The Small Business Job Protection Act of 1996 (P.L. 104-188, the "Act") brought about substantial changes in the United States federal tax treatment of foreign trusts and their grantors and beneficiaries. Included among the Act's provisions were increased information reporting requirements and related penalties, many of which became effective on August 20, 1996. In Notice 97-34, the Internal Revenue Service ("IRS") provided interim guidance on the new information reporting requirements as applicable for 1996.[fn. 1]

Under the Act and Notice 97-34, information reporting on IRS Form 3520 is required on an annual basis by U.S. persons making certain transfers to foreign trusts. Information on transfers to foreign trusts was previously reportable by the 90th day after a transfer. Form 3520 is also to be used by U.S. persons to provide information regarding (i) foreign trusts any portion of which are treated as owned by such persons for U.S. federal income tax purposes under the grantor trust rules, (ii) distributions from foreign trusts and (iii) certain gifts received from foreign persons.

Unfortunately, Notice 97-34 announced that the IRS was redesigning Form 3520 and that persons required to provide information would not be considered to have complied with the various requirements if they used the old form. Notice 97-34 also provided that the due date for information for 1996 had been extended to November 15, 1997, but that a taxpayer could also comply by attaching the new Form 3520 to the taxpayer's U.S. federal income tax return for the first taxable year beginning on or after January 1, 1997. For calendar year individual taxpayers, the due date for a 1997 U.S. federal income tax return is generally April 15, 1998.

A few days before November 15, 1997, the IRS revised its 1996 Form 3520 and related instructions.

Notes

1. For a complete discussion of the Act and related IRS guidance, see our July 1997 International Tax Bulletin, also available in Adobe Acrobat format.[return to text]

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