Is A Stiftung A Foreign Trust? Form 3520 Penalties?

In the recent case of Rost v. United States, the Fifth Circuit analyzed whether a foreign entity should be classified as a foreign trust subject to IRS Form 3520 penalties. The case arose in the context of a Liechtenstein Stiftung and illustrates the facts-and-circumstances test prescribed by Treasury regulations to determine whether a foreign trust exists.

Here's the background: The IRS assessed almost $1.4 million in penalties against the founder of a Liechtenstein Stiftung for failing to timely file Forms 3520 and to ensure that the Stiftung timely filed Forms 3520-A. After the IRS notified the founder of its intent to levy the penalties, he contested his liability and requested a collection due process hearing. The IRS Appeals Office sustained the levy notices but granted a partial penalty reduction. After paying the penalties, as adjusted, the founder filed administrative refund claims with the IRS and ultimately brought suit, arguing that because no