Australia

A regulated superannuation fund must have a trustee, and that trustee must be a company unless the fund's sole or primary purpose is old-age pensions.¹ Employers must pay the Super Guarantee into each eligible employee's fund: 12% of earnings from 1 July 2025, worked out on qualifying earnings and paid each payday from 1 July 2026.² Members, their spouses, family, and friends can add voluntary contributions, and so can the government through co-contributions.³

Concessional contributions (employer payments, salary sacrifice, and personal contributions claimed as a deduction) are capped at A$32,500 for 2026-27, and non-concessional (after-tax) contributions at A$130,000.^4,5 From the 2026-27 income year, a member whose total super balance is above A$3 million also pays Division 296 tax: 15% on the earnings that go with the part above A$3 million, and 10% more on those above A$10 million (the 2026-27 thresholds, indexed after). It is the member's own tax, not the fund's.^6,7,8 So the employer pays in, and the member can too.

A foreign trust, on our reading.

The fund must have a trustee, who must keep it solely for the members' retirement, age, and death benefits and the other purposes the Act lists,^1,9 which is what makes an arrangement a trust for U.S. purposes: trustees holding property to protect or conserve it for the beneficiaries.¹⁰ A trust is domestic only if a U.S. court can exercise primary supervision over it and U.S. persons control its substantial decisions. A fund governed by Australian law and run by its Australian trustee meets neither test, so it is foreign.^11,12

No IRS guidance addresses super's classification. An investment trust whose trustee can vary its investments is not classified as a trust,¹³ but we read super as one. The law requires the fund to be kept solely for retirement, age, and death benefits and limits when benefits are paid,^9,14 and those are features of the funds the IRS has ruled privately are trusts, one of them a fund whose members chose their own investments.^15,16

We read the employer-paid part as a §402(b) employees' trust.

No IRS ruling addresses Australian super, though the IRS has ruled privately that a similar foreign fund, with mandatory employer contributions and personal accounts, is a §402(b) trust.¹⁷ We read the employer-paid part as a §402(b) employees' trust: the Super Guarantee is a contribution by an employer to a trust for its employees,² and a trust created outside the United States cannot be exempt under U.S. §501(a).¹⁸ §402(d) treats a foreign trust as exempt only if it would otherwise qualify,¹⁹ and on our reading nothing suggests this plan meets §401(a).

On that reading, employer contributions are U.S. income to you in the year they are paid, to the extent they are vested,^20,21 and the foreign earned income exclusion cannot cover them.²² You are not treated as owner of the part they fund.²³ Once your own contributions have come to exceed your employer's, you are treated as owner of the part your contributions fund, if the grantor trust rules are otherwise met.²⁴ Your own include salary sacrifice: Australia counts it as an employer contribution,²⁵ but the IRS's reading of a similar fund treats amounts paid in at the employee's election as the employee's own, taxed as pay.²⁶ Contributions withheld from your pay because the law requires them count as your employer's.²⁷ In a defined benefit fund the employer's contribution for you may not be known; where it is not, the regulations work it out by actuarial methods,²⁸ so whether your contributions exceed it depends on the fund. The Commonwealth's defined benefit schemes have their own block below. No contribution to a §402(b) trust is a Part I event, your own included.²⁹ Payouts are taxed under §72 when they are paid or made available to you, and an amount you could withdraw just by asking counts as made available, which for super is the whole balance once you meet a condition of release with no cashing restriction, such as retiring or reaching 65,^{30,31,32,33,34} and they stay off Part III if you report them as compensation income,^35,36 unlike payouts from a part you own.³⁷

The government co-contribution comes from neither you nor your employer, so §402(b)(1), which reaches only an employer's contributions, does not cover it,²⁰ and no IRS guidance addresses it. Australian law lets it be paid to your fund or to you,³⁸ and the ATO says it isn't taxed when it is paid to the fund.³⁹ There are two readings, and neither is settled. One counts it as your own contribution, as the New Zealand guide's first reading does KiwiSaver's government contribution; on that reading it is likely income to you when it is paid in, unless the welfare exclusion, which needs a payment based on need, covers this income-tested payment, which no IRS guidance confirms.⁴⁰ The other reading, that the government is the contributor, would tax it only when it is paid out, as the United States does its own Saver's Match.⁴¹ If you include it in your income for the year it is paid in, it is your basis; if you don't, it is taxed when it is paid out, so it is taxed once either way.⁴²

One further rule: if you are a highly compensated employee and one reason the fund is not exempt is that it fails the U.S. coverage tests, you include your vested balance, less what has already been taxed to you, in income each year instead.⁴³ No IRS guidance says whether an Australian fund fails those tests.

Rev. Proc. 2020-17: unlikely. The proposed regulations: possible, with open questions.

Rev. Proc. 2020-17 exempts an eligible individual (one who has filed U.S. returns and reported the fund's income as U.S. law requires)⁴⁴ from Forms 3520 and 3520-A for a retirement trust that meets its conditions.⁴⁵ Super meets four of them. It is tax-favored: concessional contributions and a complying fund's income are taxed at 15%.^46,47,48 Its provider must report member information to the ATO, which can include contributions and account values.^49,50 It must be kept solely for retirement, age, and death benefits and the other purposes the Act lists, and benefits cannot be paid except as the regulations permit.^51,9,14 And the Super Guarantee is paid for each eligible employee, which points to meeting the employer-plan condition.^52,2

Two conditions are not met on the face of Australian law. Condition (3) permits only contributions from earned income,⁵³ but a fund can accept every type of contribution for a member under 75, including contributions by family and friends.^54,3 Condition (4) needs contributions limited to a percentage of earned income, US$50,000 a year, or US$1,000,000 for life.⁵⁵ Super's caps apply per person across all funds, and going over them brings extra tax rather than a refusal.^56,57 The non-concessional cap alone, A$120,000 for 2025-26, was about US$80,268 at the Treasury rate for December 31, 2025 (A$1.495 per US$1).^5,58 With no IRS guidance on super, Rev. Proc. 2020-17 is unlikely to cover it.

The proposed regulations, which you may rely on now if you apply them in full and consistently with related persons,⁵⁹ loosen both conditions. Contributions need only “generally” come from earned income,⁶⁰ and a fund qualifies without a contribution limit if your super funds in Australia together stay at or under US$600,000 at every point in the year (adjusted for inflation from 2026).⁶¹ Two questions remain open. Read literally, every condition must be “established by the laws” of the fund's country,⁶² and Australian law sets no limit on a super balance,⁶³ while the preamble ties the value test to the Form 8938 thresholds, which measure an account's actual value.⁶⁴ We read it as the actual value, and the app's exemption check asks it that way. And whether “generally” covers super's broad voluntary contributions is not settled. The annual contribution limit does not help: A$120,000 was about US$78,380 at the Treasury rate for July 1, 2025 (A$1.531 per US$1, the rate dated June 30), above the US$75,000 limit, which is not adjusted for 2025.^65,58

No deferral, and no effect on reporting.

The U.S.-Australia treaty does not defer U.S. tax on a fund's earnings or exclude contributions. Its pension article covers pensions, annuities, social security, and support payments once paid.⁶⁶ For a U.S. citizen or resident, the saving clause lets the United States tax as if the treaty did not exist, and of the pension article it keeps only the rules for social security and other public pensions and for alimony and child support.^67,68 There is no treaty position to claim, with one exception: a green card holder who is also resident in Australia under its law, and whom the treaty's tie-breaker rule treats as resident only in Australia,⁶⁹ is not a U.S. resident for the treaty, so the saving clause does not reach them.⁷⁰ Such a person can figure their U.S. tax as a nonresident, filing Form 1040-NR with Form 8833,⁷¹ but is still treated as a U.S. resident for other purposes,⁷² so the cautious course is to keep filing Forms 3520 and 3520-A unless you rely on the proposed regulations, which treat you as not a U.S. person for that time.^73,59 For a long-term resident, starting to be treated as resident abroad under a treaty, without waiving its benefits, ends lawful permanent residence for tax purposes once the IRS is notified, and that is an expatriation.^74,75 The IRS has said of Canadian plans that Forms 3520 and 3520-A still apply even where a treaty defers tax.⁷⁶ Treasury officials told GAO few treaties address moves between plans,⁷⁷ and this one has no rule on whether a move is taxed. Where a treaty is silent, IRS officials said, there is generally no form of transfer that gets deferral.⁷⁸

Read as a §402(b) trust: no Part I. Part II and Form 3520-A once your money exceeds your employer's, for the part it funds.

Read as a §402(b) trust: no Part I for any contribution.²⁹ No Part II or Form 3520-A for the employer-funded part; once your own contributions exceed your employer's, Part II and Form 3520-A each year for the part they fund.^23,24,79 No Part III for payouts from the employer-funded part that you report as compensation income;³⁵ payouts from a part you own go on Part III, lines 24 and 27.³⁷ An amount made available to you, as the §402(b) step reads it, is taxed in the year it is made available.³⁰ Money counted as made available in an earlier year and paid out later goes on Part III when it is paid, with a statement naming the year it was counted, whether or not it went on Part III that year: the count was a constructive receipt and the payout is the actual one, and line 24 covers what you receive actually or constructively, whether or not it is taxable; what was taxed when it was made available is basis by then, not compensation income you report, so the compensation exception does not take it off.^80,81,35 On the cautious course, a payout that mixes that money with growth or other money taxed only when it is paid goes on Part III in full, the part you report as compensation income included, since the exception covers a distribution you report as compensation income and part of this one is not.^80,35 No Form 4970: payouts from a §402(b) trust are taxed under §72, not under the trust distribution rules, and the income of a part you own is taxed to you each year.^30,82,83

When a member dies, the fund may pay the benefit to the member's dependants or to the estate.⁸⁴ A death benefit paid straight to a U.S. beneficiary is a payout from a foreign trust, and since it is not settled whether a beneficiary can report it as compensation income, the cautious course is to report it on Part III.^85,35 Whether one paid to the estate and passed on under the will to a U.S. heir of a member who was not a U.S. person is a bequest from a foreign estate, counted toward the Part IV threshold, or a distribution from the fund, on Part III, is not settled; the cautious course reports the whole payment on Part III, however it was funded, as the gifts section says.^86,87,88 If the member was a U.S. person, the estate reports the payment as the gifts section says. A departing Australia superannuation payment, which a former temporary resident can claim after leaving Australia, is a payout like any other; Australia takes a final tax from it, 35% on the part taxed in the fund (65% for working holiday makers).^89,90

A member whose employer never pays in, such as a self-employed member, funds the whole account, so it is reported in full. We treat it this way as the cautious course: no IRS guidance says whether a super fund member with no employer money is within an employees' trust. If the fund is not treated as a §402(b) trust, each contribution you make is a Part I transfer and you are treated as owner of the part it funds, so Part I, Part II, Form 3520-A, and Part III all apply.^91,92,79,85 Part I also applies at your death as a U.S. citizen or resident, if any part of the fund is then treated as owned by you or is in your gross estate: your executor reports it, whether or not the executor is a U.S. person.⁹³ Either way, an eligible individual whose fund qualifies under Rev. Proc. 2020-17 or the proposed regulations files none of them.^45,59 On our reading the exemption also spares your executor the report of your death, if you were an eligible individual and the plan qualified: it covers an eligible individual's transactions with, or ownership of, the trust, and an eligible individual can be someone who at any time was a U.S. citizen or resident.^94,95,96 No IRS guidance names executors, and the revenue procedure's scope speaks of the eligible individual who would otherwise report.⁹⁷ FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^98,99

The CSS and the PSS each have a fund, held by the Commonwealth Superannuation Corporation as trustee, into which your own contributions and your employer's productivity contributions, 2-3% of salary, are paid.^100,101,102 The benefit itself is worked out by formula from your final salary, and there is no account balance for a defined benefit pension.^103,104 When a benefit is paid, the fund pays the funded amounts to the Commonwealth, and the Commonwealth pays the whole benefit out of its own revenue, its main share, the employer component, included.^105,106,107 The military scheme, the MSBS, works the same way.¹⁰⁸ The older DFRDB has no fund at all: contributions are paid to the Commonwealth, and benefits come from its revenue.^109,110 A benefit not paid from contributions to a fund is taxed in Australia when it is paid, as an untaxed element.¹¹¹ State public sector schemes differ; some are constitutionally protected funds, which pay no tax in the fund,¹¹² and the same questions apply to them: is there a fund holding assets for you, and who pays the benefit.

Not settled: a trustee holds your contributions, but the Commonwealth pays the benefit; its main share has no fund.

Not settled. The employer component and the DFRDB are not trusts: no fund holds them,¹¹³ and a trust for U.S. purposes needs trustees holding property for the beneficiaries.¹⁰ The fund that holds your contributions is held by a trustee under a trust deed, which reads like a foreign trust,^101,10,11 but its money passes to the Commonwealth when a benefit is paid, and the Commonwealth, not the fund, pays you,¹⁰⁵ which points the other way. No IRS guidance addresses these schemes. The cautious course treats the fund as a foreign trust.

On the cautious course, the funded part reads as a §402(b) employees' trust.

On the cautious course, the fund reads as a §402(b) employees' trust, as for other super funds: the employer must pay its productivity contributions into it,¹⁰² and a trust created outside the United States cannot be exempt under U.S. §501(a).¹⁸ §402(d) treats a foreign trust as exempt only if it would otherwise qualify,¹⁹ and on our reading nothing suggests this plan meets §401(a). The productivity contributions are then U.S. income to you when they are paid, to the extent vested.^20,21 The employer component is not paid into any trust, so §402(b) does not reach it.²⁰

For the PSS you choose your own rate, 0% or 2% to 10% of salary, with 5% if you don't choose,¹⁰² so your contributions read as your own,²⁶ and at the default rate they exceed the employer's productivity contributions from the start; you are then treated as owner of the part they fund.²⁴ For the CSS the basic contribution of 5% is required, so it counts as your employer's, and only supplementary contributions are your own.^114,27 No contribution to a §402(b) trust is a Part I event.²⁹

Rev. Proc. 2020-17: possible for the PSS, unlikely for the CSS, unconfirmed for both.

Rev. Proc. 2020-17 exempts an eligible individual from Forms 3520 and 3520-A for a retirement trust that meets its conditions.^44,45 For the funded part, contributions come only from salary, and the productivity contributions are concessional, taxed at a reduced rate,^115,46,53 and PSS contributions are limited to a percentage of salary;^102,55 but the CSS takes supplementary contributions of any amount,¹¹⁶ which points against the limit condition. No IRS guidance addresses these schemes, and the other conditions are unconfirmed. The proposed regulations may also cover the funded part, with the same open questions.⁵⁹

An Australian citizen's government pension is exempt under Article 19, unless they are a U.S. citizen or green card holder.

Article 19 exempts from U.S. tax a pension the Commonwealth pays an Australian citizen for government service,¹¹⁷ but the saving clause keeps that only for someone who is neither a U.S. citizen nor a green card holder.¹¹⁸ Otherwise, as for other super funds, the treaty has no deferral and no effect on reporting.^66,76

On the cautious course, Part II and Form 3520-A for a part your own contributions fund; nothing for the rest.

No Part I for any contribution.²⁹ On the cautious course, once your own contributions exceed the employer's productivity contributions, as at the PSS default rate, Part II and Form 3520-A are due each year for the part they fund;^24,79 the trustee will not file Form 3520-A for you, so you attach a substitute built from your statement's member and productivity components.¹¹⁹ On the cautious course, the part of a payout your own contributions funded goes on Part III, lines 24 and 27, even though the Commonwealth pays it.^37,105 No Form 4970, because the income of a part you own is taxed to you each year.⁸³ The employer component and the DFRDB have no fund, so nothing about them goes on Forms 3520 or 3520-A.⁹¹ An eligible individual whose scheme qualifies for an exemption files none of these.^45,59 FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^98,99

An SMSF is a super fund with no more than six members, in which every member is a trustee, or a director of the company that is trustee.¹²⁰ Members can fund it with personal contributions,⁵⁴ and an employer can pay into it too: the Act contemplates an SMSF with an employer-sponsor.¹²¹ The same caps apply as for other super funds.^4,5

A foreign trust, on our reading.

For the same reasons as other super funds: it must have trustees who hold its assets for the members, and it is governed by Australian law.^1,10,11 An SMSF that stops being a complying fund is taxed at 45% instead of 15%, but it is still a trust.⁴⁸

Only an employer-paid part can be a §402(b) employees' trust.

And no IRS guidance addresses SMSFs. Where an employer pays in, read that part as in the superannuation fund block above.²⁰ Once a member's own voluntary contributions exceed the employer's, the member is treated as owner of the part those contributions fund, if the grantor trust rules are otherwise met.^24,26 An SMSF that receives no employer contributions is not an employees' trust, and §402(b) does not apply to it.

Rev. Proc. 2020-17: unlikely. The proposed regulations: possible under the value test.

The same analysis as other super funds, with the same result: Rev. Proc. 2020-17 is unlikely to cover an SMSF, because a fund can take contributions from family and friends for a member under 75,^53,54 and the proposed regulations may cover one whose value stays at or under the threshold, with the same open questions.^61,59 The employer-plan condition applies only to employer-maintained trusts, so it does not count against an SMSF.⁵²

No deferral, and no effect on reporting.

Same as other super funds: no deferral, and no effect on reporting.^66,67,76

Full reporting for an SMSF only its members pay into.

For an SMSF funded only by its members: you are treated as owner of the part your contributions fund, including contributions made before you became a U.S. person, because its income is held for you,^122,92 so Part II and Form 3520-A are due each year⁷⁹ and payouts go on Part III.⁸⁵ Each contribution you make as a U.S. person is a Part I transfer,⁹¹ and one made within 5 years before your U.S. residency started is treated as made on your residency starting date and goes on Part I for that year.¹²³ Part I also applies at your death as a U.S. citizen or resident, if any part of the fund is then treated as owned by you or is in your gross estate: your executor reports it, whether or not the executor is a U.S. person.⁹³ The trustees are the members, so if the fund does not file Form 3520-A, you prepare a substitute from the fund's own accounts.¹¹⁹ Form 4970 does not apply to the part you own, because its income is taxed to you each year.⁸³ Where an employer also pays in, treat the employer-paid part as in the superannuation fund block above. An eligible individual whose SMSF qualifies under the proposed regulations files none of these.⁵⁹ On our reading the exemption also spares your executor the report of your death, if you were an eligible individual and the plan qualified: it covers an eligible individual's transactions with, or ownership of, the trust, and an eligible individual can be someone who at any time was a U.S. citizen or resident.^96,124 No IRS guidance names executors. The funds an SMSF holds may be subject to the PFIC rules; this guide does not decide that. FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^98,99

A trust set up under Australian law, during someone's life or by their will, in which a trustee holds investments or a business for family members.¹⁰ If the trustee mainly runs a business for profit rather than holding property for the family, U.S. law may classify the arrangement as a business entity rather than a trust.¹²⁵

A foreign trust, unless a U.S. court supervises it and U.S. persons control its substantial decisions.

An ordinary trust where the trustee holds property for the beneficiaries,¹⁰ and a foreign trust where a trustee in Australia administers it under Australian law, since it then fails the court test, which alone makes it foreign, even where the trustee is a U.S. citizen.^11,12 A trust is domestic only on a day a U.S. court can supervise its administration and U.S. persons control all of its substantial decisions, counting everyone who can make one, not only the trustees.¹²⁶ Powers a settlor keeps, or a protector's consent rights, do not on our reading stop it being a trust; they go to who is owner, below, and where a foreign person holds one that is a substantial decision, such as a power to revoke the trust or to replace the trustee, it also keeps the trust foreign, even with a U.S. trustee.^127,128 A bare trust whose trustee only holds title for an adult entitled to the property may not be a trust for U.S. purposes,¹²⁹ but that ruling is narrow,¹³⁰ so whether a bare trust is one is not settled, and the cautious course reports it as a trust. A bank or trust company that holds your own investments only to act on your instructions is not that kind of bare trust; it is an account, not a trust.¹²⁹

A U.S. person who funds it is owner when it has a U.S. beneficiary; a foreign settlor only in two narrow cases.

Who is treated as owner decides who files Part II and Form 3520-A. A U.S. person who transfers property to the trust is treated as owner of the part it funds for any year in which the trust has a U.S. beneficiary.⁹² Someone who funds the trust while not a U.S. resident and becomes one within 5 years is treated, for this rule and for Part I, as transferring that part of the trust on the day their U.S. residency starts.¹²³ A settlor who is not a U.S. person is treated as owner only if they can revoke the trust alone or with the consent of a related or subordinate party subservient to them, or if only they or their spouse can receive distributions during their life.¹³¹ Otherwise, unless another grantor trust rule makes a U.S. person owner,¹²² no one is owner, and the trust is taxed as a separate, non-grantor trust.¹³²

A trust has a U.S. beneficiary for the transferor rule if anyone has discretion to pay or benefit any person, unless its terms identify the class who may benefit and none of them is a U.S. person that year,¹³³ even if nothing is paid to a U.S. person that year;¹³⁴ a power to amend the trust to benefit a U.S. person counts, and so does a letter of wishes or other understanding that points to benefiting one, even one that says it is only a suggestion.¹³⁵ Where a U.S. person funds the trust, the IRS may treat it as having a U.S. beneficiary unless that person shows it has none.¹³⁶ A beneficiary who first became a U.S. person more than 5 years after the transfer is not counted,¹³⁷ and a transferor whose trust gains a U.S. beneficiary is taxed that year on the income the trust kept for that part to the end of the year before, as an accumulation distribution with the interest charge.^138,139 A settlor who is not a U.S. person keeps the revocable-trust exception for a year only if they can take the property back alone, or with the consent of a related or subordinate party subservient to them, for at least 183 days of it; a power that needs anyone else's consent, such as an independent trustee's or protector's, does not count.^140,141 Once the exception fails for a year it is lost for good.¹⁴² Separately, a portion already treated as owned under §676, or under §677 other than its life insurance rule, on September 19, 1995 keeps that owner for the property it held that day, for as long as it stays so treated.¹⁴³ A U.S. settlor of a trust with no U.S. beneficiary can still be owner under another rule, for example by keeping a power to take the property back,¹⁴⁴ and a U.S. beneficiary who alone can take the property is owner of it.^145,131

When a settlor who was not a U.S. person dies, the revocable-trust and spouse-only exceptions end for that settlor's portion, because the person left with the power, even a surviving spouse, is not its grantor;¹⁴⁶ a U.S. person who alone can take the property, or a U.S. person who funded the trust, can still be owner, and otherwise the portion is taxed as a non-grantor trust.^145,92,132 When a portion stops being owned by a U.S. person, the owner is treated, for the gain rule, as transferring it to a foreign trust that day.¹⁴⁷ At death the gain is excused only if the trust's basis in the property is then reset to its value at death under section 1014(a), as where the owner could still revoke the trust;¹⁴⁸ otherwise the owner is treated as transferring it immediately before death and recognizes the gain.¹⁴⁹

No relief.

For a U.S. citizen or resident, the saving clause lets the United States tax as if the treaty did not exist, apart from a short list of articles, none of which concerns foreign trust reporting.^67,68

Part I for whoever funds it, Part II and Form 3520-A for an owner, Part III for whoever receives a distribution.

A U.S. person who transfers property to the trust files Part I for that year.⁹¹ A transfer to a foreign trust is treated as a sale, and you recognize any gain on what you transfer;¹⁵⁰ a transfer is not, to the extent anyone is treated as owning the part it funds.¹⁵¹ Part I also applies on the death of a U.S. citizen or resident who was treated as owner of any part of the trust, or whose gross estate includes part of it, and to property that passes to the trust by reason of a U.S. person's death; the executor reports it, whether or not the executor is a U.S. person.⁹³ The gain rule does not apply to property that passes to the trust by reason of a U.S. person's death, if its basis in that property is set under section 1014(a).¹⁴⁸ A U.S. owner files Part II and makes sure Form 3520-A is filed, or files a substitute, each year.^79,119 A U.S. beneficiary who receives a distribution files Part III for that year.⁸⁵ A distribution from a non-grantor trust that carries out income the trust kept in earlier years is an accumulation distribution, taxed with an interest charge on Form 4970.¹⁵² Form 4970 can also apply to a transferor taxed when the trust gains a U.S. beneficiary, as the owner step says.¹³⁹ Rev. Proc. 2020-17 does not apply: it covers only retirement trusts and medical, disability, or educational savings trusts.¹⁵³

A distribution is any gratuitous transfer from the trust, whether or not it is a grantor trust and whether or not you are named as a beneficiary, including a credit card bill it pays or guarantees and a check written on its account.¹⁵⁴ On the proposed rules, a payment from a company the trust owns to a U.S. person who is a grantor, owner or beneficiary of the trust, or related to one, is treated as a distribution from the trust, unless that person shows it is properly attributable to their own interest in the company.^155,59 A loan of cash or marketable securities, or use of trust property, to you or a related U.S. person goes on Part III whether or not it is taxable;¹⁵⁶ it is treated as a distribution for income tax, except a loan made on a qualified obligation (a written loan in U.S. dollars, for 5 years or less, at an interest rate tied to the federal rate, for which you extend the IRS's time to assess and that you report each year) or use you pay the fair market value for within a reasonable time,^{157,158,159,160} and where a U.S. person funded the trust, the loan instead makes it a grantor trust, and it still goes on Part III.¹⁶¹

If you are the U.S. owner of the part that pays you, you complete only lines 24 and 27, and the rest of this paragraph does not apply to you.³⁷ Otherwise, with a complete Foreign Grantor Trust Beneficiary Statement you treat a payment as coming from the owner, so a gift from the owner is not your income;¹⁶² without one, the default method applies even to a distribution from a grantor trust.¹⁶³ From a non-grantor trust you may use the actual method if you have a Foreign Nongrantor Trust Beneficiary Statement,¹⁶⁴ and without one the default method applies: the part of this year's distributions above 1.25 times the average of the three years before is an accumulation distribution, taxed on Form 4970 with an interest charge figured on Form 3520's Schedule C, and the rest is ordinary income,^165,152,166 and once you use the default method you must keep using it in later years, except that in the year the trust ends you may use the actual method if you have the statement.¹⁶⁷ In the trust's first year as a foreign trust, you stop Part III once you have entered how many years it has been foreign, so no accumulation distribution is figured that year.¹⁶⁸ The statute treats the whole distribution as an accumulation distribution where adequate records are not given;¹⁶⁹ the default method is the IRS's relief from that, open if you can give the trust's distributions for the three years before,¹⁷⁰ and where there were none, it too makes the whole distribution an accumulation distribution.¹⁶⁵ A foreign trust's distributable net income, the income its distributions carry out, includes its capital gains,¹⁷¹ and the exception for income kept before a beneficiary was born or turned 21 does not apply to it.¹⁷² FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.¹⁷³