Can a US Owner of a Foreign Trust Act as a Trust Agent
Can a US Owner of a Foreign Trust Act as an Agent: There are many different types of foreign trusts. Depending on the country, the participant may have a type of “Self-Managed” foreign trust that may kick-in the Form 3520 reporting requirements. One common example is an Australian SMSF (Self-Managed Superannuation Fund). The fund is essentially controlled by the Owner/Beneficiary of the trust, with certain designation requirements for who can act as a trustee. Technically, the SMSF is considered a foreign trust. This may result in significant trust reporting, subject to a potential exception under Rev. Proc. 2020-17.
When the trust is owned by a U.S. Person, there are significant reporting requirements.
If there is no U.S. Agent, then certain documents must be reported to the IRS with the initial 3520/3520-A reporting requirements.
It would be best to have to avoid providing these documents to the IRS, but some people do not want to enter into a formal contract with the trust.
The question is, can the trust owner act as the U.S. Agent without a binding contract?
The general consensus is, yes.
Form 3520 U.S. Agent General Rule
Here is the general rule from the Form 3520 Instructions:
“A U.S. agent is a U.S. person (defined later) that has a binding contract with a foreign trust that allows the U.S. person to act as the trust’s authorized U.S. agent in applying sections 7602, 7603, and 7604 with respect to:
• Any request by the IRS to examine records or produce testimony related to the proper U.S. tax treatment of amounts distributed, or required to be taken into account under the rules of sections 671 through 679, with respect to a foreign trust; or
• Any summons by the IRS for such records or testimony.
U.S. Agent Exception
Here is the clarification provided by the subsequent paragraph from Form 3520 Instructions:
“A U.S. grantor, a U.S. beneficiary, or a domestic corporation controlled by the grantor or beneficiary may act as a U.S. agent.
“However, you may not treat the foreign trust as having a U.S. agent unless you enter the name, address, and taxpayer identification number (TIN) of the U.S. agent on lines 3a through 3g on page 1 of the form.”
Essentially, the second section above clarifies the first section.
In other words, there is no limitation identified in section 1 above, as to who can act as a U.S. agent.
Therefore, the second section would seem to clarify that if the person is a U.S. grantor, a U.S. beneficiary, or a domestic corporation, they should qualify without a separate binding agreement.
International Reporting Forms are Hard
International reporting forms are not for the faint of heart.
The are many, many exceptions, exclusions and limitations to the rules to be aware of before reporting.
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