One family trust, two tax administrations, two sets of penalties: why US-France trust reporting fails so often, and how to fix it.
The letter usually arrives years after the move. A US citizen settled in Europe, or a French resident named as beneficiary of an American family trust, discovers that a structure created decades ago by a parent or grandparent has been generating reporting obligations on both sides of the Atlantic. Nobody told the trustee. Nobody told the beneficiary. The trust itself has often done nothing but hold securities and distribute modest amounts. Yet two tax administrations now consider that filings were due, and both attach severe penalties to the omission.
This situation is not marginal. It is the predictable result of two reporting systems, the American regime built around Forms 3520 and 3520-A, and the French regime built around Article 1649 AB of the French Tax Code (Code général des impôts, CGI), which were designed independently, pursue different targets, designate different filers, and never coordinate. A family caught between them faces cumulative exposure: percentage-based US penalties that can reach 35% of trust transfers or distributions, and French fixed fines backed by a 1.5% annual levy on trust assets.
This article maps the trap. Part I explains why the same trust receives two different legal readings in Washington and Paris. Part II details the US reporting layer and its penalty mechanics. Part III does the same for the French layer, recently reshaped again by the 2026 amendments to Article 792-0 bis. Part IV sets out what we consider the only defensible compliance strategy: a simultaneous, coordinated regularization on both sides.
I. One trust, two legal readings
A. What the United States sees: grantor or non-grantor
US tax law approaches a trust through the question of ownership of its income. Under the grantor trust rules (Internal Revenue Code, sections 671 through 679), a trust is either a grantor trust, whose income is taxed directly to the person treated as its owner, typically the settlor, or a non-grantor trust, taxed as a separate entity, with beneficiaries taxed on distributions. The distinction drives everything: who pays income tax, who files which form, and how distributions to beneficiaries are characterized.
The reporting regime follows the same logic. Section 6048 of the Internal Revenue Code requires US persons to report three families of events: transfers of property to a foreign trust, ownership of a foreign trust under the grantor rules, and receipt of distributions from a foreign trust. A trust is foreign, from the US standpoint, whenever it fails the control and court tests of US domestic trust status. A trust administered from France, Switzerland or the United Kingdom is thus a foreign trust for the IRS even if its settlor and all its beneficiaries are American.
B. What France sees: a reporting object defined by Article 792-0 bis
France has no domestic trust law. The French Tax Code therefore defines the trust from the outside, as a set of legal relationships created under foreign law. Article 792-0 bis of the CGI, in its current version in force since 27 June 2026, defines a trust as the legal relationships created under the law of a State other than France by a settlor (constituant), inter vivos or upon death, placing assets under the control of a trustee (administrateur) in the interest of beneficiaries or for a determined purpose (CGI, art. 792-0 bis, I).
Two features of the French reading matter for compliance. First, France attaches its own transfer-tax regime to trusts: transmissions of trust assets are subject to French gift and inheritance tax according to the family link between settlor and beneficiary, with punitive flat rates at the top brackets of Article 777 where the beneficiary's share is not individually determined or where the trustee is established in a non-cooperative jurisdiction (CGI, art. 792-0 bis, II, as amended in 2026). Second, and decisively for our subject, France does not care whether the trust is grantor or non-grantor, revocable or irrevocable, discretionary or fixed. If the settlor or any beneficiary is French tax resident, or if the trust holds any French-situs asset, the French reporting machinery of Article 1649 AB switches on.
C. Why the two readings multiply filers instead of aligning them
The structural mismatch is simple to state. The US regime places the reporting burden on the US person connected to the trust: the transferor, the deemed owner, the beneficiary receiving a distribution. The French regime places the burden on the trustee, a person who is often outside France, unaware of French law, and contractually reluctant to disclose anything. A Franco-American family therefore ends up with at least two distinct filers, in two countries, on two calendars, for the same structure. In our practice, this is the single most common root cause of non-compliance: each actor assumes the other one is handling it, and no one is.
II. The US reporting layer: Forms 3520 and 3520-A
A. Who files what, and when
Form 3520 (Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts) is filed by the US person: the transferor who funded a foreign trust, the US owner under the grantor rules, the beneficiary who received a distribution, and the US recipient of large foreign gifts or bequests. It is due with the filer's income tax return, generally April 15 for individuals, with extensions following the income tax calendar (IRS, Instructions for Form 3520, rev. December 2025).
Form 3520-A (Annual Information Return of Foreign Trust With a US Owner) is, in principle, filed by the foreign trust itself whenever it has a US owner under the grantor rules. Its deadline is the 15th day of the 3rd month after the end of the trust's tax year, March 15 for calendar-year trusts, extendable on Form 7004. Where the foreign trustee does not cooperate, the US owner must attach a substitute Form 3520-A to their own Form 3520 to avoid the penalty (IRS, Instructions for Form 3520-A, rev. December 2025). In practice, for family trusts administered abroad, the substitute route is the norm rather than the exception.
B. The section 6677 penalty mechanics
The penalties are the reason this subject deserves an article rather than a footnote. Under section 6677 of the Internal Revenue Code, the initial penalty for a late, incomplete or incorrect Form 3520 is the greater of $10,000 or 35% of the gross value of property transferred to the foreign trust (for unreported transfers), 35% of the gross value of distributions received (for unreported distributions), and 5% of the gross value of the trust portion treated as owned by the US person where the Form 3520-A obligation is not satisfied. Additional penalties accrue if non-compliance continues more than 90 days after IRS notice, subject to an aggregate cap at the gross reportable amount (IRS, Instructions for Forms 3520 and 3520-A, rev. December 2025; IRC section 6677).
Foreign gifts follow their own regime: a US person receiving more than $100,000 from a foreign individual or estate must report on Form 3520, and failure triggers a penalty of 5% of the gift per month of delay, capped at 25% (IRC section 6039F). Families frequently discover this rule after a French inheritance: a bequest from a French parent to a US-resident child is a reportable foreign bequest, even though no US tax is due on it.
Two mitigation doors exist and matter enormously in practice. The reasonable cause exception can eliminate the penalty where the taxpayer demonstrates ordinary business care, and since late 2024 the IRS reviews reasonable cause statements before assessing certain Form 3520 penalties rather than assessing automatically. And Revenue Procedure 2020-17 exempts eligible individuals from section 6048 reporting altogether for certain tax-favored foreign retirement and savings trusts, a carve-out that resolves many pension-type structures but almost never covers a discretionary family trust (Rev. Proc. 2020-17; IRS, Instructions for Form 3520-A).
C. What the US layer does not care about
It is worth being explicit about what the American forms ignore: French residence of the trustee, French taxation of the beneficiary, and French reporting already performed. Filing the French trust declarations has no curative effect whatsoever on Forms 3520 and 3520-A. The two systems do not exchange these filings, and compliance on one side is legally irrelevant on the other. This is the first half of the double trap.
III. The French reporting layer: Article 1649 AB and its sanctions
A. The trustee's twin declarations
Article 1649 AB of the CGI, in force in its current version since 14 February 2020, imposes the reporting duty on the trustee. The obligation is triggered when the settlor or at least one beneficiary is French tax resident, when the trust holds an asset or right situated in France, when the trustee is French tax resident, or when a non-EU trustee acquires French real estate or enters into a business relationship in France (CGI, art. 1649 AB, I).
The content is twofold. An event-driven declaration covers the constitution, modification or extinction of the trust and the content of its terms. An annual declaration covers the identity of all beneficial owners, meaning every settlor, trustee, beneficiary, protector or person exercising effective control, and the market value at 1 January of the trust assets: worldwide assets where the relevant persons are French tax residents, French-situs assets only otherwise (CGI, art. 1649 AB, I, 1° to 3°). The declared information feeds a trust register maintained under the authority of the budget ministry (CGI, art. 1649 AB, II).
B. The sanction pair: fixed fine and 1.5% levy
The French sanction architecture combines a fine and a tax. The fine: any breach of Article 1649 AB is punished by a fixed penalty of 20,000 euros (CGI, art. 1736, IV bis). It applies per breach, and the event-driven and annual declarations are distinct obligations, so a trust left undeclared for years accumulates several fines.
The tax: Article 990 J of the CGI subjects settlors and beneficiaries of an undeclared trust to a sui generis levy (prélèvement) at the highest rate of the French real estate wealth tax scale, currently 1.5% (CGI, art. 990 J referring to art. 977). The levy is assessed on the 1 January market value of the in-scope assets, is payable by the trustee by 15 June each year, and, where unpaid, the settlor and beneficiaries are jointly and severally liable. Its logic is coercive: the levy is not due where the trust assets have been properly included in the taxpayer's French wealth tax base or duly declared under Article 1649 AB. Compliance switches it off; silence switches it on, year after year.
C. What the French layer does not care about
Symmetrically, France ignores the American paperwork. A trust perfectly reported on Forms 3520 and 3520-A for twenty years remains, from the French standpoint, an undeclared trust if the trustee never filed under Article 1649 AB. The 20,000 euro fine and the 1.5% levy attach regardless of exemplary US compliance. And because the French duty rests on the trustee while the US duty rests on the taxpayer, a family can be simultaneously compliant in one country through one person and exposed in the other through another. This is the second half of the trap, and the reason a purely national adviser, however competent, tends to see only half of the problem.
IV. A coordinated compliance strategy
A. Map first: qualification, actors, calendars
Every regularization we conduct starts with the same mapping exercise. Qualification: is the trust grantor or non-grantor for US purposes, and who are its constituant and bénéficiaires for French purposes, two analyses that must be run separately because the categories do not overlap. Actors: who is a US person, who is French tax resident, who is the trustee and under which law. Calendars: the French annual declaration is keyed to 1 January values with a mid-June levy deadline, while the US forms follow the March 15 and April 15 rhythm. A single trust event, a distribution for instance, can be reportable three times: by the trustee in France, by the trust on Form 3520-A, and by the beneficiary on Form 3520.
B. Regularize simultaneously, not sequentially
Our position is firm: where historic non-compliance exists on both sides, the only defensible strategy is a simultaneous, coordinated regularization. Sequential clean-ups create discoverable inconsistencies. The values, dates and beneficiary lists filed in one country will eventually be compared with those filed in the other, whether through FATCA flows, exchange of information on request, or a future audit. On the US side, the route is the delinquent international information return procedures or, where unreported income exists, the streamlined procedures for non-willful taxpayers, both of which require a coherent narrative of the trust's history. On the French side, spontaneous late filing by the trustee, accompanied where appropriate by a reasoned cover letter, remains the standard path, and dramatically improves the position on the 990 J levy going forward.
The narrative must be single and shared. The same trust deed, the same asset valuations, the same beneficiary identification must support both files. In our experience, the reasonable cause argument on the US side is materially strengthened when the taxpayer can show a global clean-up, and the French administration's appetite for the fixed fine diminishes when the late filing is spontaneous, complete and professionally documented.
C. Then industrialize the annual cycle
Regularization is an event; compliance is a routine. Once the structure is clean, the annual cycle should be industrialized: a January valuation of trust assets serving both the French annual declaration and the US forms, a compliance calendar pairing the March 15 and April 15 US deadlines with the French June deadline, and a standing information protocol with the trustee so that every distribution, every change of beneficiary and every amendment of the deed triggers the event-driven French declaration and the corresponding US reporting. Families who treat this as a yearly subscription rather than a yearly surprise never see the penalty regimes described above.
Conclusion
A trust straddling the United States and France lives under two reporting regimes that share nothing: not the filer, not the calendar, not the sanction logic. The American layer targets the US person with percentage-based penalties reaching 35% of transfers and distributions under section 6677. The French layer targets the trustee with a 20,000 euro fine per breach and arms itself with a 1.5% annual levy on trust assets under Article 990 J. Neither system gives any credit for compliance with the other.
The practical consequence is a rule we apply without exception: never regularize one side alone, and never assume that silence has protected the other side. If your family holds, administers or benefits from a trust with any French connection and any US person in its orbit, the first step is a two-jurisdiction audit of what should have been filed, by whom, since when. The second step is a single coordinated file. The worst step is waiting for one of the two administrations to write first.
Frequently asked questions
I am a US citizen living in France and beneficiary of an American family trust. Do I have to file anything in France myself?
The French declarations under Article 1649 AB are legally the trustee's duty, not yours. But your French residence is precisely what triggers the trustee's obligation, and the 990 J levy can reach you as beneficiary through joint liability if nothing is filed. You should therefore verify that the trustee has actually filed, and on the US side you remain personally responsible for Form 3520 in any year you receive a distribution.
The trust was settled by my late grandfather and I have never received a distribution. Is there really anything to declare?
Quite possibly yes, on both sides. In France, the trustee's event-driven and annual declarations are due even without any distribution, because they attach to the existence of the trust and the residence of its beneficiaries. In the US, reporting depends on your status: a mere discretionary beneficiary who receives nothing generally has no Form 3520 duty for that year, but any distribution, even in kind, changes that immediately.
What do the penalties actually amount to if nothing was ever filed?
On the US side, the initial section 6677 penalty is the greater of $10,000 or 35% of unreported transfers or distributions, and 5% of the trust portion owned by a US grantor for Form 3520-A failures, with additional amounts after IRS notice. On the French side, each breach of Article 1649 AB carries a 20,000 euro fine, and the 1.5% annual levy of Article 990 J applies to undeclared trusts. Reasonable cause relief and spontaneous regularization can substantially reduce both exposures.
My foreign pension plan is technically a trust. Am I caught by all of this?
Often not on the US side: Revenue Procedure 2020-17 exempts eligible individuals from Forms 3520 and 3520-A for certain tax-favored foreign retirement and savings trusts, and Revenue Procedure 2014-55 covers most Canadian plans. The exemption has conditions, notably prior income tax compliance, and it does not remove FBAR or Form 8938 duties. The French analysis is separate and must be run on its own terms.