The IRS has issued Revenue Procedure 2020-17 that provides guidance on exemptions provided to certain U.S. citizens and residents pertaining to filing Forms 3520-A and 3520.

The exemption from filing these forms applies to eligible individuals, including U.S. citizens or residents who are compliant with all requirements for filing a U.S. federal income tax return and who have reported as income any contributions to, earnings of or distributions from a tax-favored foreign retirement trust or tax-favored foreign non-retirement savings trust on the filed tax return including an amended tax return.

The guidance provides a multi-faceted definition of a tax-favored foreign retirement or non-retirement trusts. In general, such trusts provide for deductions for contributions, a reduced tax rate on contributions or are eligible for other benefits such as government subsidies or contributions.  In addition, investment income earned by the trust must be deferred until distribution or taxed at a reduced rate.

Foreign retirement trusts are arrangements established in a foreign jurisdiction that operate almost exclusively to provide pension or retirement benefits.  Non-retirement trusts are arrangements established in a foreign jurisdiction that operate almost exclusively to provide medical, disability or education benefits.

The new guidance also provides for penalty relief, within open statutes of limitations, for penalties previously incurred in relation to transactions with tax-favored foreign retirement or non-retirement trusts.  It is important to note that since statutes of limitations apply, actions to apply for abatement of penalties are time sensitive.

Please contact our experts to determine if you may be eligible for an exemption from information reporting or if you have previously incurred a penalty in relation to Forms 3520-A and 3520 that may now be refundable.