Who is taxed on income from a foreign trust?
John Johnson
Updated on March 07, 2026
Income Tax Consequences U.S. owner of a foreign trust – In general, a U.S. person who is treated as the owner of a foreign trust under the grantor trust rules (IRC sections 671-679) is taxed on the income of that trust.
Can a foreign trust be considered a PFIC?
This form should not be filed by beneficiaries of a foreign trust unless the foreign trust has invested in a PFIC. However, where a foreign trust has the characteristics of a corporation, the trust could be deemed to be a PFIC by the IRS.
Why do we need to know about foreign trusts?
To help prevent the use of foreign trusts and other offshore entities for tax avoidance or improper deferral of income, the Internal Revenue Code has provisions that address this abuse.
Do you need a foreign grantor trust beneficiary statement?
Depending on whether the U.S. beneficiary is a beneficiary of a grantor or non grantor trust, the beneficiary should receive a Foreign Grantor Trust Beneficiary Statement or a Foreign Non Grantor Trust Beneficiary Statement, which includes information about the taxability of distributions the beneficiary has received.
How is a grantor trust treated on taxes?
In general, a Grantor Trust is ignored for income tax purposes and all the income, deductions, etc., are treated as belonging directly to the Grantor. This also applies to any portion of a trust that is treated as a Grantor Trust. A common form of a Grantor Trust is a revocable living trust.
When to give copies of foreign grantor trust statement?
Give copies of the Foreign Grantor Trust Owner Statement (pages 3 and 4 of Form 3520-A) and the Foreign Grantor Trust Beneficiary Statement (page 5 of Form 3520-A) to the U.S. owners and U.S. beneficiaries by the 15th day of the 3rd month after the end of the trust’s tax year.
What makes a foreign nongrantor Trust a DNI?
All of the income earned by a complex foreign nongrantor trust, with some modifications, is regarded as DNI under Sec. 643. To the extent that the income is distributed to a U.S. beneficiary, it is subject to income taxation.
