rev. Proc. 2020-17.

The caps are $50,000 annual or $1,000,000 lifetime for retirement plans, and $10,000 annual or $200,000 lifetime for non-retirement savings plans. Limits are converted at the US Treasury year-end rate, so a plan can drift in or out of qualification on currency alone.

The 2024 proposed regulations add a new de minimis savings trust category for accounts whose aggregate value stays under $50,000 at any point in the year, which can rescue smaller plans that fail the contribution tests.

4. None of the above?

Default to filing both forms and treat the trust as reportable until proven otherwise. The cost of an unnecessary filing is administrative; a missed filing starts at $10,000 under §6677.

Despite relief, potential increased reporting requirements for some

Rev. Proc. 2020-17 narrows what must be filed, but it can also widen what counts as a reportable foreign trust in the first place.

Section 5.04 covers non-retirement savings plans for medical, disability, or educational benefits. The indicative list of what counts as a "trust" under this section is broader than the statutory definition, which means foreign accounts that nobody previously treated as trusts may now fall inside the §6048 framework, and out again only if every Section 4 condition is met.

Relief does not mean tax-free or reporting-free. Skipping Forms 3520 and 3520-A does not remove FBAR, Form 8938, Form 8621, Schedule B, Part III, or US tax on the income earned inside the account.

The IRS Form 3520-A instructions confirm that the exemptions in Rev. Proc. 2014-55, Rev. Proc. 2020-17, and the 2024 proposed regulations do not affect any reporting obligation under §6038D or FinCEN.

Three duties always survive the relief:

• FBAR (FinCEN Form 114): required if the aggregate value of foreign financial accounts exceeds $10,000 at any point in the year.
• Form 8938: required when specified foreign financial assets exceed the §6038D thresholds, starting at $50,000 for single US residents and rising to $600,000 for married couples filing jointly abroad.
• Form 8621: required for non-US mutual funds or pooled investments treated as PFICs, regardless of whether they sit inside an exempt trust.

Relief from Forms 3520 and 3520-A is a concession on the §6048 forms, not a change in how the trust's income is taxed or how the underlying accounts are reported elsewhere.

Examples of retirement plans this concerns

The same plan can shift in or out of relief from one year to the next as contribution caps, asset values, and currency rates move. The summary below uses 2025 figures and flags the official source to check each year before filing.

For most expats, the Section 3 retirement test fails on the contribution cap, not the percentage-of-earnings test, so plan-by-plan analysis matters more than the country's reputation for tax-favored treatment.

 

Australian SMSF

Australian Self-Managed Super Funds do not automatically fail the US exemption test. For 2025–26, the ATO's concessional cap is A$30,000, and the non-concessional cap is A$120,000, with the general transfer balance cap at A$2 million from 1 July 2025, so each plan still needs a year-by-year check against the Rev. Proc. 2020-17 contribution rules.

SMSF treatment also depends on structure, control, contribution patterns, and whether the fund is treated as a grantor trust under US rules. A blanket "does not qualify" answer is rarely safe for any expat in Australia, so review each plan on a case-by-case basis.

New Zealand KiwiSaver

KiwiSaver plans may be classified as foreign grantor trusts, and IRS guidance has not been definitive. TFX recommends a case-by-case review rather than a default position, and many clients choose to file Forms 3520 and 3520-A to avoid §6677 exposure.

The income inside the account, the FBAR filing, and the Form 8938 threshold tests still apply regardless of whether the plan qualifies for relief.

Hong Kong MPF

The Mandatory Provident Fund still fits the Section 3 framework. Both employer and employee contribute 5% of relevant income, capped at HK$1,500 per month each (HK$30,000 monthly income ceiling), per the MPFA. The percentage-of-earnings test and the dollar cap are both met.

Voluntary contributions (TVCs) above the mandatory cap can change the analysis, so check the actual contribution mix before relying on the exemption.

Swiss Pillar 3a

For employees with an occupational pension, the 2025 Pillar 3a contribution cap is CHF 7,258. Self-employed persons without a pension fund can contribute up to 20% of net income, capped at CHF 36,288. Both figures stay unchanged for 2026.

The CHF 7,258 cap converts to roughly $8,000 at recent rates, well within the $50,000 Section 3 threshold. The CHF 36,288 self-employed cap can flirt with the threshold once aggregated lifetime contributions are considered, so verify the year-end USD conversion before relying on relief.

UK SIPP

The 2025/26 annual allowance is £60,000, but the tapered annual allowance starts once adjusted income exceeds £260,000; the threshold income test is £200,000, and the minimum reduced allowance is £10,000.

A SIPP contributor with an annual allowance under the converted Section 3 cap can qualify; a contributor at the standard £60,000 allowance generally cannot. The percentage-of-earnings test (100% of earned income) is met in either case; the dollar cap is the determining factor.

Irish PRSA

Tax-relieved PRSA contributions are capped at an age-based percentage of earnings, with the earnings ceiling at €115,000. Percentages run from 15% under age 30 to 40% at age 60 and over, so a 60-year-old's maximum tax-relieved contribution is €46,000.

Younger contributors stay well within the $50,000 Section 3 cap; older contributors close to the 40% bracket can drift over the threshold once converted to USD. Verify both the age-based percentage and the year-end conversion rate annually.

Canadian RESP

Canadian Registered Education Savings Plans may align with Section 4, since the plan is built to provide educational benefits and the lifetime contribution limit per beneficiary is CAD $50,000, which converts to under the $200,000 Section 4 lifetime cap.

Some RESP structures merit review under the educational-benefits category, but the filing position should be confirmed plan by plan. RESP tax treatment depends on how the arrangement is classified for US tax purposes; FBAR and Form 8938 can still apply, and any PFIC holdings inside the account can still trigger Form 8621.

Income from funds and financial accounts still requires reporting

Relief from filing Forms 3520 and 3520-A does not change how the income inside a foreign trust is taxed, nor does it remove the parallel disclosure regimes that run on different statutes.

The trust's existence still has to be flagged on Schedule B, Part III, and any account behind it still has to be reported under §6038D (Form 8938) and 31 U.S.C. §5314 (FBAR).

The §6048 forms drop out under the relief; the income tax, FBAR, FATCA, and PFIC duties stay exactly where they were.

 

The PFIC issue catches most people. A non-US mutual fund or pooled investment held inside an exempt retirement trust is still a PFIC for US tax purposes, and Form 8621 is still due regardless of whether the wrapper qualifies for §6048 relief.

The takeaway is narrow: the relief is paperwork-only for Forms 3520 and 3520-A. Every other reporting obligation, every income-tax consequence, and every PFIC characterization continue to apply on their own terms.

Requesting abatement of Section 6677 penalties

For 2025 tax year filings, the Form 3520-A penalty starts at the greater of $10,000 or 5% of the gross reportable amount.

The Form 3520 penalty starts at the greater of $10,000 or 35% of the gross reportable amount. If the failure continues more than 90 days after IRS notice, additional penalties can apply in 30-day increments under §6677.

If the underlying plan meets every condition in Section 3 (retirement) or Section 4 (non-retirement savings), those penalties can be abated or refunded under Rev. Proc. 2020-17. A taxpayer penalized for late filing on a Swiss Pillar 3a, or another plan that meets the relevant Section 3 or 4 conditions, has a direct route to relief.

What to do after receiving a penalty notice

Five steps cover most cases:

• Confirm the plan qualifies. Review the plan against the Section 3 or Section 4 conditions for every year the penalty covers. Currency-rate movements can shift qualification year to year.
• Gather supporting documentation. Plan rules, contribution statements, year-end balances, and any local tax authority confirmation that the plan is tax-favored under the trust's home jurisdiction.
• File the Rev. Proc. 2020-17 abatement request. If a penalty has already been assessed, file Form 843, write "Relief pursuant to Revenue Procedure 2020-17" on Line 7, explain how the individual and trust meet the Section 3 or 4 requirements, and mail the claim to the IRS in Ogden, UT 84201-0027.
• If the plan does not qualify, pivot to reasonable cause. Section 6677(d) waives the penalty if the failure was due to reasonable cause and not willful neglect. A first-time filer who relied on a qualified preparer, a taxpayer who misunderstood the plan's classification, or one acting on conflicting professional advice can have a credible case.
• Track the response. The IRS may issue a refund of paid penalties or abate unpaid amounts. Keep copies of every submission; if the request is denied, an appeal to the IRS Office of Appeals is the next step.

Penalties accrue while the dispute is pending, so respond within the deadline on the notice, even if the qualification analysis is still in progress.

FREE

Unsure if your foreign plan requires Form 3520?

Let's confirm before you file.

Schedule my free call