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Puerto Rico

Moderate relevance

Puerto Rico trusts are foreign trusts for Forms 3520 and 3520-A, and residents who are citizens are U.S. persons who file them, U.S. tax or not. A Puerto Rico IRA is a trust under Puerto Rico law: full reporting, since whether Rev. Proc. 2020-17 reaches a territory is not settled. A plan with a U.S. trust files nothing.

Each account below opens with four answers, one for each part of the forms: File, No or Depends.

Contents

Tax-deferred employer plans

Puerto Rico-only plans (ERISA section 1022(i)(1))

Part Iwhat you put in: DependsYour own contributions, and your executor at your death, unless the plan meets §401(a) apart from its trust's location
Part II + Form 3520-Aa part you're treated as owning: DependsNot settled: the part your own contributions fund
Part IIIwhat you received: DependsPayouts, on the cautious course
Form 4970throwback tax: No

No IRS guidance applies Forms 3520 and 3520-A to these plans, so the answers are the cautious course. What your employer alone pays in is its transfer, not yours.

What it is

A plan qualified only under Puerto Rico's Internal Revenue Code, whose trust is organized under Puerto Rico law for employees who live in Puerto Rico or work mainly there.¹ The employer pays in, and so may the employees: for 2026, an employee in a plan qualified only in Puerto Rico may defer up to $15,000 of pay, and a defined contribution account may take $72,000 a year in all.² Where all the participants are residents of Puerto Rico, ERISA section 1022(i)(1) treats the trust as exempt from U.S. tax under §501(a).³

1 P.R. Internal Revenue Code, §1081.01(a) (OGP English)

“A trust organized under the laws of Puerto Rico and forming part of a retirement, stock bonus, pension, or profit-sharing plan of an employer”Puerto Rico Internal Revenue Code of 2011 (Act No. 1-2011, as amended), §1081.01(a): an employees' trust organized under Puerto Rico law is not taxable, if the plan meets the qualification rules. The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point

2 Hacienda, CC RI 26-03

“retiro cualificado solamente bajo la Sección 1081.01(a) del Código”Our translation: retirement [plan] qualified only under Section 1081.01(a) of the CodeDepartamento de Hacienda (Puerto Rico), Carta Circular de Rentas Internas Núm. 26-03 (Feb. 19, 2026): for 2026, $15,000 of deferrals in a plan qualified only in Puerto Rico, and $72,000 a year for a defined contribution account, in Spanish: no English found

3 IRM 4.71.21.3

“ERISA Section 1022(i)(1) qualified trusts are treated as exempt under IRC 501(a) as if they’re part of a qualified plan under IRC 401(a).”IRM 4.71.21.3 (02-16-2024), Key Definitions: ERISA section 1022(i)(1)

Trust classification

A foreign trust, though ERISA treats it as exempt under §501(a).

A foreign trust. A trust is domestic only if a U.S. court can exercise primary supervision over it and U.S. persons control its substantial decisions, and the courts of a territory are not courts within the United States for that test,^4,5 so a trust supervised by Puerto Rico's courts is a foreign trust. The IRS says so of Puerto Rico trusts in general, and of this kind of plan trust in its ruling on one.^6,7 ERISA section 1022(i)(1) makes the trust exempt from U.S. tax on its own income, but it does not make the plan a qualified plan.^3,8

4 Treas. Reg. §301.7701-7(a)(1)-(2)

“The term foreign trust means any trust other than a domestic trust.”Treas. Reg. §301.7701-7(a)(1)-(2): a trust is domestic only if it meets both the court test and the control test

5 Treas. Reg. §301.7701-7(c)(3)(ii)

“a court within a territory or possession of the United States or within a foreign country is not a court within the United States”Treas. Reg. §301.7701-7(c)(3)(ii)

6 IRM 4.71.21.6

“A Puerto Rico trust is considered a foreign trust under IRC 7701(a)(31)(B) and the corresponding regulations.”IRM 4.71.21.6 (02-16-2024), Examination of Puerto Rico Plans

7 Rev. Rul. 2008-40

“The Plan D trust is created and organized under the laws of Puerto Rico, and is classified as a foreign trust under”Rev. Rul. 2008-40, Situation 2 (Plan D, a plan described in ERISA section 1022(i)(1))

3 IRM 4.71.21.3

8 Rev. Rul. 2008-40

“Section 1022(i)(1) of ERISA does not extend qualified status under § 401(a) to a plan, favorable tax treatment under § 402(a) for distributions to participants, or favorable treatment under § 404(a) for employer contributions.”Rev. Rul. 2008-40, Law

§402(b) analysis

Not a §402(b) trust on the statute's words, and not a qualified plan either. No IRS guidance.

§402(b) taxes an employer's contributions to an employees' trust that is not exempt under §501(a),⁹ and ERISA treats a section 1022(i)(1) trust as exempt, so on the statute's words §402(b) does not describe it. Nor do its participants get the qualified-plan rules: the IRS says they are not generally eligible for the favorable treatment of §402.^10,8 No IRS guidance says how a U.S. person is taxed on its contributions and payouts, or whether a participant is treated as owner of the part their own contributions fund.

9 26 U.S.C. §402(b)(1)

“Contributions to an employees' trust made by an employer ... shall be included in the gross income of the employee in accordance with section 83”26 U.S.C. §402(b)(1)

10 IRM 4.71.21.6

“Participants in, and employers maintaining, an ERISA section 1022(i)(1) plan aren’t generally eligible for favorable tax treatment under IRC 402”IRM 4.71.21.6 (02-16-2024), Examination of Puerto Rico Plans

8 Rev. Rul. 2008-40

For a bona fide resident of Puerto Rico, income from Puerto Rico sources is left out of U.S. income,^11,12 and the IRS treated payouts from such a plan's employer contributions and later earnings as Puerto Rico income, so long as the trust stays a Puerto Rico trust and the work is done in Puerto Rico.¹³ The statute's exception from Part I is for trusts described in §402(b), §404(a)(4), or §404A.¹⁴ §404(a)(4) describes a trust that would qualify under §501(a) but for being created outside the United States,¹⁵ which fits only a plan that meets every §401(a) rule; the plan in the IRS's ruling would not have met §401(a) even with a U.S. trust.¹⁶

11 26 U.S.C. §933(1)

“income derived from sources within Puerto Rico (except amounts received for services performed as an employee of the United States or any agency thereof)”26 U.S.C. §933(1) (bona fide residents of Puerto Rico for the whole year)

12 26 U.S.C. §937(a)

“who is present for at least 183 days during the taxable year in Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, or the Virgin Islands”26 U.S.C. §937(a) (bona fide resident of a possession: present at least 183 days, with no tax home or closer connection outside it)

13 Rev. Rul. 2008-40

“will be treated entirely as income from sources within Puerto Rico for purposes of § 933 provided that the Plan D trust remains a Puerto Rico trust”Rev. Rul. 2008-40, Analysis (payouts from a section 1022(i)(1) plan after a transfer from a U.S. plan)

14 26 U.S.C. §6048(a)(3)(B)(ii)

“Subparagraph (A) shall not apply with respect to a trust which is ... described in section 402(b), 404(a)(4), or 404A”26 U.S.C. §6048(a)(3)(B)(ii)

15 26 U.S.C. §404(a)(4)

“If a stock bonus, pension, or profit-sharing trust would qualify for exemption under section 501(a) except for the fact that it is a trust created or organized outside the United States”26 U.S.C. §404(a)(4)

16 Rev. Rul. 2008-40

“but does not satisfy the requirements of § 401(a) of the Internal Revenue Code (and would not satisfy § 401(a) even if the Plan D trust were a domestic trust)”Rev. Rul. 2008-40, Situation 2 (Plan D)

Exemption analysis

Rev. Proc. 2020-17: not settled whether a territory is a foreign jurisdiction. The cautious course is to report.

Rev. Proc. 2020-17 exempts an eligible individual, one who has filed U.S. returns and reported the trust's income as U.S. law requires,¹⁷ from Forms 3520 and 3520-A for a retirement trust that is a foreign trust for U.S. tax purposes, established under the laws of a foreign jurisdiction, and meets its conditions.^18,19 A plan qualified under Puerto Rico's Code may meet the conditions, which the plan's rules have to show one by one: its trust is not taxed under Puerto Rico law, and its contributions are limited.^1,2 The question is the first one.

17 Rev. Proc. 2020-17, §5.02

“is compliant (or comes into compliance) with all requirements for filing a U.S. federal income tax return ... and to the extent required under U.S. tax law, has reported as income any contributions to, earnings of, or distributions from, an applicable tax-favored foreign trust”Rev. Proc. 2020-17, §5.02 (eligible individual)

18 Rev. Proc. 2020-17, §5.03

“a foreign trust for U.S. tax purposes that is created, organized, or otherwise established under the laws of a foreign jurisdiction (the trust's jurisdiction)”Rev. Proc. 2020-17, §5.03 (and §5.04, in the same words)

19 Rev. Proc. 2020-17, §5.03

“to operate exclusively or almost exclusively to provide, or to earn income for the provision of, pension or retirement benefits and ancillary or incidental benefits”Rev. Proc. 2020-17, §5.03

1 P.R. Internal Revenue Code, §1081.01(a) (OGP English)

2 Hacienda, CC RI 26-03

Whether a U.S. territory is a foreign jurisdiction is not settled, and no IRS guidance answers it. For it: the revenue procedure is written for trusts that are foreign for U.S. tax purposes, which a territory's trusts are;^18,5 the Code treats a company organized under a territory's law as foreign, because only the States and the District of Columbia are the United States, and the Joint Committee on Taxation says entities organized there are generally foreign persons;^20,21,22 the IRS's examination manual says the territories are generally treated as foreign for U.S. tax purposes unless the Code says otherwise;²³ and the Form 8938 reporting the revenue procedure gives as a reason for the exemption counts an account at a territory's financial institution as a foreign asset.^24,25 Against it: the revenue procedure and the 2024 preamble explain the exemption by the restrictions imposed under the laws of the country where the trust is established,^26,27 and a territory is not a country. The Code names foreign countries and U.S. possessions separately, and Treasury defines a foreign country as territory under another government's sovereignty.^28,29 The FBAR rules count the territories as part of the United States,³⁰ and a bona fide resident of a territory leaves accounts at its own institutions off Form 8938,³¹ so the duplicate reporting the revenue procedure relies on may not exist for them. The 2024 proposal deals with territory trusts in an exception of their own, by the filer's residence and only for some territories.³² The proposed regulations' exemption for retirement and savings trusts uses the same words as the revenue procedure, so the same doubt applies to it.³³ Until the IRS says, the cautious course is not to rely on either exemption for a trust in a U.S. territory, and to report it in full.

18 Rev. Proc. 2020-17, §5.03

5 Treas. Reg. §301.7701-7(c)(3)(ii)

“a court within a territory or possession of the United States or within a foreign country is not a court within the United States”Treas. Reg. §301.7701-7(c)(3)(ii)

20 26 U.S.C. §7701(a)(4)-(5)

“means created or organized in the United States or under the law of the United States or of any State”26 U.S.C. §7701(a)(4)-(5): a corporation or partnership is foreign unless created or organized in the United States or under the law of the United States or of any State

21 26 U.S.C. §7701(a)(9)

“The term “United States” when used in a geographical sense includes only the States and the District of Columbia.”26 U.S.C. §7701(a)(9)

22 JCT, JCX-132-15

“Entities organized in U.S. possessions are generally treated as foreign persons.”Joint Committee on Taxation, JCX-132-15 (Sept. 28, 2015)

23 IRM 4.71.21.4

“are generally treated as foreign for U.S. tax purposes, unless otherwise specified in the Code or related statutes”IRM 4.71.21.4 (07-15-2019), Introduction to Retirement Plans Maintained in U.S. Territories (the IRS's examination procedures, not a ruling)

24 Rev. Proc. 2020-17, §3

“may be required under section 6038D to separately report information about their interests in accounts held by, or through, these trusts”Rev. Proc. 2020-17, §3 (why the exemption is given)

25 Treas. Reg. §1.6038D-3(a)(2)

“A specified foreign financial asset includes a financial account maintained by a financial institution that is organized under the laws of a U.S. possession.”Treas. Reg. §1.6038D-3(a)(2) (Form 8938)

26 Rev. Proc. 2020-17, §3

“which are imposed under the laws of the country in which the trust is established”Rev. Proc. 2020-17, §3 (why the exemption is given)

27 Preamble, 89 Fed. Reg. 39,454

“under the laws of the country in which they are established”Preamble to the proposed regulations, 89 Fed. Reg. 39,454 (May 8, 2024), on proposed §1.6048-5(b)

28 26 U.S.C. §901(b)(1)

“to any foreign country or to any possession of the United States”26 U.S.C. §901(b)(1) (taxes paid to foreign countries and to possessions, named separately)

29 Treas. Reg. §1.911-2(g)-(h)

“The term “foreign country” when used in a geographical sense includes any territory under the sovereignty of a government other than that of the United States.”Treas. Reg. §1.911-2(g)-(h): for §911 the United States includes the possessions, and a foreign country is territory under another government

30 31 C.F.R. §1010.100(hhh)

“the Territories and Insular Possessions of the United States”31 C.F.R. §1010.100(hhh) (the United States, for FinCEN's rules, the FBAR included)

31 Treas. Reg. §1.6038D-7(c)

“A financial account maintained by a financial institution organized under the laws of the U.S. possession of which the specified individual is a bona fide resident”Treas. Reg. §1.6038D-7(c)(1)-(4): a bona fide resident of a possession leaves off Form 8938 accounts at, and interests in, entities organized in that possession

32 Prop. Treas. Reg. §1.6048-5(e)

“Sections 6048(a) through 6048(c) do not apply to a trust located in a mirror code possession to the extent the responsible party”Prop. Treas. Reg. §1.6048-5(e), 89 Fed. Reg. 39,481 (May 8, 2024): for a trust located in a mirror code possession, to the extent the person is a bona fide resident of it (§1.937-1(b))

33 Prop. Treas. Reg. §1.6048-5(b)(2)

“means a foreign trust that is created, organized, or otherwise established under the laws of a foreign jurisdiction (the trust's jurisdiction)”Prop. Treas. Reg. §1.6048-5(b)(2) (and (b)(3)-(4), in the same words)

Treaty provisions

No treaty: Puerto Rico is a U.S. territory.

No treaty: the United States has no income tax treaty with its own territories, and federal tax rules apply to them in a way different from both the States and foreign countries.³⁴ The IRS has a tax coordination agreement with each of the five territories, which resolves inconsistent treatment between the two tax systems;³⁵ no guidance says one changes Forms 3520 and 3520-A.

34 JCT, JCX-132-15

“Federal tax rules apply to the territories in a manner that is different from their application in relation to both the States and foreign countries.”Joint Committee on Taxation, Federal Tax Law and Issues Related to the Commonwealth of Puerto Rico (JCX-132-15), Sept. 28, 2015

35 IRM 4.71.21.4

“Tax Coordination Agreements allow the U.S. Competent Authorities and the relevant territory to resolve, by mutual agreement, inconsistent tax treatment between the two jurisdictions.”IRM 4.71.21.4 (07-15-2019), Tax Coordination Agreements and Mutual Agreement Procedures

3520/3520-A treatment

Cautious course: Part I for contributions you make, Part II and Form 3520-A for the part they fund, Part III for payouts.

No IRS guidance applies Forms 3520 and 3520-A to these plans, so this is the cautious course. Contributions you choose to make, deferrals of your pay included, are your transfers to a foreign trust that no statutory exception reaches unless the plan meets §401(a) apart from its trust's location: Part I for each year you make them.^36,37,14 As a U.S. person who transfers property to a foreign trust with a U.S. beneficiary, you yourself being one, you may be treated as owner of the part your contributions fund: Part II each year, with Form 3520-A or a substitute.^38,39,40 Unless the plan meets §401(a) apart from its trust's location, Part I also applies at your death as a U.S. citizen or resident, if any part of the plan is then treated as owned by you, as the cautious course above reads you, or is in your gross estate: your executor reports it, whether or not the executor is a U.S. person.^41,14 Payouts to you go on Part III; the exception for payouts reported as compensation covers §402(b) trusts, and ERISA treats this one as exempt.^42,43,44 No Form 4970: payouts from an employees' trust are not taxed under the trust distribution rules.⁴⁵ What your employer alone pays in is its transfer, not yours.³⁶

36 26 U.S.C. §6048(a)(3)(A)(ii)

“the transfer of any money or property (directly or indirectly) to a foreign trust by a United States person”26 U.S.C. §6048(a)(3)(A)(ii) (reportable events, Form 3520 Part I)

37 IRS Chief Counsel memorandum CC:INTL:FREV-253878-96

“Additional contributions to the Fund made at the election of the employee are employee contributions that are taxed pursuant to § 61.”IRS Chief Counsel memorandum CC:INTL:FREV-253878-96 (Oct. 10, 1997), on the Singapore Central Provident Fund (advice, not precedent)

14 26 U.S.C. §6048(a)(3)(B)(ii)

“Subparagraph (A) shall not apply with respect to a trust which is ... described in section 402(b), 404(a)(4), or 404A”26 U.S.C. §6048(a)(3)(B)(ii)

38 26 U.S.C. §679(a)(1)

“A United States person who directly or indirectly transfers property to a foreign trust (other than a trust described in section 6048(a)(3)(B)(ii)) shall be treated as the owner ... if for such year there is a United States beneficiary of any portion of such trust”26 U.S.C. §679(a)(1)

39 26 U.S.C. §6048(b)

26 U.S.C. §6048(b) (U.S. owner of a foreign trust: Form 3520 Part II and Form 3520-A)

40 Instructions for Form 3520-A, When To File

“If the foreign trust fails to file Form 3520-A, the U.S. owner must file a substitute Form 3520-A”Instructions for Form 3520-A (Rev. December 2025), When To File

41 Instructions for Form 3520 (Rev. December 2025), Definitions

“The transfer of any money or property, directly or indirectly, to a foreign trust by a U.S. person, including a transfer by reason of death. ... The death of a U.S. citizen or resident if: The decedent was treated as the owner of any portion of a foreign trust under the rules of sections 671 through 679, or Any portion of a foreign trust was included in the gross estate of the decedent. ... The executor of the decedent’s estate in any other case (whether or not the executor is a U.S. person).”Instructions for Form 3520 (Rev. December 2025), Definitions, Reportable Event and Responsible Party

42 26 U.S.C. §6048(c)(1)

“If any United States person receives (directly or indirectly) during any taxable year of such person any distribution from a foreign trust, such person shall make a return”26 U.S.C. §6048(c)(1) (distributions, Form 3520 Part III)

43 Instructions for Form 3520, Exceptions To Filing

“Distributions from foreign trusts that are taxable as compensation for services rendered (within the meaning of section 672(f)(2)(B) and its regulations), so long as the recipient reports the distribution as compensation income on its applicable federal income tax return.”Instructions for Form 3520 (Rev. December 2025), Exceptions To Filing

44 Treas. Reg. §1.672(f)-3(c)(1)(i)

“A nonexempt employees' trust described in section 402(b)”Treas. Reg. §1.672(f)-3(c)(1)(i): compensatory trusts

45 Rev. Rul. 2007-48

“The taxation of the distributions is not governed by the provisions of § 662.”Rev. Rul. 2007-48 (amplifying Rev. Rul. 74-299), on a nonexempt employees' trust

Owing no U.S. tax on the plan, because its income is from Puerto Rico, does not remove any of these: transfers and distributions are reportable whether or not they have U.S. income tax consequences.⁴⁶ FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^47,48

46 Preamble, 89 Fed. Reg. 39,455

“whether or not there are any U.S. income tax consequences associated with the transfer or distribution”Preamble to the proposed regulations, 89 Fed. Reg. 39,455 (May 8, 2024), on proposed §1.6048-6(b): a transfer or distribution is reportable

47 Rev. Proc. 2020-17, §3

“This revenue procedure does not affect any reporting obligations under section 6038D or under any other provision of U.S. law, including the requirement to file FinCEN Form 114”Rev. Proc. 2020-17, §3

48 Instructions for Form 3520, Exceptions To Filing and Additional Reporting

“The exemptions from foreign trust information reporting described in Rev. Proc. 2014-55, Rev. Proc. 2020-17, and the proposed regulations under section 6048 do not affect any other reporting obligations.”Instructions for Form 3520 (Rev. December 2025), Exceptions To Filing and Additional Reporting

Plans that elected U.S. qualification (ERISA section 1022(i)(2))

Part Iwhat you put in: No
Part II + Form 3520-Aa part you're treated as owning: No
Part IIIwhat you received: DependsPayouts, on the cautious course
Form 4970throwback tax: No

For a plan whose administrator has made the election. On our reading of the plan's trust as one §404(a)(4) describes.

What it is

A Puerto Rico plan whose administrator has elected under ERISA section 1022(i)(2), irrevocably, to have its trust treated as created in the United States for §401(a), so that the plan must meet every U.S. qualification rule except the one on the trust's location.^49,50 The employer and the employees pay in as in any qualified plan.

49 Treas. Reg. §1.401(a)-50

“are to be treated as trusts created or organized in the United States for purposes of section 401(a)”Treas. Reg. §1.401(a)-50(a)-(b): the ERISA section 1022(i)(2) election, irrevocable once made

50 IRM 4.71.21.3

“Puerto Rico plan trusts are treated as exempt under IRC 501(a) if their sponsors make a prospective and irrevocable election for the plan to comply with all of the IRC 401(a) qualification provisions, except for the Trust Situs requirement”IRM 4.71.21.3 (02-16-2024), Key Definitions: ERISA section 1022(i)(2)

Trust classification

A foreign trust, treated as created in the United States for §401(a).

Still a foreign trust. The election changes how §401(a) treats the trust, not where it is organized or which courts supervise it, and the IRS treats such a plan as qualified even though its trust is organized in Puerto Rico and is a foreign trust.^51,5

51 Rev. Rul. 2008-40

“is treated as a qualified plan for purposes of §§ 401(a), 402(a), and 404(a), even though the trust is created and organized in Puerto Rico and is classified as a foreign trust”Rev. Rul. 2008-40, Law (a plan that made the ERISA section 1022(i)(2) election)

5 Treas. Reg. §301.7701-7(c)(3)(ii)

“a court within a territory or possession of the United States or within a foreign country is not a court within the United States”Treas. Reg. §301.7701-7(c)(3)(ii)

§402(b) analysis

Not a §402(b) trust: its participants are taxed as in a qualified plan.

§402(b) does not apply. The plan is treated as a qualified plan for §§401(a), 402(a), and 404(a),⁵¹ and its participants get the treatment §402 gives qualified-plan participants, through §402(d), which treats a trust that would qualify but for being created outside the United States as exempt.^52,53 For a bona fide resident of Puerto Rico, the part of a payout from Puerto Rico sources is left out of U.S. income.¹¹

51 Rev. Rul. 2008-40

52 IRM 4.71.21.6

“IRC 402(d) allows participants in ERISA section 1022(i)(2) plans (but not section 1022(i)(1) plans) to enjoy the favorable tax treatment permitted under IRC 402 for qualified plan participants.”IRM 4.71.21.6 (02-16-2024), Examination of Puerto Rico Plans

53 26 U.S.C. §402(d)

“which would qualify for exemption from tax under section 501(a) except for the fact that it is a trust created or organized outside the United States shall be treated as if it were a trust exempt from tax under section 501(a)”26 U.S.C. §402(d)

11 26 U.S.C. §933(1)

Exemption analysis

None needed for Parts I and II. For Part III, Rev. Proc. 2020-17 is not settled for a territory.

No exemption is needed for Parts I and II (see the bottom line). For payouts, Rev. Proc. 2020-17 could remove Part III for an eligible individual,^17,19 but whether it reaches a trust in a U.S. territory is not settled, as the Puerto Rico-only plans block above explains.¹⁸

17 Rev. Proc. 2020-17, §5.02

19 Rev. Proc. 2020-17, §5.03

“to operate exclusively or almost exclusively to provide, or to earn income for the provision of, pension or retirement benefits and ancillary or incidental benefits”Rev. Proc. 2020-17, §5.03

18 Rev. Proc. 2020-17, §5.03

Treaty provisions

No treaty: Puerto Rico is a U.S. territory.

No treaty: the United States has no income tax treaty with its own territories.³⁴

34 JCT, JCX-132-15

3520/3520-A treatment

No Part I, Part II, or Form 3520-A. Cautious course: payouts go on Part III.

No Part I: the election requires the plan to meet every §401(a) rule except the trust's location,⁵⁰ which is the trust §404(a)(4) describes, so we read transfers to it as excepted.^15,14 No Part II or Form 3520-A: §679 does not apply to transfers to such a trust, and its participants are taxed as in a qualified plan, not as owners.^38,54,52 Payouts are distributions from a foreign trust, and the exception for distributions reported as compensation covers §402(b) trusts, which this one is not, so the cautious course is to report them on Part III.^42,43,44 No Form 4970: payouts are taxed under §402, not under the trust distribution rules.⁵² FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^47,48

50 IRM 4.71.21.3

15 26 U.S.C. §404(a)(4)

14 26 U.S.C. §6048(a)(3)(B)(ii)

“Subparagraph (A) shall not apply with respect to a trust which is ... described in section 402(b), 404(a)(4), or 404A”26 U.S.C. §6048(a)(3)(B)(ii)

38 26 U.S.C. §679(a)(1)

54 Treas. Reg. §1.679-4(a)(2)

“Any transfer of property to a foreign trust described in sections 402(b), 404(a)(4), or 404A”Treas. Reg. §1.679-4(a)(2): §679 does not apply to

52 IRM 4.71.21.6

42 26 U.S.C. §6048(c)(1)

43 Instructions for Form 3520, Exceptions To Filing

44 Treas. Reg. §1.672(f)-3(c)(1)(i)

“A nonexempt employees' trust described in section 402(b)”Treas. Reg. §1.672(f)-3(c)(1)(i): compensatory trusts

47 Rev. Proc. 2020-17, §3

48 Instructions for Form 3520, Exceptions To Filing and Additional Reporting

Dual-qualified plans with a U.S. trust

Part Iwhat you put in: No
Part II + Form 3520-Aa part you're treated as owning: No
Part IIIwhat you received: No
Form 4970throwback tax: No

For a plan whose trust is created and organized in the United States.

What it is

A U.S. employer's plan with its trust in the United States that covers employees in Puerto Rico, and so must meet both §401(a) and Puerto Rico's qualification rules.⁵⁵ The employer and the employees pay in.

55 IRM 4.71.21.3

“a U.S. sponsor’s plan with a trust in the U.S., may operate in Puerto Rico and cover Puerto Rico employees. The Dual Qualified Plan must satisfy both the requirements of IRC 401(a) and Puerto Rico Code (PRC) section 1165(a).”IRM 4.71.21.3 (02-16-2024), Key Definitions: Dual Qualified Plan

Trust classification

A domestic trust: not a foreign trust at all.

A domestic trust. The IRS describes the trust of such a plan as created and organized in the United States and a U.S. person,⁵⁶ and a foreign trust is any trust that is not domestic.⁴

56 Rev. Rul. 2008-40

“The Plan C trust is created and organized within the United States, and is classified as a U.S. person under”Rev. Rul. 2008-40, Situation 2 (Plan C, qualified under both §401(a) and the Puerto Rico Code)

4 Treas. Reg. §301.7701-7(a)(1)-(2)

“The term foreign trust means any trust other than a domestic trust.”Treas. Reg. §301.7701-7(a)(1)-(2): a trust is domestic only if it meets both the court test and the control test

§402(b) analysis

Does not apply: the trust is a qualified trust exempt under §501(a).

§402(b) does not apply: the trust is exempt under §501(a) so long as the plan meets §401(a),⁵⁷ and §402(b) reaches only a trust that is not exempt.⁹

57 IRM 4.71.21.6

“Because the trust of Dual Qualified Plan is sited in the U.S., it’s exempt from taxation under IRC 501(a) as long as the related plan satisfies the qualification requirements of IRC 401(a)”IRM 4.71.21.6 (02-16-2024), Examination of Puerto Rico Plans

9 26 U.S.C. §402(b)(1)

“Contributions to an employees' trust made by an employer ... shall be included in the gross income of the employee in accordance with section 83”26 U.S.C. §402(b)(1)

Exemption analysis

None needed.

No exemption is needed: Forms 3520 and 3520-A report foreign trusts,^36,39,42 and Rev. Proc. 2020-17 covers only foreign trusts.¹⁹

36 26 U.S.C. §6048(a)(3)(A)(ii)

“the transfer of any money or property (directly or indirectly) to a foreign trust by a United States person”26 U.S.C. §6048(a)(3)(A)(ii) (reportable events, Form 3520 Part I)

39 26 U.S.C. §6048(b)

26 U.S.C. §6048(b) (U.S. owner of a foreign trust: Form 3520 Part II and Form 3520-A)

42 26 U.S.C. §6048(c)(1)

19 Rev. Proc. 2020-17, §5.03

“to operate exclusively or almost exclusively to provide, or to earn income for the provision of, pension or retirement benefits and ancillary or incidental benefits”Rev. Proc. 2020-17, §5.03

Treaty provisions

No treaty, and none needed.

No treaty is involved: the plan's trust is in the United States.⁵⁶

56 Rev. Rul. 2008-40

3520/3520-A treatment

Nothing on Form 3520 or 3520-A.

No Part I, no Part II or Form 3520-A, no Part III, and no Form 4970: the trust is a U.S. person, and Forms 3520 and 3520-A report foreign trusts.^36,39,42,56 If your part is moved to a plan qualified only in Puerto Rico, look again: the IRS treats that transfer as a distribution from the U.S. plan.⁵⁸ FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^47,48

36 26 U.S.C. §6048(a)(3)(A)(ii)

“the transfer of any money or property (directly or indirectly) to a foreign trust by a United States person”26 U.S.C. §6048(a)(3)(A)(ii) (reportable events, Form 3520 Part I)

39 26 U.S.C. §6048(b)

26 U.S.C. §6048(b) (U.S. owner of a foreign trust: Form 3520 Part II and Form 3520-A)

42 26 U.S.C. §6048(c)(1)

56 Rev. Rul. 2008-40

58 Rev. Rul. 2008-40

“A transfer of assets and liabilities from a qualified plan to a plan that satisfies section 1165 of the Puerto Rico Code is also treated as a distribution from the transferor plan, even if the plan is described in section 1022(i)(1) of ERISA.”Rev. Rul. 2008-40, Holding 2

47 Rev. Proc. 2020-17, §3

48 Instructions for Form 3520, Exceptions To Filing and Additional Reporting

Tax-deferred individual plans

Puerto Rico IRAs (cuentas de retiro individual)

Part Iwhat you put in: FileEach contribution, and your executor at your death
Part II + Form 3520-Aa part you're treated as owning: FileEach year
Part IIIwhat you received: FilePayouts
Form 4970throwback tax: No

The cautious course for an IRA held in trust, because whether Rev. Proc. 2020-17 reaches a U.S. territory is not settled. An IRA that is an annuity contract with an insurer is not a trust.

What it is

A Puerto Rico individual retirement account is a trust created under Puerto Rico law for the exclusive benefit of an individual and their beneficiaries, run by a bank, a savings institution, a broker, a trust company, an insurer, or a cooperative; it can also be an annuity or endowment contract issued by a life insurer.^59,60,61 The individual pays in, in cash. From 2025 the deduction limit is the U.S. IRA limit, $7,000 for 2025 and $7,500 for 2026, for each spouse on a joint return, but no more than the wages and professional income; before 2025 it was $5,000.^62,63,64,65 A payout before age 60 generally pays a 10% penalty.⁶⁶

59 P.R. Internal Revenue Code, §1081.02(a) (OGP English)

“shall mean a trust created or organized under the laws of the Government of Puerto Rico for the exclusive benefit of an individual or his/her beneficiaries”Puerto Rico Internal Revenue Code of 2011, §1081.02(a): an individual retirement account is a trust created under Puerto Rico law. The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point

60 P.R. Internal Revenue Code, §1081.02(a)(2) (OGP English)

“That the fund be administered by a bank, savings and loan association, savings bank, securities brokerage house, trust company, insurance company”Puerto Rico Internal Revenue Code of 2011, §1081.02(a)(2): who may run the account (also savings and credit cooperatives). The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point

61 P.R. Internal Revenue Code, §1081.02(b) (OGP English)

“An “individual retirement annuity” means an annuity contract or an endowment contract”Puerto Rico Internal Revenue Code of 2011, §1081.02(b): an individual retirement annuity, issued by a life insurer. The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point

62 P.R. Internal Revenue Code, §1033.15(a)(7)(H)

“para años contributivos comenzados luego del 31 de diciembre de 2024, las cantidades máximas permitidas como deducción en este párrafo serán equivalentes a la cantidad máxima permitida bajo la Sección 219(b)(5)(A)”Our translation: for taxable years beginning after December 31, 2024, the maximum amounts allowed as a deduction in this paragraph shall be equivalent to the maximum amount allowed under Section 219(b)(5)(A)Puerto Rico Internal Revenue Code of 2011, §1033.15(a)(7)(H), added by Ley 179-2025 (Dec. 19, 2025): from 2025, the U.S. IRA limit, in Spanish: no English found. The government's English compilation of the Code lists Ley 179-2025 as not incorporated

63 IRS Notice 2024-80

“which limits the amount of an individual's deductible qualified retirement contributions for a taxable year remains $7,000”IRS Notice 2024-80 (2025 limits): the §219(b)(5)(A) amount stays at $7,000

64 IRS Notice 2025-67

“The deductible amount under section 219(b)(5)(A), which limits the amount of an individual's deductible qualified retirement contributions for a taxable year is increased from $7,000 to $7,500.”IRS Notice 2025-67 (2026 limits): the §219(b)(5)(A) amount

65 P.R. Internal Revenue Code, §1033.15(a)(7)(B) (OGP English)

“shall not exceed five thousand dollars ($5,000) or the adjusted gross income for wages or earnings attributable to professions or occupations, whichever is less”Puerto Rico Internal Revenue Code of 2011, §1033.15(a)(7)(B): the deduction limit before 2025, and the cap at wages and professional income. The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this subparagraph, but lacks subparagraph (H), added by Ley 179-2025, which sets the limit from 2025

66 P.R. Internal Revenue Code, §1081.02(g)(1) (OGP English)

“before the beneficiary of the individual retirement account attains the age of sixty (60) years shall be subject to a penalty of an amount equal to ten percent (10%)”Puerto Rico Internal Revenue Code of 2011, §1081.02(g)(1): a 10% penalty on payouts before age 60, with exceptions. The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point

Trust classification

A foreign trust when held in trust by a Puerto Rico institution; an annuity contract is not a trust.

A foreign trust when it is held in trust. The account is a trust created under Puerto Rico law in which the trustee holds the money for you and your beneficiaries, and Puerto Rico's own Code calls its document a trust deed.^59,67,68 A trust is domestic only if a U.S. court can exercise primary supervision over it and U.S. persons control its substantial decisions, and the courts of a territory are not courts within the United States for that test,^4,5 so a trust supervised by Puerto Rico's courts is a foreign trust. The IRS's 2024 example of a trust a bona fide resident creates in Puerto Rico reaches the same result.⁶⁹ An annuity or endowment contract issued by an insurer is a contract, not an arrangement in which trustees hold property for beneficiaries, so it is not reported as a foreign trust.^61,68

59 P.R. Internal Revenue Code, §1081.02(a) (OGP English)

67 P.R. Internal Revenue Code, §1033.15(a)(7)(H)

“dicha disposición en la escritura de fideicomiso queda modificada por disposición de Ley”Our translation: that provision in the trust deed is modified by provision of lawPuerto Rico Internal Revenue Code of 2011, §1033.15(a)(7)(H): an account document's lower limit is changed by law, in Spanish: no English found. The government's English compilation of the Code lists Ley 179-2025 as not incorporated

68 Treas. Reg. §301.7701-4(a)

“an arrangement created either by a will or by an inter vivos declaration whereby trustees take title to property for the purpose of protecting or conserving it for the beneficiaries”Treas. Reg. §301.7701-4(a)

4 Treas. Reg. §301.7701-7(a)(1)-(2)

“The term foreign trust means any trust other than a domestic trust.”Treas. Reg. §301.7701-7(a)(1)-(2): a trust is domestic only if it meets both the court test and the control test

5 Treas. Reg. §301.7701-7(c)(3)(ii)

“a court within a territory or possession of the United States or within a foreign country is not a court within the United States”Treas. Reg. §301.7701-7(c)(3)(ii)

69 Prop. Treas. Reg. §1.6048-2(d)(7)

“X is a U.S. citizen and a bona fide resident of Puerto Rico. X creates and funds a trust, T, in Puerto Rico. T is subject to the primary jurisdiction of the Puerto Rican courts. ... X is required to report the creation and funding of T on Part I of Form 3520.”Prop. Treas. Reg. §1.6048-2(d)(7), Example 7, 89 Fed. Reg. 39,474 (May 8, 2024): a trust created in Puerto Rico

61 P.R. Internal Revenue Code, §1081.02(b) (OGP English)

§402(b) analysis

Does not apply: only you pay in.

§402(b) reaches only an employer's contributions to an employees' trust,⁹ so it does not apply to an account only you pay into. An employer or an employees' association may also set up these accounts for its people;⁷⁰ no IRS guidance addresses one an employer pays into.

9 26 U.S.C. §402(b)(1)

“Contributions to an employees' trust made by an employer ... shall be included in the gross income of the employee in accordance with section 83”26 U.S.C. §402(b)(1)

70 P.R. Internal Revenue Code, §1081.02(c) (OGP English)

“A trust created or organized under the laws of the Government of Puerto Rico by an employer for the exclusive benefit of his/her employees”Puerto Rico Internal Revenue Code of 2011, §1081.02(c): accounts set up by employers and employees' associations. The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point

Exemption analysis

Rev. Proc. 2020-17: the conditions may be met, but whether a territory is a foreign jurisdiction is not settled.

Rev. Proc. 2020-17 exempts an eligible individual¹⁷ from Forms 3520 and 3520-A for a retirement trust that meets its conditions,¹⁹ and a Puerto Rico IRA may meet each one: contributions are deductible;^71,62 the trustee reports contributions and payouts to Puerto Rico's Secretary of the Treasury;^72,73 contributions are limited to the deduction limit, which cannot exceed your wages and professional income;^74,75,76,65 and early payouts pay a penalty.^77,66 But the revenue procedure covers trusts established under the laws of a foreign jurisdiction, and whether Puerto Rico is one is not settled, as the Puerto Rico-only plans block above explains.¹⁸

17 Rev. Proc. 2020-17, §5.02

19 Rev. Proc. 2020-17, §5.03

“to operate exclusively or almost exclusively to provide, or to earn income for the provision of, pension or retirement benefits and ancillary or incidental benefits”Rev. Proc. 2020-17, §5.03

71 Rev. Proc. 2020-17, §5.03(1)

“contributions to the trust that would otherwise be subject to tax are deductible or excluded from income, are taxed at a reduced rate”Rev. Proc. 2020-17, §5.03(1)

62 P.R. Internal Revenue Code, §1033.15(a)(7)(H)

72 Rev. Proc. 2020-17, §5.03(2)

“Annual information reporting with respect to the trust (or of its participants or beneficiaries) is provided, or is otherwise available, to the relevant tax authorities in the trust's jurisdiction.”Rev. Proc. 2020-17, §5.03(2)

73 P.R. Internal Revenue Code, §1081.02(f)(1) (OGP English)

“reports to the Secretary and to the individuals for whom the account, endowment contract, or annuity is maintained”Puerto Rico Internal Revenue Code of 2011, §1081.02(f)(1): the trustee's reports on contributions and payouts. The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point

74 Rev. Proc. 2020-17, §5.03(3)

“Only contributions with respect to income earned from the performance of personal services are permitted.”Rev. Proc. 2020-17, §5.03(3)

75 Rev. Proc. 2020-17, §5.03(4)

“Contributions to the trust are limited by a percentage of earned income of the participant, are subject to an annual limit of $50,000 or less to the trust, or are subject to a lifetime limit of $1,000,000 or less to the trust.”Rev. Proc. 2020-17, §5.03(4), converted at the Treasury rate on the last day of the tax year

76 P.R. Internal Revenue Code, §1081.02(a)(1) (OGP English)

“every contribution to the fund shall be in cash and not exceed the amount allowed as a deduction pursuant to Section 1033.15(a)(7)”Puerto Rico Internal Revenue Code of 2011, §1081.02(a)(1): contributions in cash, up to the deduction limit. The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point

65 P.R. Internal Revenue Code, §1033.15(a)(7)(B) (OGP English)

77 Rev. Proc. 2020-17, §5.03(5)

“Withdrawals, distributions, or payments from the trust are conditioned upon reaching a specified retirement age, disability, or death, or penalties apply to withdrawals, distributions, or payments made before such conditions are met.”Rev. Proc. 2020-17, §5.03(5)

66 P.R. Internal Revenue Code, §1081.02(g)(1) (OGP English)

18 Rev. Proc. 2020-17, §5.03

Treaty provisions

No treaty: Puerto Rico is a U.S. territory.

No treaty: the United States has no income tax treaty with its own territories.³⁴

34 JCT, JCX-132-15

3520/3520-A treatment

Cautious course: Part I for each contribution, Part II and Form 3520-A each year, Part III for payouts.

This is the cautious course, because the exemption may not reach a territory. You are treated as owner of the account, because its income is held for you,^78,38 so Part II and Form 3520-A are due each year,³⁹ and if the trustee does not file Form 3520-A, you attach a substitute to your Form 3520.⁴⁰ Each contribution is a Part I transfer,³⁶ and payouts go on Part III.⁴² Part I also applies at your death as a U.S. citizen or resident, if any part of the account 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.⁴¹ No Form 4970: the account's income is taxed to you each year as its owner.⁷⁹ For a bona fide resident of Puerto Rico, income from Puerto Rico sources is left out of U.S. income, and the forms are due anyway: reporting does not depend on U.S. tax.^11,46 FBAR (FinCEN Form 114) and Form 8938 are separate, and an exemption from Forms 3520 and 3520-A does not remove them.^47,48

78 26 U.S.C. §677(a)(2)

“held or accumulated for future distribution to the grantor or the grantor's spouse”26 U.S.C. §677(a)(2): the grantor is treated as owner of a portion whose income may be held for the grantor

38 26 U.S.C. §679(a)(1)

39 26 U.S.C. §6048(b)

26 U.S.C. §6048(b) (U.S. owner of a foreign trust: Form 3520 Part II and Form 3520-A)

40 Instructions for Form 3520-A, When To File

“If the foreign trust fails to file Form 3520-A, the U.S. owner must file a substitute Form 3520-A”Instructions for Form 3520-A (Rev. December 2025), When To File

36 26 U.S.C. §6048(a)(3)(A)(ii)

“the transfer of any money or property (directly or indirectly) to a foreign trust by a United States person”26 U.S.C. §6048(a)(3)(A)(ii) (reportable events, Form 3520 Part I)

42 26 U.S.C. §6048(c)(1)

41 Instructions for Form 3520 (Rev. December 2025), Definitions

79 26 U.S.C. §671

“there shall then be included in computing the taxable income and credits of the grantor or the other person those items of income, deductions, and credits against tax of the trust which are attributable to that portion of the trust”26 U.S.C. §671

11 26 U.S.C. §933(1)

46 Preamble, 89 Fed. Reg. 39,455

47 Rev. Proc. 2020-17, §3

48 Instructions for Form 3520, Exceptions To Filing and Additional Reporting

Trusts and other structures

Fideicomisos under the Trusts Act (Ley 219-2012)

Part Iwhat you put in: DependsA U.S. person who funds it, or the executor when a U.S. owner dies
Part II + Form 3520-Aa part you're treated as owning: DependsA U.S. person treated as owner
Part IIIwhat you received: DependsA U.S. person who receives a distribution
Form 4970throwback tax: DependsAccumulation distributions from a non-grantor trust

What it is

A fideicomiso is an autonomous estate, separate from the settlor, the trustee, and the beneficiaries, set up under Puerto Rico's Trusts Act by a public deed or by a will.^80,81 Every trust set up in Puerto Rico must be entered in the Special Register of Trusts, or it is void.⁸² Until January 30, 2027, when Ley 153-2026 takes effect,⁸³ the Act makes these trusts irrevocable.⁸⁴ From that date a trust may be revocable or irrevocable, and one whose deed does not declare it irrevocable is presumed revocable, unless its own clauses clearly show otherwise.⁸⁵

80 Ley 219-2012, Art. 2 (English of Act 9-2017)

“constitute a fully autonomous estate separate from the personal estate of the trustor, trustee, and beneficiary”Ley de Fideicomisos (Ley 219-2012), Art. 2, as amended by Act No. 9-2017, §1. English of that act on the site of the Office of Management and Budget (translator not named); no English of the whole Trusts Act found. Ley 153-2026 restates Art. 2 and leaves these words as they were in the Spanish

81 Ley 219-2012, Art. 7

“La voluntad de constituir fideicomiso debe declararse expresamente por acto entre vivos, mediante escritura pública. ... También puede constituirse por testamento”Our translation: The intention to constitute a trust must be declared expressly by an act between living persons, by public deed. ... It may also be constituted by willLey de Fideicomisos (Ley 219-2012), Art. 7, in Spanish: no English found

82 Ley 219-2012, Art. 5

“Todo fideicomiso constituido en Puerto Rico se inscribirá en el Registro Especial de Fideicomisos, bajo pena de nulidad.”Our translation: Every trust constituted in Puerto Rico shall be entered in the Special Register of Trusts, on pain of nullity.Ley de Fideicomisos (Ley 219-2012), Art. 5 (the register is kept by the Office of Notarial Inspection), in Spanish: no English found

83 Ley 153-2026, Sección 46

“regir seis (6) meses”Our translation: take effect six (6) months [after its approval]Ley 153-2026 (approved July 30, 2026), Sección 46, in Spanish: no English found. Six months from approval is January 30, 2027

84 Ley 219-2012, Art. 7 as enacted

“Los fideicomisos en Puerto Rico serán irrevocables.”Our translation: Trusts in Puerto Rico shall be irrevocable.Ley de Fideicomisos (Ley 219-2012), Art. 7 as enacted, which stands until Ley 153-2026 takes effect (LexJuris copy), in Spanish: no English found

85 Ley 219-2012, Art. 1

“En ausencia de disposición expresa en el acto constitutivo que declare su irrevocabilidad, el fideicomiso se presumirá revocable, salvo que de sus propias cláusulas se desprenda claramente la intención en contrario”Our translation: In the absence of an express provision in the constitutive act declaring its irrevocability, the trust shall be presumed revocable, unless its own clauses clearly show the contrary intentionLey de Fideicomisos (Ley 219-2012, as amended by Ley 153-2026), Art. 1, effective January 30, 2027, in Spanish: no English found

Trust classification

A foreign trust, unless a U.S. court supervises it and U.S. persons control it; Puerto Rico's courts are not U.S. courts.

A foreign trust, unless a U.S. court supervises it and U.S. persons control its substantial decisions. Puerto Rico law makes a fideicomiso a legal entity of its own,⁸⁶ but whether something is an entity for U.S. tax purposes is decided by U.S. law, not local law.⁸⁷ One in which a trustee holds property for the beneficiaries is a trust,⁶⁸ and one set up mainly to carry on a business for profit may be a business entity instead.⁸⁸ A trust is domestic only if a U.S. court can exercise primary supervision over it and U.S. persons control its substantial decisions, and the courts of a territory are not courts within the United States for that test,^4,5 so a trust supervised by Puerto Rico's courts is a foreign trust. The 2024 proposed regulations give this very case: a U.S. citizen and bona fide resident of Puerto Rico who creates and funds a trust in Puerto Rico has created a foreign trust and reports it on Part I.⁶⁹

86 Ley 219-2012, Art. 2 (English of Act 9-2017)

“a juridical entity independent of its trustors, trustees, and beneficiaries shall be constituted, enjoying full juridical personality”Ley de Fideicomisos (Ley 219-2012), Art. 2, as amended by Act No. 9-2017, §1: once the deed is executed and filed. English of that act on the site of the Office of Management and Budget (translator not named); no English of the whole Trusts Act found. Ley 153-2026 restates Art. 2 and leaves these words as they were in the Spanish

87 Rev. Rul. 2013-14

“whether an organization is an entity separate from its owners for federal tax purposes is a matter of federal tax law and does not depend on whether the organization is recognized as an entity under local law”Rev. Rul. 2013-14, applying Treas. Reg. §301.7701-1(a)(1)

68 Treas. Reg. §301.7701-4(a)

88 Treas. Reg. §301.7701-4(b)

“generally are created by the beneficiaries simply as a device to carry on a profit-making business”Treas. Reg. §301.7701-4(b)

4 Treas. Reg. §301.7701-7(a)(1)-(2)

“The term foreign trust means any trust other than a domestic trust.”Treas. Reg. §301.7701-7(a)(1)-(2): a trust is domestic only if it meets both the court test and the control test

5 Treas. Reg. §301.7701-7(c)(3)(ii)

“a court within a territory or possession of the United States or within a foreign country is not a court within the United States”Treas. Reg. §301.7701-7(c)(3)(ii)

69 Prop. Treas. Reg. §1.6048-2(d)(7)

Owner analysis

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,³⁸ and a U.S. citizen living in Puerto Rico is a U.S. person, as is any family member who is a U.S. citizen or resident.⁸⁹ 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.⁹⁰ 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.⁹¹ Otherwise, unless another grantor trust rule makes a U.S. person owner,⁷⁸ no one is owner, and the trust is taxed as a separate, non-grantor trust.⁹²

38 26 U.S.C. §679(a)(1)

89 26 U.S.C. §7701(a)(30)(A)

“a citizen or resident of the United States”26 U.S.C. §7701(a)(30)(A) (a United States person)

90 26 U.S.C. §679(a)(4)(A)

“If a nonresident alien individual has a residency starting date within 5 years after directly or indirectly transferring property to a foreign trust, this section and section 6048 shall be applied as if such individual transferred to such trust on the residency starting date”26 U.S.C. §679(a)(4)(A)

91 26 U.S.C. §672(f)(1)-(2)(A)

“this subpart shall apply only to the extent such application results in an amount (if any) being currently taken into account ... in computing the income of a citizen or resident of the United States or a domestic corporation”26 U.S.C. §672(f)(1)-(2)(A): a foreign person is treated as owner only of a trust they can revoke alone or with the consent of a related or subordinate party subservient to them, or one that can pay only them or their spouse during their life

78 26 U.S.C. §677(a)(2)

“held or accumulated for future distribution to the grantor or the grantor's spouse”26 U.S.C. §677(a)(2): the grantor is treated as owner of a portion whose income may be held for the grantor

92 26 U.S.C. §671

“Any remaining portion of the trust shall be subject to subparts A through D.”26 U.S.C. §671

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,⁹³ even if nothing is paid to a U.S. person that year;⁹⁴ 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.⁹⁵ 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.⁹⁶ A beneficiary who first became a U.S. person more than 5 years after the transfer is not counted,⁹⁷ 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.^98,99 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.^100,101 Once the exception fails for a year it is lost for good.¹⁰² 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.¹⁰³ 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,¹⁰⁴ and a U.S. beneficiary who alone can take the property is owner of it.^105,91

93 26 U.S.C. §679(c)(4)

“if any person has the discretion (by authority given in the trust agreement, by power of appointment, or otherwise) of making a distribution from the trust to, or for the benefit of, any person, such trust shall be treated as having a beneficiary who is a United States person unless ... the terms of the trust specifically identify the class of persons to whom such distributions may be made, and ... none of those persons are United States persons during the taxable year.”26 U.S.C. §679(c)(4)

94 Treas. Reg. §1.679-2(a)(2)(iii), Example 10

“Because it is possible that a U.S. person will receive distributions of income or corpus, or will have income accumulated for his benefit, FT is treated as having a U.S. beneficiary. This result applies even if, during a tax year, no distributions or accumulations are actually made to or for the benefit of a U.S. person.”Treas. Reg. §1.679-2(a)(2)(iii), Example 10: a trustee's discretion to benefit anyone studying ancient Greek

95 Treas. Reg. §1.679-2(a)(4)

“All written and oral agreements and understandings relating to the trust; ... Memoranda or letters of wishes; ... If the terms of the trust instrument allow the trust to be amended to benefit a U.S. person, all potential benefits that could be provided to a U.S. person pursuant to an amendment must be taken into account ... a letter of wishes directs the trustee of FT to provide for the educational needs of B, who is about to begin college. The letter of wishes contains a disclaimer to the effect that its contents are only suggestions and recommendations ... FT is treated as having a U.S. beneficiary.”Treas. Reg. §1.679-2(a)(4)(i)(A)-(B), (a)(4)(ii)(A) and (a)(4)(iii), Example 2: understandings, amendment powers and letters of wishes

96 26 U.S.C. §679(d)

“the Secretary may treat such trust as having a United States beneficiary for purposes of applying this section to such transfer unless such person ... demonstrates to the satisfaction of the Secretary that such trust satisfies the requirements of subparagraphs (A) and (B) of subsection (c)(1)”26 U.S.C. §679(d): presumption that a foreign trust has a United States beneficiary

97 26 U.S.C. §679(c)(3)

“A beneficiary shall not be treated as a United States person in applying this section with respect to any transfer of property to foreign trust if such beneficiary first became a United States person more than 5 years after the date of such transfer.”26 U.S.C. §679(c)(3)

98 26 U.S.C. §679(b)

“the transferor shall be treated as having income for the taxable year (in addition to his other income for such year) equal to the undistributed net income (at the close of such immediately preceding taxable year) attributable to the portion of the trust referred to in subsection (a)”26 U.S.C. §679(b): a trust that acquires a U.S. beneficiary

99 Treas. Reg. §1.679-2(c)(1)

“The amount of the additional income is equal to the trust's undistributed net income, as defined in section 665(a), at the end of the U.S. transferor's immediately preceding taxable year and is subject to the rules of section 668, providing for an interest charge on accumulation distributions from foreign trusts. ... A is treated as receiving an accumulation distribution”Treas. Reg. §1.679-2(c)(1) and (c)(3), Example 1: a trust acquiring a U.S. beneficiary

100 Treas. Reg. §1.672(f)-3(a)(1)

“the power to revest absolutely in the grantor title to such portion is exercisable solely by the grantor ... without the approval or consent of any other person. If the grantor can exercise such power only with the approval of a related or subordinate party who is subservient to the grantor, such power is treated as exercisable solely by the grantor.”Treas. Reg. §1.672(f)-3(a)(1)

101 Treas. Reg. §1.672(f)-3(a)(2)

“the grantor is treated as having a power to revest for a taxable year of the trust only if the grantor has such power for a total of 183 or more days during the taxable year of the trust”Treas. Reg. §1.672(f)-3(a)(2)

102 Treas. Reg. §1.672(f)-3(a)(1)

“A trust (or portion of a trust) that fails to qualify for the exception provided by this paragraph (a) for a particular taxable year of the trust will be subject to the general rule of § 1.672(f)-1 for that taxable year and all subsequent taxable years of the trust.”Treas. Reg. §1.672(f)-3(a)(1), last sentence

103 Treas. Reg. §1.672(f)-3(a)(3)

“the general rule of § 1.672(f)-1 does not apply to any portion of a trust that was treated as owned by the grantor under section 676 on September 19, 1995, as long as the trust would continue to be so treated thereafter ... treated as owned by the grantor under section 677 (other than section 677(a)(3)) on September 19, 1995, as long as the trust would continue to be so treated thereafter. However, the preceding sentence does not apply to any portion of the trust attributable to gratuitous transfers to the trust after September 19, 1995.”Treas. Reg. §1.672(f)-3(a)(3), with (b)(3) for §677 and (d) for later gifts: trusts in existence on September 19, 1995

104 26 U.S.C. §676(a)

“The grantor shall be treated as the owner of any portion of a trust, whether or not he is treated as such owner under any other provision of this part, where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a non-adverse party, or both.”26 U.S.C. §676(a)

105 26 U.S.C. §678(a)(1)

“such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself”26 U.S.C. §678(a)(1): a person other than the grantor is treated as owner of a portion of a trust they alone can take

91 26 U.S.C. §672(f)(1)-(2)(A)

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;¹⁰⁶ 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.^105,38,92 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.¹⁰⁷ 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;¹⁰⁸ otherwise the owner is treated as transferring it immediately before death and recognizes the gain.¹⁰⁹

106 Treas. Reg. §1.672(f)-3(a)(4) and (b)(4), Examples 2

“the exception in paragraph (a)(1) of this section is no longer applicable, because FP2 is not a grantor of T within the meaning of § 1.671-2(e). ... The exception in paragraph (b)(1) of this section is no longer applicable, because W is not a grantor of FT within the meaning of § 1.671-2(e).”Treas. Reg. §1.672(f)-3(a)(4) and (b)(4), Examples 2: a foreign grantor's death

105 26 U.S.C. §678(a)(1)

38 26 U.S.C. §679(a)(1)

92 26 U.S.C. §671

“Any remaining portion of the trust shall be subject to subparts A through D.”26 U.S.C. §671

107 Treas. Reg. §1.684-2(e)(1)

“the U.S. person shall be treated as having transferred, immediately before (but on the same date that) the trust is no longer treated as owned by that U.S. person, the assets of such portion to a foreign trust”Treas. Reg. §1.684-2(e)(1): a portion that stops being owned by a U.S. person, for the gain rule

108 Treas. Reg. §1.684-3(c)(1)

“The general rule of gain recognition under § 1.684-1 shall not apply to any transfer of property to a foreign trust or foreign estate ... by reason of death of the U.S. transferor, if the basis of the property in the hands of the transferee is determined under section 1014(a).”Treas. Reg. §1.684-3(c)(1): transfers at death

109 Treas. Reg. §1.684-3(g), Examples 2 and 3

“A retained the power to revoke FT, thus, the value of all property owned by FT at A's death is includible in A's gross estate for U.S. estate tax purposes. Pursuant to paragraph (c) of this section, A is not required to recognize gain ... A retains no power over FT, and FT's basis in the property transferred is not determined under section 1014(a). Under § 1.684-2(e)(1), A is treated as having transferred the property to FT immediately before his death”Treas. Reg. §1.684-3(g), Examples 2 and 3: a U.S. owner's death, with and without a power to revoke

Treaty provisions

No treaty: Puerto Rico is a U.S. territory.

No treaty: the United States has no income tax treaty with its own territories.³⁴

34 JCT, JCX-132-15

3520/3520-A treatment

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.³⁶ A transfer to a foreign trust is treated as a sale, and you recognize any gain on what you transfer;¹¹⁰ a transfer is not, to the extent anyone is treated as owning the part it funds.¹¹¹ 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.⁴¹ 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).¹⁰⁸ A U.S. owner files Part II and makes sure Form 3520-A is filed, or files a substitute, each year.^39,40 A U.S. beneficiary who receives a distribution files Part III for that year.⁴² 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 4970.¹¹² Form 4970 can also apply to a transferor taxed when the trust gains a U.S. beneficiary, as the owner step says.⁹⁹ Owing no U.S. tax on the trust's income does not remove any of these: transfers and distributions are reportable whether or not they have U.S. income tax consequences.⁴⁶ Rev. Proc. 2020-17 does not apply: it covers only retirement trusts and medical, disability, or educational savings trusts.¹¹³

36 26 U.S.C. §6048(a)(3)(A)(ii)

“the transfer of any money or property (directly or indirectly) to a foreign trust by a United States person”26 U.S.C. §6048(a)(3)(A)(ii) (reportable events, Form 3520 Part I)

110 26 U.S.C. §684(a)

“in the case of any transfer of property by a United States person to a foreign estate or trust, for purposes of this subtitle, such transfer shall be treated as a sale or exchange for an amount equal to the fair market value of the property transferred, and the transferor shall recognize as gain the excess of”26 U.S.C. §684(a)

111 26 U.S.C. §684(b)

“Subsection (a) shall not apply to a transfer to a trust by a United States person to the extent that any person is treated as the owner of such trust under section 671.”26 U.S.C. §684(b)

41 Instructions for Form 3520 (Rev. December 2025), Definitions

108 Treas. Reg. §1.684-3(c)(1)

39 26 U.S.C. §6048(b)

26 U.S.C. §6048(b) (U.S. owner of a foreign trust: Form 3520 Part II and Form 3520-A)

40 Instructions for Form 3520-A, When To File

“If the foreign trust fails to file Form 3520-A, the U.S. owner must file a substitute Form 3520-A”Instructions for Form 3520-A (Rev. December 2025), When To File

42 26 U.S.C. §6048(c)(1)

112 26 U.S.C. §§665-668

26 U.S.C. §§665-668: an accumulation distribution from a trust that is not a grantor trust is taxed as if paid in the years the income was earned (§667), with an interest charge for a foreign trust (§668); figured on Form 4970

99 Treas. Reg. §1.679-2(c)(1)

46 Preamble, 89 Fed. Reg. 39,455

113 Rev. Proc. 2020-17, §1

“certain tax-favored foreign retirement trusts and certain tax-favored foreign nonretirement savings trusts, as described in sections 5.03 and 5.04”Rev. Proc. 2020-17, §1

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.¹¹⁴ 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.^115,116 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;¹¹⁷ 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,^{118,119,120,121} and where a U.S. person funded the trust, the loan instead makes it a grantor trust, and it still goes on Part III.¹²²

114 Instructions for Form 3520, Definitions, Distribution

“any gratuitous transfer of money or other property from a foreign trust, whether or not a portion of such trust is treated as a grantor trust under the grantor trust rules of sections 671 through 679, and without regard to whether the recipient is designated as a beneficiary by the terms of the trust ... if charges you make on a credit card are paid by a foreign trust or guaranteed or secured by the assets of a foreign trust, the amount charged will be treated as a distribution to you by the foreign trust. Similarly, if you write checks on a foreign trust's bank account, the amount will be treated as a distribution.”Instructions for Form 3520 (Rev. December 2025), Definitions, Distribution

115 Prop. Treas. Reg. §1.6048-4(b)(3)

“A distribution includes any transfer of property from an entity in which a foreign trust directly or indirectly holds an ownership interest that is received by a U.S. person who is a related person ... unless the U.S. person demonstrates to the satisfaction of the Commissioner that the distribution from the entity is properly attributable to the U.S. person's ownership interest in the entity”Prop. Treas. Reg. §1.6048-4(b)(3), 89 Fed. Reg. 39,477 (May 8, 2024): transfers from an entity a foreign trust owns to a related person, who under Treas. Reg. §1.679-1(c)(5) is a grantor, owner or beneficiary of the trust or someone related to one

116 Instructions for Form 3520, Exceptions To Filing

“You may rely on these proposed regulations for any tax year ending after May 8, 2024, and beginning on or before the date that final regulations are published in the Federal Register, provided you and all related persons ... apply the proposed regulations in their entirety and in a consistent manner”Instructions for Form 3520 (Rev. December 2025), Exceptions To Filing (the regulations were still proposed when these instructions were issued, and the Federal Register shows no final rule as of October 20, 2026)

117 Instructions for Form 3520, Part III

“the amount of such loan or the FMV of the use of trust property will be treated as a reportable distribution, whether or not taxable”Instructions for Form 3520 (Rev. December 2025), Part III, line 25

118 26 U.S.C. §643(i)(1)

“if a foreign trust makes a loan of cash or marketable securities (or permits the use of any other trust property) directly or indirectly to or by ... the amount of such loan (or the fair market value of the use of such property) shall be treated as a distribution by such trust to such grantor or beneficiary (as the case may be)”26 U.S.C. §643(i)(1)

119 26 U.S.C. §643(i)(2)(E)

“In the case of the use of any trust property other than a loan of cash or marketable securities, paragraph (1) shall not apply to the extent that the trust is paid the fair market value of such use within a reasonable period of time of such use.”26 U.S.C. §643(i)(2)(E)

120 Instructions for Form 3520 (Rev. December 2025), Definitions

“The obligation is reduced to writing by an express written agreement; The term of the obligation does not exceed 5 years (including options to renew and rollovers); All payments on the obligation are denominated in U.S. dollars; The yield to maturity of the obligation is not less than 100% of the applicable federal rate ... The U.S. person agrees to extend the period for assessment ... The U.S. person reports the status of the obligation, including principal and interest payments”Instructions for Form 3520 (Rev. December 2025), Definitions, Qualified Obligation

121 Instructions for Form 3520 (Rev. December 2025), line 28

“If the obligation fails to retain the status of a qualified obligation, you will be treated as having received a taxable distribution under section 643(i) from the foreign trust.”Instructions for Form 3520 (Rev. December 2025), Part III, line 28: a loan given for a qualified obligation

122 Instructions for Form 3520 (Rev. December 2025), line 25

“the loan or use of trust property will not be treated as a taxable distribution under section 643(i) but will remain reportable on Part III of this Form 3520”Instructions for Form 3520 (Rev. December 2025), Part III, line 25, Note: a foreign trust with a U.S. transferor

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.¹²³ 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;¹²⁴ without one, the default method applies even to a distribution from a grantor trust.¹²⁵ From a non-grantor trust you may use the actual method if you have a Foreign Nongrantor Trust Beneficiary Statement,¹²⁶ 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,^127,112,128 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.¹²⁹ 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.¹³⁰ The statute treats the whole distribution as an accumulation distribution where adequate records are not given;¹³¹ the default method is the IRS's relief from that, open if you can give the trust's distributions for the three years before,¹³² and where there were none, it too makes the whole distribution an accumulation distribution.¹²⁷ A foreign trust's distributable net income, the income its distributions carry out, includes its capital gains,¹³³ and the exception for income kept before a beneficiary was born or turned 21 does not apply to it.¹³⁴

123 Instructions for Form 3520 (Rev. December 2025), Part III

“If a U.S. owner (defined later) of a foreign trust receives, directly or indirectly, a distribution from the foreign trust, the U.S. owner must only complete lines 24 and 27 in Part III.”Instructions for Form 3520 (Rev. December 2025), Part III, Reporting by U.S. owners receiving distributions from foreign grantor trust; Who Must File, item 3 ("a U.S. person (including a U.S. owner)" who received a distribution)

124 Instructions for Form 3520, Part III

“If a U.S. beneficiary receives a complete Foreign Grantor Trust Beneficiary Statement with respect to a distribution during the tax year, the beneficiary should treat the distribution for income tax purposes as if it came directly from the owner. For example, if the distribution is a gift, the beneficiary should not include the distribution in gross income.”Instructions for Form 3520 (Rev. December 2025), Part III, line 29

125 Form 3520, line 29

“Did you receive a Foreign Grantor Trust Beneficiary Statement from the foreign trust with respect to a distribution? ... If "No," complete Schedule A with respect to that distribution.”Form 3520 (Rev. December 2023), Part III, line 29

126 Form 3520, line 30

“If "Yes," attach the statement and complete either Schedule A or Schedule B below.”Form 3520 (Rev. December 2023), Part III, line 30

127 Form 3520, Schedule A

“Enter total distributions received from the foreign trust during the 3 preceding tax years ... Multiply line 33 by 1.25 ... Amount treated as ordinary income earned in the current tax year. Enter the smaller of line 31 or line 35 ... Amount treated as accumulation distribution. Subtract line 36 from line 31.”Form 3520 (Rev. December 2023), Part III, Schedule A, lines 33 to 37

112 26 U.S.C. §§665-668

128 Form 3520, Schedule C

“Enter tax on total accumulation distribution from line 28 of Form 4970. ... Interest charge. Multiply the amount on line 49 by the combined interest rate on line 51”Form 3520 (Rev. December 2023), Part III, Schedule C, lines 49 and 52: the interest charge on an accumulation distribution

129 Instructions for Form 3520, Part III, Schedule A

“Generally, if you complete Schedule A in the current year, or did so in prior years, you must continue to complete Schedule A for all future years ... The only exception to this consistency rule is that you may use Schedule B in the year that a trust terminates, but only if you are able to answer “Yes” to line 30 in the year of termination.”Instructions for Form 3520 (Rev. December 2025), Part III, Schedule A

130 Instructions for Form 3520, Part III

“If this is the first year that the trust has been a foreign trust, do not complete the rest of Part III.”Instructions for Form 3520 (Rev. December 2025), Part III, line 32

131 26 U.S.C. §6048(c)(2)(A)

“If adequate records are not provided to the Secretary to determine the proper treatment of any distribution from a foreign trust, such distribution shall be treated as an accumulation distribution includible in the gross income of the distributee”26 U.S.C. §6048(c)(2)(A)

132 Notice 97-34, section V.B

“it is expected that Form 3520 will allow the U.S. beneficiary to avoid treating the entire amount as an accumulation distribution if the U.S. beneficiary can provide certain information regarding actual distributions from the trust for the prior three years”Notice 97-34, 1997-25 I.R.B. 22, section V.B (Beneficiary Statements): the default treatment, which Form 3520's Schedule A now carries

133 26 U.S.C. §643(a)(6)(C)

“Paragraph (3) shall not apply to a foreign trust. In the case of such a trust, there shall be included gains from the sale or exchange of capital assets”26 U.S.C. §643(a)(6)(C)

134 26 U.S.C. §665(b)

“shall not include amounts properly paid, credited, or required to be distributed to a beneficiary from a trust (other than a foreign trust) as income accumulated before the birth of such beneficiary or before such beneficiary attains the age of 21”26 U.S.C. §665(b)

For a bona fide resident of Puerto Rico, income from Puerto Rico sources is left out of U.S. income,¹¹ which can leave the gain and accumulation distribution rules above with no U.S. tax to charge; the reporting above does not change.⁴⁶ FBAR (FinCEN Form 114) and Form 8938 are separate and may also apply.¹³⁵

11 26 U.S.C. §933(1)

46 Preamble, 89 Fed. Reg. 39,455

135 Instructions for Form 3520, Additional Reporting and Tax Information

“You may be required to file Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). In addition, you may be required to file Form 8938”Instructions for Form 3520 (Rev. December 2025), Additional Reporting and Tax Information

Gifts and inheritances

You report gifts and bequests on Form 3520 Part IV when, in one tax year, you receive more than $100,000 from a nonresident alien individual or a foreign estate, counting gifts from persons related to them together,¹³⁶ or more than $20,116 (for 2025) or $20,573 (for 2026) from foreign corporations or foreign partnerships, adding in gifts from foreign persons related to them.^137,138,139 Tuition someone pays directly to a school for you, and payments made directly to a medical provider for your care, are not foreign gifts and do not count.^140,141 If you rely on the 2024 proposed regulations, the $100,000 is adjusted for inflation, to about $201,160 for 2025 and $205,730 for 2026,¹⁴² and gifts from a covered expatriate (a former U.S. citizen or long-term resident covered by section 877A) received from January 14, 2025 are reported once the year's total passes $19,000.¹⁴³ A gift that is late or left off Part IV is charged 5% of its amount for each month the failure continues, up to 25%.¹⁴⁴ The IRS's own procedures no longer assess that penalty when a late Form 3520 reporting gifts arrives, but the law is unchanged and an examination can still assert it.¹⁴⁵

136 Instructions for Form 3520, Who Must File

“More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts or bequests”Instructions for Form 3520 (Rev. December 2025), Who Must File, item 4

137 Instructions for Form 3520, Who Must File

“foreign corporations or foreign partnerships (including foreign persons related to such foreign corporations or foreign partnerships)”Instructions for Form 3520 (Rev. December 2025), Who Must File, item 4

138 Rev. Proc. 2024-40, §2.48

“exceeds $20,116”Rev. Proc. 2024-40, §2.48 (taxable years beginning in 2025)

139 Rev. Proc. 2025-32, §4.47

“exceeds $20,573”Rev. Proc. 2025-32, §4.47 (taxable years beginning in 2026)

140 26 U.S.C. §6039F(b)

“Such term shall not include any qualified transfer (within the meaning of section 2503(e)(2))”26 U.S.C. §6039F(b)

141 26 U.S.C. §2503(e)(2)

“any amount paid on behalf of an individual ... as tuition to an educational organization ... for the education or training of such individual, or ... to any person who provides medical care ... with respect to such individual as payment for such medical care”26 U.S.C. §2503(e)(2); Treas. Reg. §25.2503-6(b)(2) and (c), Examples (3)-(4): the payment goes straight to the school or the provider, and reimbursing you does not count

142 Prop. Treas. Reg. §1.6039F-1(c)(2)(i)(A) and (v), 89 Fed. Reg. 39,471

“are increased by an amount equal to the product of the amounts specified in such paragraphs and the cost-of-living adjustment for the taxable year of the gift under section 1(f)(3)”Prop. Treas. Reg. §1.6039F-1(c)(2)(i)(A) and (v), 89 Fed. Reg. 39,471 (May 8, 2024): the adjustment runs from 1995, as section 6039F(d)'s does for the $10,000 that is $20,116 for 2025 and $20,573 for 2026, so the figures here are ten times those

143 Prop. Treas. Reg. §1.6039F-1(c)(2)(ii) and (h)(2)

“if the aggregate amount of covered gifts and bequests received by the U.S. person during the calendar year does not exceed the section 2801(c) amount, which is the dollar amount of the per-donee exclusion in effect under section 2503(b)”Prop. Treas. Reg. §1.6039F-1(c)(2)(ii) and (h)(2), for covered gifts received from the day the final section 2801 regulations were published, January 14, 2025 (90 Fed. Reg. 3,376); the section 2503(b) amount is $19,000 for 2025 and 2026 (Rev. Proc. 2024-40, §3.43(1); Rev. Proc. 2025-32, §4.42(1) and (3))

144 26 U.S.C. §6039F(c)(1)(B)

“an amount equal to 5 percent of the amount of such foreign gift for each month for which the failure continues (not to exceed 25 percent of such amount in the aggregate)”26 U.S.C. §6039F(c)(1)(B)

145 IRM 21.8.2.19.2

“IRS is no longer assessing penalties at filing on late Forms 3520 reporting foreign gifts and bequests in Part IV.”IRM 21.8.2.19.2 (05-01-2026), on answering inquiries; the penalty itself is unchanged in §6039F(c), and the examiners' penalty section, IRM 20.1.9.10, still covers it

Puerto Rico has no estate or gift tax for deaths and gifts after 31 December 2017: its Code exempts the estate of anyone who dies after that date, resident or not, and every gift made after it.^146,147 Part IV turns on whether the giver is a nonresident alien. A U.S. citizen living in Puerto Rico is not one, so a gift from them is not reported on Part IV.^136,148 A giver who is not a U.S. citizen and has no green card can be one even after years in Puerto Rico, because days in a territory do not count toward the substantial presence test.¹⁴⁹ For the U.S. gift and estate taxes, a citizen living in a territory whose citizenship came only from the territory, by birth, residence, or its citizenship, is treated as a nonresident not a citizen,^150,151 which changes the giver's own U.S. gift tax, not your Part IV.

146 P.R. Internal Revenue Code, §2021.01(d) (OGP English)

“The property of any decedent, whether a Puerto Rico resident or nonresident at the time of his or her death, who dies after December 31, 2017, shall not be subject to any type of tax on the transfer of the estate.”Puerto Rico Internal Revenue Code of 2011, §2021.01(d) (estate tax). The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point

147 P.R. Internal Revenue Code, §2041.01(c) (OGP English)

“The transfer of personal or real property by gift, whether made by a Puerto Rico resident or nonresident, shall not be subject to any type of tax, when it occurs after December 31, 2017.”Puerto Rico Internal Revenue Code of 2011, §2041.01(c) (gift tax). The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point

136 Instructions for Form 3520, Who Must File

148 26 U.S.C. §7701(b)(1)(B)

“An individual is a nonresident alien if such individual is neither a citizen of the United States nor a resident of the United States”26 U.S.C. §7701(b)(1)(B); a resident is a green card holder or someone who meets the substantial presence test (§7701(b)(1)(A))

149 Treas. Reg. §301.7701(b)-1(c)(2)(ii)

“It does not include the possessions and territories of the United States”Treas. Reg. §301.7701(b)-1(c)(2)(ii): for the residence tests, the United States is the States and the District of Columbia

150 26 U.S.C. §2501(c)

“but only if such donor acquired his United States citizenship solely by reason of (1) his being a citizen of such possession of the United States, or (2) his birth or residence within such possession of the United States”26 U.S.C. §2501(c) (gift tax)

151 26 U.S.C. §2209

“be considered a “nonresident not a citizen of the United States” within the meaning of that term wherever used in this title, but only if such person acquired his United States citizenship solely by reason of”26 U.S.C. §2209 (estate tax)

Whether the estate of someone who lived in Puerto Rico is a foreign estate for Part IV is not settled. A foreign estate is one whose income from outside the United States is not in its U.S. gross income,¹⁵² and no IRS guidance applies that to an estate administered in a territory. The cautious course for a bequest of more than $100,000 in a year from such an estate is to report it on Part IV.¹³⁶

152 26 U.S.C. §7701(a)(31)(A)

“The term “foreign estate” means an estate the income of which, from sources without the United States which is not effectively connected with the conduct of a trade or business within the United States, is not includible in gross income under subtitle A.”26 U.S.C. §7701(a)(31)(A) (foreign estate)

136 Instructions for Form 3520, Who Must File

Money from a foreign trust goes on Part III, not Part IV, even if it is a gift for income tax purposes.^153,124 Money passed to you by someone who received it from the trust can go on Part III too, where it was part of a plan to avoid U.S. tax: the regulation presumes that plan where you are related to, or otherwise close to, a grantor of the trust and receive the money within two years before or after the intermediary's receipt, unless you show otherwise, and it does not apply where the intermediary is the grantor or your year's total from foreign trusts is $10,000 or less.^154,155,156 A gift paid by a foreign company can be taxed as a distribution from it instead,¹⁵⁷ and so can a payment from a trust a foreign company funded.¹⁵⁸ A distribution from a domestic trust treated as owned by a foreign person goes on Part IV, as a gift from that person, counted toward the $100,000 threshold above.^159,136 If a foreign trust, a plan read as one included, pays the estate of someone who has died, and the estate is a U.S. person, which it is unless it is a foreign estate,¹⁶⁰ the executor reports the payment on Part III for the estate, as any U.S. person reports a distribution.¹⁶¹ Rev. Proc. 2020-17 and the proposed exemption cover an eligible individual's transactions, and an estate is not an individual, so on our reading they do not reach it.^162,163

153 Instructions for Form 3520, Part IV

“If a foreign trust makes a distribution to a U.S. person, the U.S. person must report the amount as a distribution in Part III, rather than as a gift in Part IV.”Instructions for Form 3520 (Rev. December 2025), Part IV

124 Instructions for Form 3520, Part III

154 26 U.S.C. §643(h)

“any amount paid to a United States person which is derived directly or indirectly from a foreign trust of which the payor is not the grantor shall be deemed in the year of payment to have been directly paid by the foreign trust to such United States person”26 U.S.C. §643(h), which applies "for purposes of this part", the rules on how trusts and their beneficiaries are taxed

155 Treas. Reg. §1.643(h)-1

“if the intermediary received the property from the foreign trust pursuant to a plan one of the principal purposes of which was the avoidance of United States tax ... Is related (within the meaning of paragraph (e) of this section) to a grantor of the foreign trust, or has another relationship with a grantor of the foreign trust that establishes a reasonable basis for concluding that the grantor of the foreign trust would make a gratuitous transfer ... within the period beginning twenty-four months before and ending twenty-four months after the intermediary's receipt of property from the foreign trust ... Paragraph (a) of this section does not apply if the intermediary is the grantor of the portion of the trust from which the property that is transferred is derived. ... This section does not apply if, during the taxable year of the United States person, the aggregate fair market value of all property transferred to such person from all foreign trusts either directly or through one or more intermediaries does not exceed $10,000.”Treas. Reg. §1.643(h)-1(a)(1), (a)(2), (b)(2) and (d): distributions through intermediaries

156 Instructions for Form 3520 (Rev. December 2025), line 56

“If the ultimate donor is a foreign trust, treat the amount received as a distribution from a foreign trust and complete Part III.”Instructions for Form 3520 (Rev. December 2025), Part IV, line 56: a donor acting as a nominee or intermediary

157 Treas. Reg. §1.672(f)-4(a)(2)

“if a United States donee directly or indirectly receives a purported gift or bequest (as defined in paragraph (d) of this section) from any foreign corporation, the purported gift or bequest must be included in the United States donee's gross income as if it were a distribution from the foreign corporation”Treas. Reg. §1.672(f)-4(a)(2): purported gifts from foreign corporations

158 Treas. Reg. §1.672(f)-4(c)(1)

“from a trust (or portion of a trust) to which a partnership or foreign corporation has made a gratuitous transfer, the United States donee must treat the transfer as a purported gift or bequest from the partnership or foreign corporation”Treas. Reg. §1.672(f)-4(c)(1): transfers from a trust a partnership or foreign corporation has funded

159 Instructions for Form 3520, Part IV

“a U.S. person should report the receipt of a distribution from a domestic trust that is treated as owned by a foreign person as a gift from a foreign person in Part IV, rather than as a distribution to a U.S. person in Part III”Instructions for Form 3520 (Rev. December 2025), Part IV

136 Instructions for Form 3520, Who Must File

160 26 U.S.C. §7701(a)(30)(D)

“any estate (other than a foreign estate, within the meaning of paragraph (31))”26 U.S.C. §7701(a)(30)(D): an estate is a United States person unless it is a foreign estate

161 Instructions for Form 3520 (Rev. December 2025), Who Must File

“an executor of the estate of a U.S. person who received, directly or indirectly, a distribution from a foreign trust during the current tax year”Instructions for Form 3520 (Rev. December 2025), Who Must File, item 3: an estate that receives a distribution

162 Rev. Proc. 2020-17, §3

“exempting from section 6048 information reporting an eligible individual's transactions with, or ownership of, an applicable tax-favored foreign trust”Rev. Proc. 2020-17, §3: what the exemption covers

163 Prop. Treas. Reg. §1.6048-5(b)(1), (b)(4), 89 Fed. Reg. 39,480

“do not apply to any eligible individual's transactions with, or ownership of, a tax-favored foreign retirement trust as defined under paragraph (b)(2) of this section or a taxfavored foreign non-retirement savings trust as defined under paragraph (b)(3) of this section”Prop. Treas. Reg. §1.6048-5(b)(1), (b)(4), 89 Fed. Reg. 39,480 (May 8, 2024): paragraph (b)(4) defines a de minimis savings trust (value $50,000 or less), and the preamble says it is exempt, but paragraph (b)(1), which grants the exemption, names only paragraphs (b)(2) and (b)(3)

Penalties and practical notes

A Form 3520 that is late, incomplete, or wrong is penalized at the greater of $10,000 or 35% of the amount involved: the value transferred, for a transfer missing from Part I, or the distributions received, for a distribution missing from Part III.^164,165 When a trust's Form 3520-A is late or incomplete, the U.S. owner owes the greater of $10,000 or 5% of the trust assets the owner is treated as owning at the end of the year.¹⁶⁶ If a failure continues more than 90 days after the IRS mails a notice, $10,000 more is charged for each 30 days. In all, once the IRS can tell the amount involved, the penalties for one failure are cut to that amount and any excess is refunded, so a $7,000 distribution left off Part III costs no more than $7,000.^167,168,169 No penalty applies to a failure due to reasonable cause and not willful neglect, and a foreign law that forbids disclosing the information is not reasonable cause.¹⁷⁰ The Form 3520 instructions add that reluctance by a foreign trustee or other fiduciary to give information, or a trust term that prevents its disclosure, is not reasonable cause either.¹⁷¹ A late or incomplete Part I, II, or III, or Form 3520-A, also keeps the IRS's time to assess the related tax open until 3 years after the information is filed: for the whole income tax return, or, if the failure had reasonable cause, only the items it relates to.¹⁷² Separately, if you underpay income tax because of a transaction involving an asset you had to report for that year under section 6048, on Form 3520 or 3520-A, and did not, the accuracy-related penalty on that part of the underpayment is 40%, not 20%, and it applies on that ground alone.^173,174,175

164 26 U.S.C. §6677(a)

“the greater of $10,000 or 35 percent of the gross reportable amount”26 U.S.C. §6677(a)

165 26 U.S.C. §6677(c)(1), (3)

“the gross value of the property involved in the event ... the gross amount of the distributions”26 U.S.C. §6677(c)(1), (3) (gross reportable amount)

166 Instructions for Form 3520-A, Penalties

“The U.S. owner is subject to an initial penalty equal to the greater of $10,000 or 5% of the gross value ... of the portion of the trust's assets treated as owned by the U.S. person at the close of that tax year”Instructions for Form 3520-A (Rev. December 2025), Penalties; 26 U.S.C. §6677(b)

167 26 U.S.C. §6677(a)

“$10,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of such 90-day period. At such time as the gross reportable amount with respect to any failure can be determined by the Secretary, any subsequent penalty imposed under this subsection with respect to such failure shall be reduced as necessary to assure that the aggregate amount of such penalties do not exceed the gross reportable amount (and to the extent that such aggregate amount already exceeds the gross reportable amount the Secretary shall refund such excess to the taxpayer).”26 U.S.C. §6677(a)

168 26 U.S.C. §6677(b)(2)

“subsection (a) shall be applied by substituting “5 percent” for “35 percent””26 U.S.C. §6677(b)(2): for Form 3520-A, subsection (a), its limit included, applies at 5%

169 IRM 20.1.9.13.4, Penalty Computation

“In cases where the gross reportable amount is less than $10,000 the initial penalty is equal to the gross reportable amount.”IRM 20.1.9.13.4 (01-29-2021), Penalty Computation

170 26 U.S.C. §6677(d)

“No penalty shall be imposed by this section on any failure which is shown to be due to reasonable cause and not due to willful neglect. The fact that a foreign jurisdiction would impose a civil or criminal penalty on the taxpayer (or any other person) for disclosing the required information is not reasonable cause.”26 U.S.C. §6677(d)

171 Instructions for Form 3520 (Rev. December 2025), Penalties

“Similarly, reluctance on the part of a foreign fiduciary or provisions in the trust instrument that prevent the disclosure of required information is not reasonable cause.”Instructions for Form 3520 (Rev. December 2025), Penalties: the IRS's position, beyond the words of §6677(d)

172 26 U.S.C. §6501(c)(8)(A)-(B)

“the time for assessment of any tax imposed by this title with respect to any tax return, event, or period to which such information relates shall not expire before the date which is 3 years after the date on which the Secretary is furnished the information required to be reported under such section”26 U.S.C. §6501(c)(8)(A)-(B): if the failure was due to reasonable cause and not willful neglect, the rule applies only to the items related to it

173 26 U.S.C. §6662(b)(7)

“Any undisclosed foreign financial asset understatement.”26 U.S.C. §6662(b)(7): a ground of its own for the accuracy-related penalty

174 26 U.S.C. §6662(j)(2)-(3)

“any asset with respect to which information was required to be provided under section 6038, 6038B, 6038D, 6046A, or 6048 for such taxable year but was not provided by the taxpayer as required under the provisions of those sections ... subsection (a) shall be applied with respect to such portion by substituting "40 percent" for "20 percent"”26 U.S.C. §6662(j)(2)-(3)

175 Instructions for Form 3520 (Rev. December 2025), Penalties

“such penalty may be increased to 40% under section 6662(j) for any portion of an underpayment that is attributable to any transaction involving any asset with respect to which information was required to be provided on Form 3520-A”Instructions for Form 3520 (Rev. December 2025), Penalties, Section 6662(j): the instructions speak only of a U.S. owner and Form 3520-A, while the statute reaches any section 6048 information

Bona fide residents of Puerto Rico may have to file a U.S. income tax return as well as Puerto Rico's,¹⁷⁶ but Form 3520 has its own due date, not tied to the income tax return's: the 15th day of the 4th month after your tax year ends, or the 15th day of the 10th month with an extension of your income tax return.^177,178 The June 15 date for citizens and residents abroad is for those who live, and have a place of business, outside the United States and Puerto Rico, so it does not help a resident of Puerto Rico.¹⁷⁹ Form 3520 goes to the IRS at Ogden, Utah, not to Hacienda.¹⁸⁰

176 JCT, JCX-132-15

“are non-mirror Code possessions. These two territories have their own internal tax laws, and a resident of American Samoa or Puerto Rico may be required to file an income tax return with both the territory of residence and the United States.”Joint Committee on Taxation, JCX-132-15 (Sept. 28, 2015): American Samoa and Puerto Rico

177 Instructions for Form 3520 (Rev. December 2025)

“This may differ from and is not tied to the due date of the U.S. person's income tax return.”Instructions for Form 3520 (Rev. December 2025), When and Where To File: the 15th day of the 4th month after the tax year

178 Instructions for Form 3520 (Rev. December 2025)

“and are granted an extension of time to file your income tax return, the due date for filing Form 3520 is no later than the 15th day of the 10th month (October 15)”Instructions for Form 3520 (Rev. December 2025), When and Where To File

179 Instructions for Form 3520 (Rev. December 2025)

“You live outside of the United States and Puerto Rico and your place of business or post of duty is outside the United States and Puerto Rico.”Instructions for Form 3520 (Rev. December 2025), When and Where To File: June 15, with a statement attached

180 Instructions for Form 3520 (Rev. December 2025)

“Internal Revenue Service Center P.O. Box 409101 Ogden, UT 84409”Instructions for Form 3520 (Rev. December 2025), When and Where To File

A trust's U.S. tax year is the calendar year.¹⁸¹ Puerto Rico's tax law states its amounts in U.S. dollars, so amounts need no converting for Form 3520-A, which must be in English and in U.S. currency.^65,182 For an IRA you own, the figures for a substitute Form 3520-A come from the reports its trustee must prepare for you and for Puerto Rico's Secretary of the Treasury on contributions and payouts, with the account's statements; the substitute is attached to your Form 3520 and due on the same date.^73,40,183

181 26 U.S.C. §644(a)

“the taxable year of any trust shall be the calendar year”26 U.S.C. §644(a)

65 P.R. Internal Revenue Code, §1033.15(a)(7)(B) (OGP English)

182 Instructions for Form 3520-A (Rev. December 2025)

“All information provided must be in English. All amounts reported must be in U.S. currency.”Instructions for Form 3520-A (Rev. December 2025), General Instructions, Note: English, and U.S. currency

73 P.R. Internal Revenue Code, §1081.02(f)(1) (OGP English)

40 Instructions for Form 3520-A, When To File

“If the foreign trust fails to file Form 3520-A, the U.S. owner must file a substitute Form 3520-A”Instructions for Form 3520-A (Rev. December 2025), When To File

183 Instructions for Form 3520, When and Where To File

“If you are the U.S. owner of a foreign trust, the due date for filing a substitute Form 3520-A is the due date of your Form 3520.”Instructions for Form 3520 (Rev. December 2025), When and Where To File

An account in Puerto Rico is not an account in a foreign country for the FBAR, because FinCEN's rules count the territories as part of the United States.^184,30 Form 8938 is different: it counts an account at a financial institution organized in a territory as a foreign asset, but a bona fide resident of the territory leaves accounts at its own institutions off.^25,31

184 31 C.F.R. §1010.350(a)

“a bank, securities, or other financial account in a foreign country”31 C.F.R. §1010.350(a) (FBAR: accounts in a foreign country)

30 31 C.F.R. §1010.100(hhh)

“the Territories and Insular Possessions of the United States”31 C.F.R. §1010.100(hhh) (the United States, for FinCEN's rules, the FBAR included)

25 Treas. Reg. §1.6038D-3(a)(2)

31 Treas. Reg. §1.6038D-7(c)

If you move to Puerto Rico and a U.S. trust of yours comes under the primary supervision of Puerto Rico's courts, it fails the court test and becomes a foreign trust;⁵ the 2024 proposed regulations treat a U.S. trust that becomes foreign as a transfer to a foreign trust, reported on Part I.¹⁸⁵

5 Treas. Reg. §301.7701-7(c)(3)(ii)

“a court within a territory or possession of the United States or within a foreign country is not a court within the United States”Treas. Reg. §301.7701-7(c)(3)(ii)

185 Prop. Treas. Reg. §1.6048-2(d)(13)

“DT becomes a foreign trust, FT, on January 15, Year 2 ... X is required to report the transfer on Part I of Form 3520.”Prop. Treas. Reg. §1.6048-2(d)(13), Example 13: a U.S. trust that becomes a foreign trust (§1.684-2(d))

All notes (185)

Puerto Rico Internal Revenue Code of 2011 (Act No. 1-2011, as amended), §1081.01(a): an employees' trust organized under Puerto Rico law is not taxable, if the plan meets the qualification rules. The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point“A trust organized under the laws of Puerto Rico and forming part of a retirement, stock bonus, pension, or profit-sharing plan of an employer”
Departamento de Hacienda (Puerto Rico), Carta Circular de Rentas Internas Núm. 26-03 (Feb. 19, 2026): for 2026, $15,000 of deferrals in a plan qualified only in Puerto Rico, and $72,000 a year for a defined contribution account, in Spanish: no English found“retiro cualificado solamente bajo la Sección 1081.01(a) del Código”Our translation: retirement [plan] qualified only under Section 1081.01(a) of the Code
IRM 4.71.21.3 (02-16-2024), Key Definitions: ERISA section 1022(i)(1)“ERISA Section 1022(i)(1) qualified trusts are treated as exempt under IRC 501(a) as if they’re part of a qualified plan under IRC 401(a).”
Treas. Reg. §301.7701-7(a)(1)-(2): a trust is domestic only if it meets both the court test and the control test“The term foreign trust means any trust other than a domestic trust.”
Treas. Reg. §301.7701-7(c)(3)(ii)“a court within a territory or possession of the United States or within a foreign country is not a court within the United States”
IRM 4.71.21.6 (02-16-2024), Examination of Puerto Rico Plans“A Puerto Rico trust is considered a foreign trust under IRC 7701(a)(31)(B) and the corresponding regulations.”
Rev. Rul. 2008-40, Situation 2 (Plan D, a plan described in ERISA section 1022(i)(1))“The Plan D trust is created and organized under the laws of Puerto Rico, and is classified as a foreign trust under”
Rev. Rul. 2008-40, Law“Section 1022(i)(1) of ERISA does not extend qualified status under § 401(a) to a plan, favorable tax treatment under § 402(a) for distributions to participants, or favorable treatment under § 404(a) for employer contributions.”
26 U.S.C. §402(b)(1)“Contributions to an employees' trust made by an employer ... shall be included in the gross income of the employee in accordance with section 83”
IRM 4.71.21.6 (02-16-2024), Examination of Puerto Rico Plans“Participants in, and employers maintaining, an ERISA section 1022(i)(1) plan aren’t generally eligible for favorable tax treatment under IRC 402”
26 U.S.C. §933(1) (bona fide residents of Puerto Rico for the whole year)“income derived from sources within Puerto Rico (except amounts received for services performed as an employee of the United States or any agency thereof)”
26 U.S.C. §937(a) (bona fide resident of a possession: present at least 183 days, with no tax home or closer connection outside it)“who is present for at least 183 days during the taxable year in Guam, American Samoa, the Northern Mariana Islands, Puerto Rico, or the Virgin Islands”
Rev. Rul. 2008-40, Analysis (payouts from a section 1022(i)(1) plan after a transfer from a U.S. plan)“will be treated entirely as income from sources within Puerto Rico for purposes of § 933 provided that the Plan D trust remains a Puerto Rico trust”
26 U.S.C. §6048(a)(3)(B)(ii)“Subparagraph (A) shall not apply with respect to a trust which is ... described in section 402(b), 404(a)(4), or 404A”
26 U.S.C. §404(a)(4)“If a stock bonus, pension, or profit-sharing trust would qualify for exemption under section 501(a) except for the fact that it is a trust created or organized outside the United States”
Rev. Rul. 2008-40, Situation 2 (Plan D)“but does not satisfy the requirements of § 401(a) of the Internal Revenue Code (and would not satisfy § 401(a) even if the Plan D trust were a domestic trust)”
Rev. Proc. 2020-17, §5.02 (eligible individual)“is compliant (or comes into compliance) with all requirements for filing a U.S. federal income tax return ... and to the extent required under U.S. tax law, has reported as income any contributions to, earnings of, or distributions from, an applicable tax-favored foreign trust”
Rev. Proc. 2020-17, §5.03 (and §5.04, in the same words)“a foreign trust for U.S. tax purposes that is created, organized, or otherwise established under the laws of a foreign jurisdiction (the trust's jurisdiction)”
Rev. Proc. 2020-17, §5.03“to operate exclusively or almost exclusively to provide, or to earn income for the provision of, pension or retirement benefits and ancillary or incidental benefits”
26 U.S.C. §7701(a)(4)-(5): a corporation or partnership is foreign unless created or organized in the United States or under the law of the United States or of any State“means created or organized in the United States or under the law of the United States or of any State”
26 U.S.C. §7701(a)(9)“The term “United States” when used in a geographical sense includes only the States and the District of Columbia.”
Joint Committee on Taxation, JCX-132-15 (Sept. 28, 2015)“Entities organized in U.S. possessions are generally treated as foreign persons.”
IRM 4.71.21.4 (07-15-2019), Introduction to Retirement Plans Maintained in U.S. Territories (the IRS's examination procedures, not a ruling)“are generally treated as foreign for U.S. tax purposes, unless otherwise specified in the Code or related statutes”
Rev. Proc. 2020-17, §3 (why the exemption is given)“may be required under section 6038D to separately report information about their interests in accounts held by, or through, these trusts”
Treas. Reg. §1.6038D-3(a)(2) (Form 8938)“A specified foreign financial asset includes a financial account maintained by a financial institution that is organized under the laws of a U.S. possession.”
Rev. Proc. 2020-17, §3 (why the exemption is given)“which are imposed under the laws of the country in which the trust is established”
Preamble to the proposed regulations, 89 Fed. Reg. 39,454 (May 8, 2024), on proposed §1.6048-5(b)“under the laws of the country in which they are established”
26 U.S.C. §901(b)(1) (taxes paid to foreign countries and to possessions, named separately)“to any foreign country or to any possession of the United States”
Treas. Reg. §1.911-2(g)-(h): for §911 the United States includes the possessions, and a foreign country is territory under another government“The term “foreign country” when used in a geographical sense includes any territory under the sovereignty of a government other than that of the United States.”
31 C.F.R. §1010.100(hhh) (the United States, for FinCEN's rules, the FBAR included)“the Territories and Insular Possessions of the United States”
Treas. Reg. §1.6038D-7(c)(1)-(4): a bona fide resident of a possession leaves off Form 8938 accounts at, and interests in, entities organized in that possession“A financial account maintained by a financial institution organized under the laws of the U.S. possession of which the specified individual is a bona fide resident”
Prop. Treas. Reg. §1.6048-5(e), 89 Fed. Reg. 39,481 (May 8, 2024): for a trust located in a mirror code possession, to the extent the person is a bona fide resident of it (§1.937-1(b))“Sections 6048(a) through 6048(c) do not apply to a trust located in a mirror code possession to the extent the responsible party”
Prop. Treas. Reg. §1.6048-5(b)(2) (and (b)(3)-(4), in the same words)“means a foreign trust that is created, organized, or otherwise established under the laws of a foreign jurisdiction (the trust's jurisdiction)”
Joint Committee on Taxation, Federal Tax Law and Issues Related to the Commonwealth of Puerto Rico (JCX-132-15), Sept. 28, 2015“Federal tax rules apply to the territories in a manner that is different from their application in relation to both the States and foreign countries.”
IRM 4.71.21.4 (07-15-2019), Tax Coordination Agreements and Mutual Agreement Procedures“Tax Coordination Agreements allow the U.S. Competent Authorities and the relevant territory to resolve, by mutual agreement, inconsistent tax treatment between the two jurisdictions.”
26 U.S.C. §6048(a)(3)(A)(ii) (reportable events, Form 3520 Part I)“the transfer of any money or property (directly or indirectly) to a foreign trust by a United States person”
IRS Chief Counsel memorandum CC:INTL:FREV-253878-96 (Oct. 10, 1997), on the Singapore Central Provident Fund (advice, not precedent)“Additional contributions to the Fund made at the election of the employee are employee contributions that are taxed pursuant to § 61.”
26 U.S.C. §679(a)(1)“A United States person who directly or indirectly transfers property to a foreign trust (other than a trust described in section 6048(a)(3)(B)(ii)) shall be treated as the owner ... if for such year there is a United States beneficiary of any portion of such trust”
26 U.S.C. §6048(b) (U.S. owner of a foreign trust: Form 3520 Part II and Form 3520-A)
Instructions for Form 3520-A (Rev. December 2025), When To File“If the foreign trust fails to file Form 3520-A, the U.S. owner must file a substitute Form 3520-A”
Instructions for Form 3520 (Rev. December 2025), Definitions, Reportable Event and Responsible Party“The transfer of any money or property, directly or indirectly, to a foreign trust by a U.S. person, including a transfer by reason of death. ... The death of a U.S. citizen or resident if: The decedent was treated as the owner of any portion of a foreign trust under the rules of sections 671 through 679, or Any portion of a foreign trust was included in the gross estate of the decedent. ... The executor of the decedent’s estate in any other case (whether or not the executor is a U.S. person).”
26 U.S.C. §6048(c)(1) (distributions, Form 3520 Part III)“If any United States person receives (directly or indirectly) during any taxable year of such person any distribution from a foreign trust, such person shall make a return”
Instructions for Form 3520 (Rev. December 2025), Exceptions To Filing“Distributions from foreign trusts that are taxable as compensation for services rendered (within the meaning of section 672(f)(2)(B) and its regulations), so long as the recipient reports the distribution as compensation income on its applicable federal income tax return.”
Treas. Reg. §1.672(f)-3(c)(1)(i): compensatory trusts“A nonexempt employees' trust described in section 402(b)”
Rev. Rul. 2007-48 (amplifying Rev. Rul. 74-299), on a nonexempt employees' trust“The taxation of the distributions is not governed by the provisions of § 662.”
Preamble to the proposed regulations, 89 Fed. Reg. 39,455 (May 8, 2024), on proposed §1.6048-6(b): a transfer or distribution is reportable“whether or not there are any U.S. income tax consequences associated with the transfer or distribution”
Rev. Proc. 2020-17, §3“This revenue procedure does not affect any reporting obligations under section 6038D or under any other provision of U.S. law, including the requirement to file FinCEN Form 114”
Instructions for Form 3520 (Rev. December 2025), Exceptions To Filing and Additional Reporting“The exemptions from foreign trust information reporting described in Rev. Proc. 2014-55, Rev. Proc. 2020-17, and the proposed regulations under section 6048 do not affect any other reporting obligations.”
Treas. Reg. §1.401(a)-50(a)-(b): the ERISA section 1022(i)(2) election, irrevocable once made“are to be treated as trusts created or organized in the United States for purposes of section 401(a)”
IRM 4.71.21.3 (02-16-2024), Key Definitions: ERISA section 1022(i)(2)“Puerto Rico plan trusts are treated as exempt under IRC 501(a) if their sponsors make a prospective and irrevocable election for the plan to comply with all of the IRC 401(a) qualification provisions, except for the Trust Situs requirement”
Rev. Rul. 2008-40, Law (a plan that made the ERISA section 1022(i)(2) election)“is treated as a qualified plan for purposes of §§ 401(a), 402(a), and 404(a), even though the trust is created and organized in Puerto Rico and is classified as a foreign trust”
IRM 4.71.21.6 (02-16-2024), Examination of Puerto Rico Plans“IRC 402(d) allows participants in ERISA section 1022(i)(2) plans (but not section 1022(i)(1) plans) to enjoy the favorable tax treatment permitted under IRC 402 for qualified plan participants.”
26 U.S.C. §402(d)“which would qualify for exemption from tax under section 501(a) except for the fact that it is a trust created or organized outside the United States shall be treated as if it were a trust exempt from tax under section 501(a)”
Treas. Reg. §1.679-4(a)(2): §679 does not apply to“Any transfer of property to a foreign trust described in sections 402(b), 404(a)(4), or 404A”
IRM 4.71.21.3 (02-16-2024), Key Definitions: Dual Qualified Plan“a U.S. sponsor’s plan with a trust in the U.S., may operate in Puerto Rico and cover Puerto Rico employees. The Dual Qualified Plan must satisfy both the requirements of IRC 401(a) and Puerto Rico Code (PRC) section 1165(a).”
Rev. Rul. 2008-40, Situation 2 (Plan C, qualified under both §401(a) and the Puerto Rico Code)“The Plan C trust is created and organized within the United States, and is classified as a U.S. person under”
IRM 4.71.21.6 (02-16-2024), Examination of Puerto Rico Plans“Because the trust of Dual Qualified Plan is sited in the U.S., it’s exempt from taxation under IRC 501(a) as long as the related plan satisfies the qualification requirements of IRC 401(a)”
Rev. Rul. 2008-40, Holding 2“A transfer of assets and liabilities from a qualified plan to a plan that satisfies section 1165 of the Puerto Rico Code is also treated as a distribution from the transferor plan, even if the plan is described in section 1022(i)(1) of ERISA.”
Puerto Rico Internal Revenue Code of 2011, §1081.02(a): an individual retirement account is a trust created under Puerto Rico law. The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point“shall mean a trust created or organized under the laws of the Government of Puerto Rico for the exclusive benefit of an individual or his/her beneficiaries”
Puerto Rico Internal Revenue Code of 2011, §1081.02(a)(2): who may run the account (also savings and credit cooperatives). The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point“That the fund be administered by a bank, savings and loan association, savings bank, securities brokerage house, trust company, insurance company”
Puerto Rico Internal Revenue Code of 2011, §1081.02(b): an individual retirement annuity, issued by a life insurer. The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point“An “individual retirement annuity” means an annuity contract or an endowment contract”
Puerto Rico Internal Revenue Code of 2011, §1033.15(a)(7)(H), added by Ley 179-2025 (Dec. 19, 2025): from 2025, the U.S. IRA limit, in Spanish: no English found. The government's English compilation of the Code lists Ley 179-2025 as not incorporated“para años contributivos comenzados luego del 31 de diciembre de 2024, las cantidades máximas permitidas como deducción en este párrafo serán equivalentes a la cantidad máxima permitida bajo la Sección 219(b)(5)(A)”Our translation: for taxable years beginning after December 31, 2024, the maximum amounts allowed as a deduction in this paragraph shall be equivalent to the maximum amount allowed under Section 219(b)(5)(A)
IRS Notice 2024-80 (2025 limits): the §219(b)(5)(A) amount stays at $7,000“which limits the amount of an individual's deductible qualified retirement contributions for a taxable year remains $7,000”
IRS Notice 2025-67 (2026 limits): the §219(b)(5)(A) amount“The deductible amount under section 219(b)(5)(A), which limits the amount of an individual's deductible qualified retirement contributions for a taxable year is increased from $7,000 to $7,500.”
Puerto Rico Internal Revenue Code of 2011, §1033.15(a)(7)(B): the deduction limit before 2025, and the cap at wages and professional income. The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this subparagraph, but lacks subparagraph (H), added by Ley 179-2025, which sets the limit from 2025“shall not exceed five thousand dollars ($5,000) or the adjusted gross income for wages or earnings attributable to professions or occupations, whichever is less”
Puerto Rico Internal Revenue Code of 2011, §1081.02(g)(1): a 10% penalty on payouts before age 60, with exceptions. The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point“before the beneficiary of the individual retirement account attains the age of sixty (60) years shall be subject to a penalty of an amount equal to ten percent (10%)”
Puerto Rico Internal Revenue Code of 2011, §1033.15(a)(7)(H): an account document's lower limit is changed by law, in Spanish: no English found. The government's English compilation of the Code lists Ley 179-2025 as not incorporated“dicha disposición en la escritura de fideicomiso queda modificada por disposición de Ley”Our translation: that provision in the trust deed is modified by provision of law
Treas. Reg. §301.7701-4(a)“an arrangement created either by a will or by an inter vivos declaration whereby trustees take title to property for the purpose of protecting or conserving it for the beneficiaries”
Prop. Treas. Reg. §1.6048-2(d)(7), Example 7, 89 Fed. Reg. 39,474 (May 8, 2024): a trust created in Puerto Rico“X is a U.S. citizen and a bona fide resident of Puerto Rico. X creates and funds a trust, T, in Puerto Rico. T is subject to the primary jurisdiction of the Puerto Rican courts. ... X is required to report the creation and funding of T on Part I of Form 3520.”
Puerto Rico Internal Revenue Code of 2011, §1081.02(c): accounts set up by employers and employees' associations. The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point“A trust created or organized under the laws of the Government of Puerto Rico by an employer for the exclusive benefit of his/her employees”
Rev. Proc. 2020-17, §5.03(1)“contributions to the trust that would otherwise be subject to tax are deductible or excluded from income, are taxed at a reduced rate”
Rev. Proc. 2020-17, §5.03(2)“Annual information reporting with respect to the trust (or of its participants or beneficiaries) is provided, or is otherwise available, to the relevant tax authorities in the trust's jurisdiction.”
Puerto Rico Internal Revenue Code of 2011, §1081.02(f)(1): the trustee's reports on contributions and payouts. The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point“reports to the Secretary and to the individuals for whom the account, endowment contract, or annuity is maintained”
Rev. Proc. 2020-17, §5.03(3)“Only contributions with respect to income earned from the performance of personal services are permitted.”
Rev. Proc. 2020-17, §5.03(4), converted at the Treasury rate on the last day of the tax year“Contributions to the trust are limited by a percentage of earned income of the participant, are subject to an annual limit of $50,000 or less to the trust, or are subject to a lifetime limit of $1,000,000 or less to the trust.”
Puerto Rico Internal Revenue Code of 2011, §1081.02(a)(1): contributions in cash, up to the deduction limit. The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point“every contribution to the fund shall be in cash and not exceed the amount allowed as a deduction pursuant to Section 1033.15(a)(7)”
Rev. Proc. 2020-17, §5.03(5)“Withdrawals, distributions, or payments from the trust are conditioned upon reaching a specified retirement age, disability, or death, or penalties apply to withdrawals, distributions, or payments made before such conditions are met.”
26 U.S.C. §677(a)(2): the grantor is treated as owner of a portion whose income may be held for the grantor“held or accumulated for future distribution to the grantor or the grantor's spouse”
26 U.S.C. §671“there shall then be included in computing the taxable income and credits of the grantor or the other person those items of income, deductions, and credits against tax of the trust which are attributable to that portion of the trust”
Ley de Fideicomisos (Ley 219-2012), Art. 2, as amended by Act No. 9-2017, §1. English of that act on the site of the Office of Management and Budget (translator not named); no English of the whole Trusts Act found. Ley 153-2026 restates Art. 2 and leaves these words as they were in the Spanish“constitute a fully autonomous estate separate from the personal estate of the trustor, trustee, and beneficiary”
Ley de Fideicomisos (Ley 219-2012), Art. 7, in Spanish: no English found“La voluntad de constituir fideicomiso debe declararse expresamente por acto entre vivos, mediante escritura pública. ... También puede constituirse por testamento”Our translation: The intention to constitute a trust must be declared expressly by an act between living persons, by public deed. ... It may also be constituted by will
Ley de Fideicomisos (Ley 219-2012), Art. 5 (the register is kept by the Office of Notarial Inspection), in Spanish: no English found“Todo fideicomiso constituido en Puerto Rico se inscribirá en el Registro Especial de Fideicomisos, bajo pena de nulidad.”Our translation: Every trust constituted in Puerto Rico shall be entered in the Special Register of Trusts, on pain of nullity.
Ley 153-2026 (approved July 30, 2026), Sección 46, in Spanish: no English found. Six months from approval is January 30, 2027“regir seis (6) meses”Our translation: take effect six (6) months [after its approval]
Ley de Fideicomisos (Ley 219-2012), Art. 7 as enacted, which stands until Ley 153-2026 takes effect (LexJuris copy), in Spanish: no English found“Los fideicomisos en Puerto Rico serán irrevocables.”Our translation: Trusts in Puerto Rico shall be irrevocable.
Ley de Fideicomisos (Ley 219-2012, as amended by Ley 153-2026), Art. 1, effective January 30, 2027, in Spanish: no English found“En ausencia de disposición expresa en el acto constitutivo que declare su irrevocabilidad, el fideicomiso se presumirá revocable, salvo que de sus propias cláusulas se desprenda claramente la intención en contrario”Our translation: In the absence of an express provision in the constitutive act declaring its irrevocability, the trust shall be presumed revocable, unless its own clauses clearly show the contrary intention
Ley de Fideicomisos (Ley 219-2012), Art. 2, as amended by Act No. 9-2017, §1: once the deed is executed and filed. English of that act on the site of the Office of Management and Budget (translator not named); no English of the whole Trusts Act found. Ley 153-2026 restates Art. 2 and leaves these words as they were in the Spanish“a juridical entity independent of its trustors, trustees, and beneficiaries shall be constituted, enjoying full juridical personality”
Rev. Rul. 2013-14, applying Treas. Reg. §301.7701-1(a)(1)“whether an organization is an entity separate from its owners for federal tax purposes is a matter of federal tax law and does not depend on whether the organization is recognized as an entity under local law”
Treas. Reg. §301.7701-4(b)“generally are created by the beneficiaries simply as a device to carry on a profit-making business”
26 U.S.C. §7701(a)(30)(A) (a United States person)“a citizen or resident of the United States”
26 U.S.C. §679(a)(4)(A)“If a nonresident alien individual has a residency starting date within 5 years after directly or indirectly transferring property to a foreign trust, this section and section 6048 shall be applied as if such individual transferred to such trust on the residency starting date”
26 U.S.C. §672(f)(1)-(2)(A): a foreign person is treated as owner only of a trust they can revoke alone or with the consent of a related or subordinate party subservient to them, or one that can pay only them or their spouse during their life“this subpart shall apply only to the extent such application results in an amount (if any) being currently taken into account ... in computing the income of a citizen or resident of the United States or a domestic corporation”
26 U.S.C. §671“Any remaining portion of the trust shall be subject to subparts A through D.”
26 U.S.C. §679(c)(4)“if any person has the discretion (by authority given in the trust agreement, by power of appointment, or otherwise) of making a distribution from the trust to, or for the benefit of, any person, such trust shall be treated as having a beneficiary who is a United States person unless ... the terms of the trust specifically identify the class of persons to whom such distributions may be made, and ... none of those persons are United States persons during the taxable year.”
Treas. Reg. §1.679-2(a)(2)(iii), Example 10: a trustee's discretion to benefit anyone studying ancient Greek“Because it is possible that a U.S. person will receive distributions of income or corpus, or will have income accumulated for his benefit, FT is treated as having a U.S. beneficiary. This result applies even if, during a tax year, no distributions or accumulations are actually made to or for the benefit of a U.S. person.”
Treas. Reg. §1.679-2(a)(4)(i)(A)-(B), (a)(4)(ii)(A) and (a)(4)(iii), Example 2: understandings, amendment powers and letters of wishes“All written and oral agreements and understandings relating to the trust; ... Memoranda or letters of wishes; ... If the terms of the trust instrument allow the trust to be amended to benefit a U.S. person, all potential benefits that could be provided to a U.S. person pursuant to an amendment must be taken into account ... a letter of wishes directs the trustee of FT to provide for the educational needs of B, who is about to begin college. The letter of wishes contains a disclaimer to the effect that its contents are only suggestions and recommendations ... FT is treated as having a U.S. beneficiary.”
26 U.S.C. §679(d): presumption that a foreign trust has a United States beneficiary“the Secretary may treat such trust as having a United States beneficiary for purposes of applying this section to such transfer unless such person ... demonstrates to the satisfaction of the Secretary that such trust satisfies the requirements of subparagraphs (A) and (B) of subsection (c)(1)”
26 U.S.C. §679(c)(3)“A beneficiary shall not be treated as a United States person in applying this section with respect to any transfer of property to foreign trust if such beneficiary first became a United States person more than 5 years after the date of such transfer.”
26 U.S.C. §679(b): a trust that acquires a U.S. beneficiary“the transferor shall be treated as having income for the taxable year (in addition to his other income for such year) equal to the undistributed net income (at the close of such immediately preceding taxable year) attributable to the portion of the trust referred to in subsection (a)”
Treas. Reg. §1.679-2(c)(1) and (c)(3), Example 1: a trust acquiring a U.S. beneficiary“The amount of the additional income is equal to the trust's undistributed net income, as defined in section 665(a), at the end of the U.S. transferor's immediately preceding taxable year and is subject to the rules of section 668, providing for an interest charge on accumulation distributions from foreign trusts. ... A is treated as receiving an accumulation distribution”
Treas. Reg. §1.672(f)-3(a)(1)“the power to revest absolutely in the grantor title to such portion is exercisable solely by the grantor ... without the approval or consent of any other person. If the grantor can exercise such power only with the approval of a related or subordinate party who is subservient to the grantor, such power is treated as exercisable solely by the grantor.”
Treas. Reg. §1.672(f)-3(a)(2)“the grantor is treated as having a power to revest for a taxable year of the trust only if the grantor has such power for a total of 183 or more days during the taxable year of the trust”
Treas. Reg. §1.672(f)-3(a)(1), last sentence“A trust (or portion of a trust) that fails to qualify for the exception provided by this paragraph (a) for a particular taxable year of the trust will be subject to the general rule of § 1.672(f)-1 for that taxable year and all subsequent taxable years of the trust.”
Treas. Reg. §1.672(f)-3(a)(3), with (b)(3) for §677 and (d) for later gifts: trusts in existence on September 19, 1995“the general rule of § 1.672(f)-1 does not apply to any portion of a trust that was treated as owned by the grantor under section 676 on September 19, 1995, as long as the trust would continue to be so treated thereafter ... treated as owned by the grantor under section 677 (other than section 677(a)(3)) on September 19, 1995, as long as the trust would continue to be so treated thereafter. However, the preceding sentence does not apply to any portion of the trust attributable to gratuitous transfers to the trust after September 19, 1995.”
26 U.S.C. §676(a)“The grantor shall be treated as the owner of any portion of a trust, whether or not he is treated as such owner under any other provision of this part, where at any time the power to revest in the grantor title to such portion is exercisable by the grantor or a non-adverse party, or both.”
26 U.S.C. §678(a)(1): a person other than the grantor is treated as owner of a portion of a trust they alone can take“such person has a power exercisable solely by himself to vest the corpus or the income therefrom in himself”
Treas. Reg. §1.672(f)-3(a)(4) and (b)(4), Examples 2: a foreign grantor's death“the exception in paragraph (a)(1) of this section is no longer applicable, because FP2 is not a grantor of T within the meaning of § 1.671-2(e). ... The exception in paragraph (b)(1) of this section is no longer applicable, because W is not a grantor of FT within the meaning of § 1.671-2(e).”
Treas. Reg. §1.684-2(e)(1): a portion that stops being owned by a U.S. person, for the gain rule“the U.S. person shall be treated as having transferred, immediately before (but on the same date that) the trust is no longer treated as owned by that U.S. person, the assets of such portion to a foreign trust”
Treas. Reg. §1.684-3(c)(1): transfers at death“The general rule of gain recognition under § 1.684-1 shall not apply to any transfer of property to a foreign trust or foreign estate ... by reason of death of the U.S. transferor, if the basis of the property in the hands of the transferee is determined under section 1014(a).”
Treas. Reg. §1.684-3(g), Examples 2 and 3: a U.S. owner's death, with and without a power to revoke“A retained the power to revoke FT, thus, the value of all property owned by FT at A's death is includible in A's gross estate for U.S. estate tax purposes. Pursuant to paragraph (c) of this section, A is not required to recognize gain ... A retains no power over FT, and FT's basis in the property transferred is not determined under section 1014(a). Under § 1.684-2(e)(1), A is treated as having transferred the property to FT immediately before his death”
26 U.S.C. §684(a)“in the case of any transfer of property by a United States person to a foreign estate or trust, for purposes of this subtitle, such transfer shall be treated as a sale or exchange for an amount equal to the fair market value of the property transferred, and the transferor shall recognize as gain the excess of”
26 U.S.C. §684(b)“Subsection (a) shall not apply to a transfer to a trust by a United States person to the extent that any person is treated as the owner of such trust under section 671.”
26 U.S.C. §§665-668: an accumulation distribution from a trust that is not a grantor trust is taxed as if paid in the years the income was earned (§667), with an interest charge for a foreign trust (§668); figured on Form 4970
Rev. Proc. 2020-17, §1“certain tax-favored foreign retirement trusts and certain tax-favored foreign nonretirement savings trusts, as described in sections 5.03 and 5.04”
Instructions for Form 3520 (Rev. December 2025), Definitions, Distribution“any gratuitous transfer of money or other property from a foreign trust, whether or not a portion of such trust is treated as a grantor trust under the grantor trust rules of sections 671 through 679, and without regard to whether the recipient is designated as a beneficiary by the terms of the trust ... if charges you make on a credit card are paid by a foreign trust or guaranteed or secured by the assets of a foreign trust, the amount charged will be treated as a distribution to you by the foreign trust. Similarly, if you write checks on a foreign trust's bank account, the amount will be treated as a distribution.”
Prop. Treas. Reg. §1.6048-4(b)(3), 89 Fed. Reg. 39,477 (May 8, 2024): transfers from an entity a foreign trust owns to a related person, who under Treas. Reg. §1.679-1(c)(5) is a grantor, owner or beneficiary of the trust or someone related to one“A distribution includes any transfer of property from an entity in which a foreign trust directly or indirectly holds an ownership interest that is received by a U.S. person who is a related person ... unless the U.S. person demonstrates to the satisfaction of the Commissioner that the distribution from the entity is properly attributable to the U.S. person's ownership interest in the entity”
Instructions for Form 3520 (Rev. December 2025), Exceptions To Filing (the regulations were still proposed when these instructions were issued, and the Federal Register shows no final rule as of October 20, 2026)“You may rely on these proposed regulations for any tax year ending after May 8, 2024, and beginning on or before the date that final regulations are published in the Federal Register, provided you and all related persons ... apply the proposed regulations in their entirety and in a consistent manner”
Instructions for Form 3520 (Rev. December 2025), Part III, line 25“the amount of such loan or the FMV of the use of trust property will be treated as a reportable distribution, whether or not taxable”
26 U.S.C. §643(i)(1)“if a foreign trust makes a loan of cash or marketable securities (or permits the use of any other trust property) directly or indirectly to or by ... the amount of such loan (or the fair market value of the use of such property) shall be treated as a distribution by such trust to such grantor or beneficiary (as the case may be)”
26 U.S.C. §643(i)(2)(E)“In the case of the use of any trust property other than a loan of cash or marketable securities, paragraph (1) shall not apply to the extent that the trust is paid the fair market value of such use within a reasonable period of time of such use.”
Instructions for Form 3520 (Rev. December 2025), Definitions, Qualified Obligation“The obligation is reduced to writing by an express written agreement; The term of the obligation does not exceed 5 years (including options to renew and rollovers); All payments on the obligation are denominated in U.S. dollars; The yield to maturity of the obligation is not less than 100% of the applicable federal rate ... The U.S. person agrees to extend the period for assessment ... The U.S. person reports the status of the obligation, including principal and interest payments”
Instructions for Form 3520 (Rev. December 2025), Part III, line 28: a loan given for a qualified obligation“If the obligation fails to retain the status of a qualified obligation, you will be treated as having received a taxable distribution under section 643(i) from the foreign trust.”
Instructions for Form 3520 (Rev. December 2025), Part III, line 25, Note: a foreign trust with a U.S. transferor“the loan or use of trust property will not be treated as a taxable distribution under section 643(i) but will remain reportable on Part III of this Form 3520”
Instructions for Form 3520 (Rev. December 2025), Part III, Reporting by U.S. owners receiving distributions from foreign grantor trust; Who Must File, item 3 ("a U.S. person (including a U.S. owner)" who received a distribution)“If a U.S. owner (defined later) of a foreign trust receives, directly or indirectly, a distribution from the foreign trust, the U.S. owner must only complete lines 24 and 27 in Part III.”
Instructions for Form 3520 (Rev. December 2025), Part III, line 29“If a U.S. beneficiary receives a complete Foreign Grantor Trust Beneficiary Statement with respect to a distribution during the tax year, the beneficiary should treat the distribution for income tax purposes as if it came directly from the owner. For example, if the distribution is a gift, the beneficiary should not include the distribution in gross income.”
Form 3520 (Rev. December 2023), Part III, line 29“Did you receive a Foreign Grantor Trust Beneficiary Statement from the foreign trust with respect to a distribution? ... If "No," complete Schedule A with respect to that distribution.”
Form 3520 (Rev. December 2023), Part III, line 30“If "Yes," attach the statement and complete either Schedule A or Schedule B below.”
Form 3520 (Rev. December 2023), Part III, Schedule A, lines 33 to 37“Enter total distributions received from the foreign trust during the 3 preceding tax years ... Multiply line 33 by 1.25 ... Amount treated as ordinary income earned in the current tax year. Enter the smaller of line 31 or line 35 ... Amount treated as accumulation distribution. Subtract line 36 from line 31.”
Form 3520 (Rev. December 2023), Part III, Schedule C, lines 49 and 52: the interest charge on an accumulation distribution“Enter tax on total accumulation distribution from line 28 of Form 4970. ... Interest charge. Multiply the amount on line 49 by the combined interest rate on line 51”
Instructions for Form 3520 (Rev. December 2025), Part III, Schedule A“Generally, if you complete Schedule A in the current year, or did so in prior years, you must continue to complete Schedule A for all future years ... The only exception to this consistency rule is that you may use Schedule B in the year that a trust terminates, but only if you are able to answer “Yes” to line 30 in the year of termination.”
Instructions for Form 3520 (Rev. December 2025), Part III, line 32“If this is the first year that the trust has been a foreign trust, do not complete the rest of Part III.”
26 U.S.C. §6048(c)(2)(A)“If adequate records are not provided to the Secretary to determine the proper treatment of any distribution from a foreign trust, such distribution shall be treated as an accumulation distribution includible in the gross income of the distributee”
Notice 97-34, 1997-25 I.R.B. 22, section V.B (Beneficiary Statements): the default treatment, which Form 3520's Schedule A now carries“it is expected that Form 3520 will allow the U.S. beneficiary to avoid treating the entire amount as an accumulation distribution if the U.S. beneficiary can provide certain information regarding actual distributions from the trust for the prior three years”
26 U.S.C. §643(a)(6)(C)“Paragraph (3) shall not apply to a foreign trust. In the case of such a trust, there shall be included gains from the sale or exchange of capital assets”
26 U.S.C. §665(b)“shall not include amounts properly paid, credited, or required to be distributed to a beneficiary from a trust (other than a foreign trust) as income accumulated before the birth of such beneficiary or before such beneficiary attains the age of 21”
Instructions for Form 3520 (Rev. December 2025), Additional Reporting and Tax Information“You may be required to file Financial Crimes Enforcement Network (FinCEN) Form 114, Report of Foreign Bank and Financial Accounts (FBAR). In addition, you may be required to file Form 8938”
Instructions for Form 3520 (Rev. December 2025), Who Must File, item 4“More than $100,000 from a nonresident alien individual or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) that you treated as gifts or bequests”
Instructions for Form 3520 (Rev. December 2025), Who Must File, item 4“foreign corporations or foreign partnerships (including foreign persons related to such foreign corporations or foreign partnerships)”
Rev. Proc. 2024-40, §2.48 (taxable years beginning in 2025)“exceeds $20,116”
Rev. Proc. 2025-32, §4.47 (taxable years beginning in 2026)“exceeds $20,573”
26 U.S.C. §6039F(b)“Such term shall not include any qualified transfer (within the meaning of section 2503(e)(2))”
26 U.S.C. §2503(e)(2); Treas. Reg. §25.2503-6(b)(2) and (c), Examples (3)-(4): the payment goes straight to the school or the provider, and reimbursing you does not count“any amount paid on behalf of an individual ... as tuition to an educational organization ... for the education or training of such individual, or ... to any person who provides medical care ... with respect to such individual as payment for such medical care”
Prop. Treas. Reg. §1.6039F-1(c)(2)(i)(A) and (v), 89 Fed. Reg. 39,471 (May 8, 2024): the adjustment runs from 1995, as section 6039F(d)'s does for the $10,000 that is $20,116 for 2025 and $20,573 for 2026, so the figures here are ten times those“are increased by an amount equal to the product of the amounts specified in such paragraphs and the cost-of-living adjustment for the taxable year of the gift under section 1(f)(3)”
Prop. Treas. Reg. §1.6039F-1(c)(2)(ii) and (h)(2), for covered gifts received from the day the final section 2801 regulations were published, January 14, 2025 (90 Fed. Reg. 3,376); the section 2503(b) amount is $19,000 for 2025 and 2026 (Rev. Proc. 2024-40, §3.43(1); Rev. Proc. 2025-32, §4.42(1) and (3))“if the aggregate amount of covered gifts and bequests received by the U.S. person during the calendar year does not exceed the section 2801(c) amount, which is the dollar amount of the per-donee exclusion in effect under section 2503(b)”
26 U.S.C. §6039F(c)(1)(B)“an amount equal to 5 percent of the amount of such foreign gift for each month for which the failure continues (not to exceed 25 percent of such amount in the aggregate)”
IRM 21.8.2.19.2 (05-01-2026), on answering inquiries; the penalty itself is unchanged in §6039F(c), and the examiners' penalty section, IRM 20.1.9.10, still covers it“IRS is no longer assessing penalties at filing on late Forms 3520 reporting foreign gifts and bequests in Part IV.”
Puerto Rico Internal Revenue Code of 2011, §2021.01(d) (estate tax). The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point“The property of any decedent, whether a Puerto Rico resident or nonresident at the time of his or her death, who dies after December 31, 2017, shall not be subject to any type of tax on the transfer of the estate.”
Puerto Rico Internal Revenue Code of 2011, §2041.01(c) (gift tax). The government's English: Office of Management and Budget (OGP) compilation, rev. June 18, 2026, not official by its own note; matches the current Spanish (rev. May 28, 2026) on this point“The transfer of personal or real property by gift, whether made by a Puerto Rico resident or nonresident, shall not be subject to any type of tax, when it occurs after December 31, 2017.”
26 U.S.C. §7701(b)(1)(B); a resident is a green card holder or someone who meets the substantial presence test (§7701(b)(1)(A))“An individual is a nonresident alien if such individual is neither a citizen of the United States nor a resident of the United States”
Treas. Reg. §301.7701(b)-1(c)(2)(ii): for the residence tests, the United States is the States and the District of Columbia“It does not include the possessions and territories of the United States”
26 U.S.C. §2501(c) (gift tax)“but only if such donor acquired his United States citizenship solely by reason of (1) his being a citizen of such possession of the United States, or (2) his birth or residence within such possession of the United States”
26 U.S.C. §2209 (estate tax)“be considered a “nonresident not a citizen of the United States” within the meaning of that term wherever used in this title, but only if such person acquired his United States citizenship solely by reason of”
26 U.S.C. §7701(a)(31)(A) (foreign estate)“The term “foreign estate” means an estate the income of which, from sources without the United States which is not effectively connected with the conduct of a trade or business within the United States, is not includible in gross income under subtitle A.”
Instructions for Form 3520 (Rev. December 2025), Part IV“If a foreign trust makes a distribution to a U.S. person, the U.S. person must report the amount as a distribution in Part III, rather than as a gift in Part IV.”
26 U.S.C. §643(h), which applies "for purposes of this part", the rules on how trusts and their beneficiaries are taxed“any amount paid to a United States person which is derived directly or indirectly from a foreign trust of which the payor is not the grantor shall be deemed in the year of payment to have been directly paid by the foreign trust to such United States person”
Treas. Reg. §1.643(h)-1(a)(1), (a)(2), (b)(2) and (d): distributions through intermediaries“if the intermediary received the property from the foreign trust pursuant to a plan one of the principal purposes of which was the avoidance of United States tax ... Is related (within the meaning of paragraph (e) of this section) to a grantor of the foreign trust, or has another relationship with a grantor of the foreign trust that establishes a reasonable basis for concluding that the grantor of the foreign trust would make a gratuitous transfer ... within the period beginning twenty-four months before and ending twenty-four months after the intermediary's receipt of property from the foreign trust ... Paragraph (a) of this section does not apply if the intermediary is the grantor of the portion of the trust from which the property that is transferred is derived. ... This section does not apply if, during the taxable year of the United States person, the aggregate fair market value of all property transferred to such person from all foreign trusts either directly or through one or more intermediaries does not exceed $10,000.”
Instructions for Form 3520 (Rev. December 2025), Part IV, line 56: a donor acting as a nominee or intermediary“If the ultimate donor is a foreign trust, treat the amount received as a distribution from a foreign trust and complete Part III.”
Treas. Reg. §1.672(f)-4(a)(2): purported gifts from foreign corporations“if a United States donee directly or indirectly receives a purported gift or bequest (as defined in paragraph (d) of this section) from any foreign corporation, the purported gift or bequest must be included in the United States donee's gross income as if it were a distribution from the foreign corporation”
Treas. Reg. §1.672(f)-4(c)(1): transfers from a trust a partnership or foreign corporation has funded“from a trust (or portion of a trust) to which a partnership or foreign corporation has made a gratuitous transfer, the United States donee must treat the transfer as a purported gift or bequest from the partnership or foreign corporation”
Instructions for Form 3520 (Rev. December 2025), Part IV“a U.S. person should report the receipt of a distribution from a domestic trust that is treated as owned by a foreign person as a gift from a foreign person in Part IV, rather than as a distribution to a U.S. person in Part III”
26 U.S.C. §7701(a)(30)(D): an estate is a United States person unless it is a foreign estate“any estate (other than a foreign estate, within the meaning of paragraph (31))”
Instructions for Form 3520 (Rev. December 2025), Who Must File, item 3: an estate that receives a distribution“an executor of the estate of a U.S. person who received, directly or indirectly, a distribution from a foreign trust during the current tax year”
Rev. Proc. 2020-17, §3: what the exemption covers“exempting from section 6048 information reporting an eligible individual's transactions with, or ownership of, an applicable tax-favored foreign trust”
Prop. Treas. Reg. §1.6048-5(b)(1), (b)(4), 89 Fed. Reg. 39,480 (May 8, 2024): paragraph (b)(4) defines a de minimis savings trust (value $50,000 or less), and the preamble says it is exempt, but paragraph (b)(1), which grants the exemption, names only paragraphs (b)(2) and (b)(3)“do not apply to any eligible individual's transactions with, or ownership of, a tax-favored foreign retirement trust as defined under paragraph (b)(2) of this section or a taxfavored foreign non-retirement savings trust as defined under paragraph (b)(3) of this section”
26 U.S.C. §6677(a)“the greater of $10,000 or 35 percent of the gross reportable amount”
26 U.S.C. §6677(c)(1), (3) (gross reportable amount)“the gross value of the property involved in the event ... the gross amount of the distributions”
Instructions for Form 3520-A (Rev. December 2025), Penalties; 26 U.S.C. §6677(b)“The U.S. owner is subject to an initial penalty equal to the greater of $10,000 or 5% of the gross value ... of the portion of the trust's assets treated as owned by the U.S. person at the close of that tax year”
26 U.S.C. §6677(a)“$10,000 for each 30-day period (or fraction thereof) during which such failure continues after the expiration of such 90-day period. At such time as the gross reportable amount with respect to any failure can be determined by the Secretary, any subsequent penalty imposed under this subsection with respect to such failure shall be reduced as necessary to assure that the aggregate amount of such penalties do not exceed the gross reportable amount (and to the extent that such aggregate amount already exceeds the gross reportable amount the Secretary shall refund such excess to the taxpayer).”
26 U.S.C. §6677(b)(2): for Form 3520-A, subsection (a), its limit included, applies at 5%“subsection (a) shall be applied by substituting “5 percent” for “35 percent””
IRM 20.1.9.13.4 (01-29-2021), Penalty Computation“In cases where the gross reportable amount is less than $10,000 the initial penalty is equal to the gross reportable amount.”
26 U.S.C. §6677(d)“No penalty shall be imposed by this section on any failure which is shown to be due to reasonable cause and not due to willful neglect. The fact that a foreign jurisdiction would impose a civil or criminal penalty on the taxpayer (or any other person) for disclosing the required information is not reasonable cause.”
Instructions for Form 3520 (Rev. December 2025), Penalties: the IRS's position, beyond the words of §6677(d)“Similarly, reluctance on the part of a foreign fiduciary or provisions in the trust instrument that prevent the disclosure of required information is not reasonable cause.”
26 U.S.C. §6501(c)(8)(A)-(B): if the failure was due to reasonable cause and not willful neglect, the rule applies only to the items related to it“the time for assessment of any tax imposed by this title with respect to any tax return, event, or period to which such information relates shall not expire before the date which is 3 years after the date on which the Secretary is furnished the information required to be reported under such section”
26 U.S.C. §6662(b)(7): a ground of its own for the accuracy-related penalty“Any undisclosed foreign financial asset understatement.”
26 U.S.C. §6662(j)(2)-(3)“any asset with respect to which information was required to be provided under section 6038, 6038B, 6038D, 6046A, or 6048 for such taxable year but was not provided by the taxpayer as required under the provisions of those sections ... subsection (a) shall be applied with respect to such portion by substituting "40 percent" for "20 percent"”
Instructions for Form 3520 (Rev. December 2025), Penalties, Section 6662(j): the instructions speak only of a U.S. owner and Form 3520-A, while the statute reaches any section 6048 information“such penalty may be increased to 40% under section 6662(j) for any portion of an underpayment that is attributable to any transaction involving any asset with respect to which information was required to be provided on Form 3520-A”
Joint Committee on Taxation, JCX-132-15 (Sept. 28, 2015): American Samoa and Puerto Rico“are non-mirror Code possessions. These two territories have their own internal tax laws, and a resident of American Samoa or Puerto Rico may be required to file an income tax return with both the territory of residence and the United States.”
Instructions for Form 3520 (Rev. December 2025), When and Where To File: the 15th day of the 4th month after the tax year“This may differ from and is not tied to the due date of the U.S. person's income tax return.”
Instructions for Form 3520 (Rev. December 2025), When and Where To File“and are granted an extension of time to file your income tax return, the due date for filing Form 3520 is no later than the 15th day of the 10th month (October 15)”
Instructions for Form 3520 (Rev. December 2025), When and Where To File: June 15, with a statement attached“You live outside of the United States and Puerto Rico and your place of business or post of duty is outside the United States and Puerto Rico.”
Instructions for Form 3520 (Rev. December 2025), When and Where To File“Internal Revenue Service Center P.O. Box 409101 Ogden, UT 84409”
26 U.S.C. §644(a)“the taxable year of any trust shall be the calendar year”
Instructions for Form 3520-A (Rev. December 2025), General Instructions, Note: English, and U.S. currency“All information provided must be in English. All amounts reported must be in U.S. currency.”
Instructions for Form 3520 (Rev. December 2025), When and Where To File“If you are the U.S. owner of a foreign trust, the due date for filing a substitute Form 3520-A is the due date of your Form 3520.”
31 C.F.R. §1010.350(a) (FBAR: accounts in a foreign country)“a bank, securities, or other financial account in a foreign country”
Prop. Treas. Reg. §1.6048-2(d)(13), Example 13: a U.S. trust that becomes a foreign trust (§1.684-2(d))“DT becomes a foreign trust, FT, on January 15, Year 2 ... X is required to report the transfer on Part I of Form 3520.”

References

IRC §6048 - Information reporting for foreign trusts: Form 3520 Parts I-III and Form 3520-A
IRC §6677 - Penalties for Forms 3520 and 3520-A
IRC §6039F - Reporting and penalty for large foreign gifts (Form 3520 Part IV)
IRC §402(b) - Employees' trusts that are not exempt under §501(a)
IRC §§671-679 - Grantor trust rules: who is treated as owner
Treas. Reg. §§301.7701-4 and 301.7701-7 - Whether an arrangement is a trust, and whether a trust is foreign
Treas. Reg. §1.402(b)-1 - Employer contributions, vesting, owner of employee contributions, and distributions
Rev. Proc. 2020-17 - Exemption for eligible individuals' tax-favored foreign retirement and savings trusts
Prop. Treas. Reg. §1.6048-5 (89 Fed. Reg. 39,440) - Proposed exemption with a value threshold; may be relied on as the Form 3520 instructions describe
Instructions for Form 3520 (Rev. December 2025) - Who must file, exceptions to filing, penalties
Instructions for Form 3520-A (Rev. December 2025) - The trust's return and the U.S. owner's substitute
Treas. Reg. §301.7701-7(c)(3) - A court within a territory or possession is not a court within the United States
IRC §§933 and 937 - Puerto Rico income left out of U.S. income for bona fide residents; who is a bona fide resident
IRM 4.71.21, Examination Procedures for Plans in U.S. Territories - Puerto Rico trusts are foreign trusts; ERISA section 1022(i)(1), 1022(i)(2), and dual-qualified plans
Rev. Rul. 2008-40 - Puerto Rico plan trusts are foreign trusts; what each kind of Puerto Rico plan gets
Treas. Reg. §1.401(a)-50 - The ERISA section 1022(i)(2) election
Puerto Rico Internal Revenue Code of 2011 (Ley 1-2011) - §1081.01 employees' trusts; §1081.02 individual retirement accounts; §1033.15(a)(7) the IRA deduction (Ley 179-2025); §§2021.01 and 2041.01 estate and gift taxes
Puerto Rico Internal Revenue Code of 2011, English compilation - Office of Management and Budget, rev. June 18, 2026; not official by its own note, and without Ley 179-2025
Hacienda, Carta Circular de Rentas Internas Núm. 26-03 - 2026 limits for plans qualified in Puerto Rico
Ley de Fideicomisos (Ley 219-2012, as amended by Ley 153-2026, effective January 30, 2027) - Puerto Rico's trusts statute
Prop. Treas. Reg. §1.6048-2(d)(7), Example 7 - A trust a bona fide resident of Puerto Rico creates there is a foreign trust

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Last reviewed October 31, 2026