@pk Thank you for your initial thoughts and questions. Please note the following:
1. you are talking about a revocable trust for the purposes of investing/ growing. There are actually two trusts. They're not identical, but for purposes of this analysis, I think it's safe to assume the conclusions reached for one will apply equally to the other. In each relevant tax year, my employer created a trust and contributed funds to it for my benefit. There were UK on-shore tax benefits to both my employer and myself. The preamble to the T/A states that it is irrevocable. The trust is titled as [MY NAME] Retirement Benefits Scheme [I or II].
2. you are sole owner and trustee of the trust. I am neither the owner nor the trustee. It was established between my employer at the time, as Principal Employer, and a trust company, as trustee. I was referred to as Member, but not Beneficiary per se. However, I do have the power to request distributions under certain circumstances, some of which are described below. Beneficiaries are defined broadly as one would expect.
3. You have recognized the growths every year (what form did you file to recognize this). My accountant at the time included these amounts in my tax return. Depending on the year in question, amounts were reflected in Schedule B, Schedule D or under Miscellaneous Income. I know that each year I gave her BOY and EOY balances as well as FX rates to apply in recognition of unrealized income.
4. you have used proper exchange rate to recognize the earnings. Yes.
5. The only special part here is that the trust is foreign trust (instead of being formed under US / State laws. I don't think that's right based on other details provided throughout this reply.
6. Now you want to liquidate the trust and the questions is does this need to be reported on form 3520 or any other forms? I have the right to request distributions as retirement benefit under the scheme, subject to providing acceptable evidence that I am no longer tax resident in the UK. They can be taken as an annuity or a lump sum. If I were to be tax resident in the UK, significant withholdings would be in issue. The contributions were shielded from UK income tax, but not US income tax. The income was declared in the US at the time and offset by accrued FTC. There are definitions in the T/A specifying provisions of UK tax law determining Eligible Employee, Employment Income and Relevant Benefits, among other things, but I don't believe these terms and provisions tie in any way to those described as the basis for exemption from filing under Form 3520.
I am assuming that you have been reporting the foreign trust on form 3520-A as US owner of a foreign trust. If you did not then, I don't how you recognized the earnings. Here is what I see from the IRS--> https://www.irs.gov/pub/irs-pdf/i3520a.pdf. I don't believe either Form 3520 or Form 3520a has been filed in any tax year. As noted above, the income elements were included in my tax returns and other disclosures were made via Form 8938. I received a notice from the trustee in 2012 advising that I may be obliged to file Form 8938 or the FBAR as well as other potential reporting obligations. While not dispositive, there was no explicit reference to Form 3520.
I am also assuming that you have been filing FATCA / FBAR forms all these years -- yes? I have included these accounts among my Form 8938 disclosures, but not FBAR, based on the reasoning that I did not own or control the accounts.
See, Comparison of Form 8938 and FBAR Requirements | Internal Revenue Service (irs.gov), and specifically with respect to the FBAR:
Financial interest: you are the owner of record or holder of legal title; the owner of record or holder of legal title is your agent or representative; you have a sufficient interest in the entity that is the owner of record or holder of legal title.
Signature authority: you have authority to control the disposition of the assets in the account by direct communication with the financial institution maintaining the account.
Thank you for any further thoughts you may have given these additional details.
