SAMPLE LETTER: TO SEND TO THE ACCOUNTANT Re: Oscar ...

ALEXANDER A. BOVE, JR.
Also admitted in England & Wales
MELISSA LANGA
Also admitted in Washington, D.C.
THE LAW FIRM OF
BOVE & LANGA
A PROFESSIONAL CORPORATION
TEN TREMONT STREET, SUITE 600
BOSTON, MASSACHUSETTS 02108
Telephone: 617.720.6040 Facsimile: 617.720.1919
www.bovelanga.com
ROBERT H. RYAN
Also admitted in RI
DEBORAH B. DONG
KELLY AYLWARD
SAMPLE LETTER: TO SEND TO THE ACCOUNTANT
Re: Oscar Offshore: Estate Planning Structure
Dear Anita Accountant:
Oscar Offshore has asked us to inform you of his intention of forming a trust in the Cook Islands
(the Offshore Family Trust), and thereafter having the trust form a limited liability company in
Nevis (the Offshore Family LLC). The trust will be the sole member (owner) of the LLC. Oscar
Offshore will fund the trust with cash, and the cash will be transferred by the trustee to the LLC.
The LLC will thereafter open investment accounts and invest the funds. The discretionary
beneficiaries of the trust are Oscar Offshore and his family.
For income tax purposes, the Offshore Family Trust is a “foreign trust” under IRC
§7701(a)(31)(B) because the trust will fail to meet the “court and control tests” of IRC
§7701(a)(30)(E). The Offshore Family Trust is also a grantor trust under IRC §679 because it is
a foreign trust settled by a United States person which has United States beneficiaries.
The Offshore Family LLC will be a disregarded entity (assuming the proper IRS form is filed, as
discussed below). The purpose of this letter is to inform you of the additional reporting
requirements necessitated by the formation of these offshore entities. Once the entitles have been

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formed, we will send you a copy of the signed trust document and the certificate of formation for
the LLC.
So, we will now summarize the pertinent returns here, but we welcome your comments as to
additional filing requirements. We also enclose a copy of IRS Notice 97-34 for your
convenience, since this Notice contains information regarding the reporting requirements for
foreign trusts. As you read the remainder of this letter, please make careful note of the varying
“due dates” of the forms. They are not all due on the same date (that would be too easy).
1. Form 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt
of Certain Foreign Gifts). Oscar Offshore must file Form 3520 because he is a U.S. person
who is treated as the owner of the assets of a foreign trust (the Offshore Family Trust) under
the grantor trust rules. Form 3520 must also be filed by any U.S. person who receives,
directly or indirectly, a distribution from a foreign trust.
IRC §6048 states that the first Form 3520 is due ninety (90) days after the foreign trust is
formed or became a foreign trust. However, by regulation the Secretary has provided an
April 15 th filing date (for trusts having a calendar tax year, as is the case here). See Treas.
Reg. 404.6048-1(c)(1). See also Notice 97-34 (Section VIII-A) which seemed to remove the
90 day filing requirement because the Notice states that penalties under IRC §6677 will
“generally” be avoided if Form 3520 is filed as an attachment to the taxpayer’s income tax
return by the due date of that return, including extensions. In addition to attaching Form 3520
to Oscar Offshore’s income tax return, a copy of Form 3520 must also be filed with the
Internal Revenue Service Center, Philadelphia PA 19255.
2. Form 3520-A (Annual Information Return of Foreign Trust with U.S. Owner) is filed
with the Internal Revenue Service Center, Philadelphia PA 19255 by March 15 th each year.
See Notice 97-34 (Section VIII-A) which states that penalties under IRC §6677 will
“generally” be avoided if Form 3520-A is filed by the fifteen day of the third month
following the end of the trust’s taxable year (or later if pursuant to an extension of time to file
submitted on Form 2758). As noted above, the Offshore Family Trust’s taxable year ends

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December 31 st .
Note, importantly, that it is the trustee of the Offshore Family Trust that must sign Form
3520-A, although Oscar Offshore, as the grantor of the trust, is held responsible by the IRS to
insure this return is filed in a timely manner and to insure that the U.S. owners and
beneficiaries of the Offshore Family Trust are provided their annual statements (Foreign
Grantor Trust Owner Statement and Foreign Grantor Trust Beneficiary Statement). It is very
important to complete Form 3520-A in sufficient time to permit it to be sent to the offshore
trustee (assume next day service is NOT available for foreign jurisdictions), reviewed and
signed by the trustee, and returned to you. It is our suggestion that you do NOT rely on the
trustee mailing Form 3520-A directly to the IRS. The contact information for the offshore
trustee is as follows: [Add contact information].
A copy of page 3 of Form 3520-A should be attached to Oscar Offshore’s Form 1040. Note,
further, that in years where a distribution is made from the trust that a copy of page 4 of Form
3520-A is given to the beneficiary who received the distribution and that beneficiary would
attach it to his tax return as well as to Form 3520.
Finally, the foreign trust must have a U.S. agent. Here, Oscar Offshore has indicated a desire
to appoint you as the U.S. agent. Please let us know if this is a problem. If the appointed
U.S. agent is unable to serve, the foreign trustee must notify the IRS within 90 days by filing
an amended Form 3520-A with the Philadelphia Service Center setting forth notice of
termination and the name, address, and TIN of the new U.S. agent. Enclosed is the document
that should be signed by the trustee appointing you as the U.S. agent. You should personalize
it as needed an submit a copy of it to the trustee with the first Form 3520-A.
3. Form 1041 (U.S. Income Tax Return for Estates and Trusts) is a complicated story. The
instructions to Form 1041 state that a foreign trust should file a Form 1040NR, the return
filed by nonresident aliens. But the instructions to Form 1040NR state that Form 1040NR
must be modified to comply with the Internal Revenue Code provisions that apply to trusts,
and refers the taxpayer back to Form 1041. You seem to have two acceptable choices. First,