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Treasury Excepts Reporting for Interests in Certain Tax-Favored Retirement and Non-Retirement Savings Trusts in Revenue Procedure 2020-17

Table of Contents

    Last week, the Treasury Department released Revenue Procedure 2020-17, which provided taxpayers guidance regarding information filing requirements related to certain tax-favored foreign retirement trusts and certain tax-favored foreign non-retirement savings trusts. The key takeaway from Revenue Procedure 2020-17 is Treasury’s intent to issue proposed regulations that would modify Section 6048 to exempt certain U.S. taxpayers from information reporting requirements relating to certain tax-favored retirement trusts and non-retirement savings trusts. The Revenue Procedure also details the Treasury’s plan to allow taxpayers who have been assessed a penalty for failure to comply with the information reporting under Section 6048 with respect to the foreign trusts described above to request abatement or refund of such penalties.

    The Old Rule

    Section 6048 generally required U.S. taxpayers to provide annual information to the IRS with respect to interests in foreign trusts. As a part of Section 6048 compliance, taxpayers with an interest in a foreign trust were typically required to complete Forms 3520 and/or 3520A. Generally, these reporting requirements came in addition to reporting requirements under Section 6038D, which requires the annual disclosure of Specified Foreign Financial Assets, which could (and in most cases do) include interests in foreign trusts.

    The Rationale Behind Revenue Procedure 2020-17

    The Secretary of the Treasury is permitted to suspend or modify any requirement under section 6048 if the government has no significant tax interest in obtaining the required information. Treasury cited various factors that went into their decision to except U.S. taxpayers’ interests in certain foreign trusts from reporting under Section 6048, including the fact that taxpayers may already be required to report information related to the tax-favored retirement and non-retirement trusts on Form 8938 as a part of their Section 6038D information reporting compliance. Additionally, Treasury cited the fact that many countries in which the relevant trusts are established have sufficient limitations and compliance requirements.

    What Does This Mean for Taxpayers With Interests in Foreign Trusts?

    It is important to understand that Revenue Procedure 2020-17 does not apply to all foreign trusts. Only certain tax-favored foreign retirement trusts and certain tax-favored foreign non-retirement savings trusts fall within the scope of the revenue procedure. Likewise, U.S. residents only qualify for the exception and penalty abatement or refund if they are compliant with their tax filing obligations for the relevant tax year.

    Taxpayers with an interest in a foreign trust should consult with their tax advisor to ensure that they are compliant with the relevant information reporting requirements. Even with Revenue Procedure 2020-17’s exception for certain trusts under Section 6048, there are still various other reporting requirements, including under Section 6038D and the requirement to file

    FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), imposed by

    31 U.S.C. section 5314 and the regulations thereunder.

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