The 3520 instructions state: “In general, Form 3520 is due on the date that your income tax is due, including extensions.†i.e. April 15. However, that’s only “in generalâ€. The filing deadline for 3520-A is March 15th, and since, in the case of a TFSA “grantor trustâ€, the only 3520-A filed will be the one attached to your 3520, it seems to follow implicitly, if not explicitly, that the 3520 with its attached 3520-A must be filed by March 15th. If you are tempted to think otherwise, study the ominous conclusion of 3520, Part II, #22: “See instructions for information on penaltiesâ€, which information, in the case of 3520-A, will include: “criminal penalties . . . for failure to file on timeâ€.
The trust institution isn’t sending the 3520-A, you are - attached to your 3520. Unless, and only if, a Form 7004 extension has been obtained, it is prudent to assume that the combined 3520/3520-A required filing deadline is not April 15, but March 15.
Search found 16 matches
- Mon Jun 15, 2015 4:01 pm
- Forum: Canada / United States Tax & Accounting
- Topic: 3520a filing deadline
- Replies: 9
- Views: 8177
- Mon Jun 15, 2015 3:48 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Taking stab at 3520, -A for TFSA
- Replies: 157
- Views: 216283
Greetings:
I’m going to add, for what it’s worth, comments on certain aspects of these forms which differ markedly from both the original posting and the practice of many subsequent commentators. Though not an expert, the approach described, which has been applied it to my own filings of these forms for the past five years without adverse (or any) comment from the IRS, reflects a number of years of experience in Canadian trust law.
In what follows I will reiterate Hapless’ original instructions with triple asterisks *** starred *** to set off areas which I will comment upon [in brackets following].
3520
*** Check 1st 2 boxes "US transferor" and "US owner" ***
[Just to be clear, 1) a-h is you and your address, and j is usually Austin, Texas. If you have withdrawn funds, the 3rd box “U.S. Receiver of a distribution†also comes into play, (in which case, despite what the box says, Part III is not completed, as discussed later.) So, depending on the nature of your account activity, any of the following box combinations are possible: 1 & 2, 2 & 3, or 1, 2 & 3.]
*** 2) RBC Direct Investing (TFSA, Acct No); EIN ; address ***
[Contrary to popular belief, an “EIN†is NOT required, To Wit:
“An EIN is not required for line 2b . . . c. when the trust in question is a grantor trust and all relevant information is being reported on the respective 1040". Procedural Update WI-03-1212-1961 www.irs.gov/pub/foia/ig/spder/IPU_CPR_W ... 2-1961.pdf
A grantor trust is a trust in which the grantor (or trustor) retains full beneficial control of the trust asset. A TFSA account holder retains full beneficial control of his account, so a TFSA is a grantor (or “bareâ€) trust. An EIN is not required since you, the grantor will, of course, be reporting “all relevant information†i.e. any interest or other income, on your 1040 Schedule “B†(required filing for anyone with any foreign account). Given this reality, I suggest any perceived requirement that the trust must file its own income tax return (Form 1041 or 1040NR) is also inapplicable. Also, take note that the “foreign trust†is your individual account at your financial institution. It is NOT the financial institution itself - a fact which provides a contextual clue for completion of the remainder of this form.]
*** 3) Yes ***
*** 3a) #2 is a Qualified Intermediary (QI), fax no...***
[Both 3 and 3a are incorrect. The answer to #3 should be “No†and #3a (Did the foreign trust appoint a U.S. agent? etc.) should be left blank. Again, the foreign trust is your individual TFSA account itself, not the trustee institution (RBC or whatever). Although a trustee institution may, for some purposes, be a qualified intermediary (primarily for purposes of withholding and remitting taxes) this is not happening with any TFSA I’ve ever seen, nor has any “U.S. agent†ever been appointed to do anything at all. Any such agent would have to have been specifically appointed as such in the terms of your account (in which any “trust†declaration or agreement appointing the trustee would also be found) and the scope of such agency clearly delineated. You yourself are in fact fulfilling all the duties required. You do not have or need an agent, and you cannot act as an agent on your own behalf. I suggest that the simplest, most accurate, as well as most prudent and expedient approach, is to simply check “Noâ€, and complete lines 15-18 of Part I as directed. (Note: The terms of your account were provided to you when you opened your account, or may be found on your financial institution’s website. If the terms do not appoint a trustee, your account is not a trust, may be treated as an ordinary bank account, and you do not need to file these forms. Nonetheless, you must, however, report any interest on 1040 Schedule “Bâ€.) ]
Part I
6a,b) CA
6c) date TFSA opened
7a) No
[7b) leave blank]
8) No
9a) Yes
10) Yes
Sched A
11a) No
Sched B
13) Yes
(a) date of contribution
(b) Cash
(c) USD equivalent of e.g. C$5000 (I used that day's exchange rate)
(d) same amount
(e) 0
(f) 0
*** Totals 0 ***
[As subsequently reconsidered by Hapless in his later post (24 July, 2010) column (i) is normally the same figure as in columns (c) & (d), and “totals†are not “0", but are the total of column (i). Also, (g) is usually “n/a†and h is usually “0". ]
14) all No
*** 15-18) skip since trust is a QI ***
[This is incorrect. As suggested under #3) above, #15-18 are not skipped, but filled out. #15 is yourself, being beneficiary as well as grantor (though this is admittedly somewhat at odds with the IRS’ use of the term as I will describe later). For a TFSA, #16 is the trust organisation (RBC or whatever). #17 is empty or “N/Aâ€, there being no one else with trust powers. #18 (b) (trust instrument) and (e) (financial statements) are checked “Yes†and (a), (c), (d) and (f) (which normally do not apply to a TFSA) are checked “Noâ€. If your TFSA is a trust, your account terms will constitute, in and of themselves, the “trust instrumentâ€. Then, for the first year, you ATTACH COPIES of the account terms (i.e. the “trust instrumentâ€) and the account financial statements. For the next two years, “Previously Attached†is then checked for (b) with the “Year Attached†blank filled in, with (e) “financial statements†being checked “Yes†with copies of only the yearly statements attached. The cycle begins again in the fourth year, in which the account terms must again be attached to the form ]
Sched C
19) No
Part II
20) N/A
21) CA, CA, date from 6c
22) No
23) amount from Form 3520-A, Part III, 11 " Total assets"
Part III
*** Will never be used since you're the owner. ***
*** All distribs (TFSA withdrawals) will either be trust "corpus" (return of your †“contributions) or income (which you paid tax on every year). Part III is the "wicked" part, so that's good! ***
[This is all correct. As the form instructions state, being a grantor trust, the amount of any distribution is reported on 3520-A. Part III would not be used except possibly in the unlikely event that distributions are received by a U.S. person other than the grantor.]
Part IV
Won't apply to TFSA.
3520-A
*** This is not the "kosher" form that the trust is supposed to file. It's the best-ability
“substitute†that you piece together from the TFSA monthly statements. ***
[N.B. This is very important to remember - as will be observed later. ]
Part I
*** 1-3) Copy from 3520 ***
[ Again, to be a bit more clear:
1 (a) - (c), remember, as on the 3520, the “trust†is your TFSA account No. at the financial institution, e.g. ‘RBC TFSA Account No. 777’.
2 - check “No†, then check boxes 2a & 2b “Yes†and the rest “No†, since the 3520-A is being attached to the 3520, to which the account terms are being attached, in turn.
3 - leave blank (as there is no U.S. agent) ]
4) ***Royal Trust Company, address "same as above" ***
[ Note that this is name of the “trustee†financial institution itself (minus the account name and No.) ]
5) No
6) 1
*** For signatures, I wrote (and did not sign) “This is a 'substitute 3520-A' per line 22 of Form 3520 " since Trustee does not provide the report. ***
[On the contrary, you should sign this and insert “Account Holder/Grantor†as “titleâ€. Although you are not the trustee, someone must certify that the information is correct, and that someone is you. ]
Part II
*** 1-8) scrape out of monthly statements, probably just interest and dividends
Only fill in capital gains if you sold something in the account.
I used annual average exchange rate for all these.***
[ Usually, for a TFSA, only #1 and #8 would be used. Being the year end total interest, I use the Dec. 31 exchange rate to remain consistent from year to year with other information. ]
9-15) if applicable (I had none)
16) add up
*** 17a,b) a distribution is a withdrawal (probably 0)***
[ If you have made a withdrawal, however, it must be reported in 17(a) and (b) ]
17c) not applicable for owner [i.e. grantor ]
Part III
*** Beginning will all be $0 (next year, copy this year's end) ***
[ That is, it would be -0- if the account was opened during the year of the return. Similarly, if you closed the account during the year, the “end of year†will be -0-. ]
I used Dec/31 exchange rate for all these end of year amounts:
1) cash and GICs
5) maybe if you have govt. bonds?
6) everything else
11) add up
12-16) all 0
17) beginning of year + transfers from 3520 Part I
18) line 11 assets minus line 17 income
20) add up
21) line 11 (matches line 20)
Page 3
*** 1-6) *** copy from 3520 ***
[Just to be clear: 1 - Name of Financial Institution with Account No. as previously, 2- check “Noâ€, 3 - leave blank (no U.S. agent), 4 - Name of Financial Institution & address as previously, 5 - Tax year, 6 - your name and address as previously, 6(h) - usually Austin, Texasâ€]
*** 7-8) ignore; this is for the trust co. sending the info to you ***
[This is incorrect. The trust company won’t be sending you anything of the sort. It is YOU who are filing this as an attached 3520-A form, not the trustee institution. For # 7, ATTACH a Sheet titled: “3520-A Foreign Grantor Trust Owner Statement Attachment Re: Item No. 7" stating to the effect:
“The grantor retains complete control and beneficial ownership of the subject savings account as sole account holder and beneficiary. Applicable I.R.C. sections include: s. 673 (reversionary interest); s. 674 (control); s. 676 (power to revoke); s. 677 (Income for benefit of grantor); s. 679 (U.S. beneficiary)â€
For # 8 - write in: “Account Terms†which are attached to your 3520/3520-A (as previously described under 3520, Part I, Schedule “Bâ€, #15-18 above ]
9) line 11 of Part III balance sheet
These get copied from Part II income statement, then applied to respective areas of 1040.
*** I didn't sign.***
[ This is incorrect - again, this should be signed by you, under the title of: “Account Holder/Grantorâ€. The IRS improperly refers to the “grantor†(actually the “trustor†or “settlorâ€) as the “ownerâ€. “Ownership†of a trust asset, however, is vested in the trustee. If ownership did not vest in the trustee, it would not be a trust, and you wouldn’t have to fill out these stupid forms. (Compare the approach of Revenue Canada, which bypasses all of this by simply refusing to recognise the existence of bare trusts at all for tax purposes.) ]
Page 4
*** This will never be used, since the owner is not a "beneficiary" in this sense.***
[It is correct that the page 4 “Beneficiary Statement†will never be used. In a grantor trust, the grantor is usually also the beneficiary, but the IRS use of the word “beneficiary†is exclusively concerned with beneficiaries other than the grantor, a situation ordinarily unlikely with a TFSA.]
Conclusion
I’ll just add a few further points.
A complication heretofore unmentioned is that the Internal Revenue Code section dealing with this form (26 U.S.C. s. 6048 and related I.R.S. Regulation 1.63-1) are at odds with the Form 3520 instructions as to when and where the Form is to be filed. Section 6048 and its regulation state that Form 3520 must be filed within 90 days of any “reportable eventâ€, i.e. the trust’s creation and any subsequent transfer of money into it, “or such later day as the secretary may prescribe“ and that the Form must be forwarded, not to Ogden as the instructions state, but to the “Director of International Operations, Internal Revenue Service, Washington, D.C., 20225".
It has thus been observed: “Conflicting authority exists for whether the grantor/owner must file Form 3520-A by the 15th day of the third month after the close of the trust’s tax year or within 90 days of the occurrence of a reportable event. This discrepancy is discussed further in the analysis below of CCA 201208028. Generally though, taxpayers file Form 3520-A by March 15. This date often comes as a surprise because the individual’s return is not due until April 15. It is possible to extend the 3520-A, on Form 7004, to September 15.â€
http://www.americanbar.org/publications ... 3520a.html
The above quote reflects the general confusion on this subject, even from reputable sources, in that the “within 90 days of a reportable event†“or such later day as the secretary may prescribe“ filing requirement is for 3520, not 3520-A. As the article quoted describes elsewhere, s. 6048's “later dayâ€, as now regarded, is that taken to be the date “prescribed†by the 3520 instructions: “In general, Form 3520 is due on the date that your income tax is due, including extensions.†i.e. April 15. However, that’s only “in generalâ€. The filing deadline for 3520-A is March 15th, and since, in the case of a TFSA “grantor trustâ€, the only 3520-A filed will be the one attached to your 3520, it seems to follow implicitly, if not explicitly, that the 3520 with its attached 3520-A must be filed in Ogden prior to March 15th. If you are tempted to think otherwise, study the ominous conclusion of 3520, Part II, #22: “See instructions for information on penaltiesâ€, which information, in the case of 3520-A, will include: “criminal penalties . . . for failure to file on timeâ€.
The trust isn’t sending the 3520-A, you are - attached to your 3520. Unless, and only if, a Form 7004 extension has been obtained, it is prudent to assume that the combined 3520/3520-A required filing deadline is not April 15, but March 15.
The 3520 instructions are viewed as not only having changed the s. 6048 filing frequency and deadline, but also the place of filing. As has been frequently mentioned, the 3520/3520-A forms are not sent to the Director of International Operations or attached to your income tax return, but to Ogden, Utah.
All interest or other income from any TFSA account, however, is to be scrupulously reported on your 1040 Schedule “Bâ€, such reporting being the sole reason for the existence of the entire form-filing merry-go-round (of which these forms are mere procedural incidents). Hence:
“The IRS will not impose a penalty for the failure to file the delinquent Forms 5471 and 3520 if there are no under-reported tax liabilities and you have not previously been contacted regarding an income tax examination or a request for delinquent returns.â€
http://www.irs.gov/Individuals/Internat ... -Interests
I hope any readers find this information sufficiently explanatory and logically consistent to be useful in their dealings with these hideous forms, and I extend to them my sympathy and best wishes. I sincerely thank “Hapless†(without whom I’d likely never have taken these forms on) and all the other contributors for their efforts, as well as Serbinski Accounting for maintaining this invaluable forum.
I’m going to add, for what it’s worth, comments on certain aspects of these forms which differ markedly from both the original posting and the practice of many subsequent commentators. Though not an expert, the approach described, which has been applied it to my own filings of these forms for the past five years without adverse (or any) comment from the IRS, reflects a number of years of experience in Canadian trust law.
In what follows I will reiterate Hapless’ original instructions with triple asterisks *** starred *** to set off areas which I will comment upon [in brackets following].
3520
*** Check 1st 2 boxes "US transferor" and "US owner" ***
[Just to be clear, 1) a-h is you and your address, and j is usually Austin, Texas. If you have withdrawn funds, the 3rd box “U.S. Receiver of a distribution†also comes into play, (in which case, despite what the box says, Part III is not completed, as discussed later.) So, depending on the nature of your account activity, any of the following box combinations are possible: 1 & 2, 2 & 3, or 1, 2 & 3.]
*** 2) RBC Direct Investing (TFSA, Acct No); EIN ; address ***
[Contrary to popular belief, an “EIN†is NOT required, To Wit:
“An EIN is not required for line 2b . . . c. when the trust in question is a grantor trust and all relevant information is being reported on the respective 1040". Procedural Update WI-03-1212-1961 www.irs.gov/pub/foia/ig/spder/IPU_CPR_W ... 2-1961.pdf
A grantor trust is a trust in which the grantor (or trustor) retains full beneficial control of the trust asset. A TFSA account holder retains full beneficial control of his account, so a TFSA is a grantor (or “bareâ€) trust. An EIN is not required since you, the grantor will, of course, be reporting “all relevant information†i.e. any interest or other income, on your 1040 Schedule “B†(required filing for anyone with any foreign account). Given this reality, I suggest any perceived requirement that the trust must file its own income tax return (Form 1041 or 1040NR) is also inapplicable. Also, take note that the “foreign trust†is your individual account at your financial institution. It is NOT the financial institution itself - a fact which provides a contextual clue for completion of the remainder of this form.]
*** 3) Yes ***
*** 3a) #2 is a Qualified Intermediary (QI), fax no...***
[Both 3 and 3a are incorrect. The answer to #3 should be “No†and #3a (Did the foreign trust appoint a U.S. agent? etc.) should be left blank. Again, the foreign trust is your individual TFSA account itself, not the trustee institution (RBC or whatever). Although a trustee institution may, for some purposes, be a qualified intermediary (primarily for purposes of withholding and remitting taxes) this is not happening with any TFSA I’ve ever seen, nor has any “U.S. agent†ever been appointed to do anything at all. Any such agent would have to have been specifically appointed as such in the terms of your account (in which any “trust†declaration or agreement appointing the trustee would also be found) and the scope of such agency clearly delineated. You yourself are in fact fulfilling all the duties required. You do not have or need an agent, and you cannot act as an agent on your own behalf. I suggest that the simplest, most accurate, as well as most prudent and expedient approach, is to simply check “Noâ€, and complete lines 15-18 of Part I as directed. (Note: The terms of your account were provided to you when you opened your account, or may be found on your financial institution’s website. If the terms do not appoint a trustee, your account is not a trust, may be treated as an ordinary bank account, and you do not need to file these forms. Nonetheless, you must, however, report any interest on 1040 Schedule “Bâ€.) ]
Part I
6a,b) CA
6c) date TFSA opened
7a) No
[7b) leave blank]
8) No
9a) Yes
10) Yes
Sched A
11a) No
Sched B
13) Yes
(a) date of contribution
(b) Cash
(c) USD equivalent of e.g. C$5000 (I used that day's exchange rate)
(d) same amount
(e) 0
(f) 0
*** Totals 0 ***
[As subsequently reconsidered by Hapless in his later post (24 July, 2010) column (i) is normally the same figure as in columns (c) & (d), and “totals†are not “0", but are the total of column (i). Also, (g) is usually “n/a†and h is usually “0". ]
14) all No
*** 15-18) skip since trust is a QI ***
[This is incorrect. As suggested under #3) above, #15-18 are not skipped, but filled out. #15 is yourself, being beneficiary as well as grantor (though this is admittedly somewhat at odds with the IRS’ use of the term as I will describe later). For a TFSA, #16 is the trust organisation (RBC or whatever). #17 is empty or “N/Aâ€, there being no one else with trust powers. #18 (b) (trust instrument) and (e) (financial statements) are checked “Yes†and (a), (c), (d) and (f) (which normally do not apply to a TFSA) are checked “Noâ€. If your TFSA is a trust, your account terms will constitute, in and of themselves, the “trust instrumentâ€. Then, for the first year, you ATTACH COPIES of the account terms (i.e. the “trust instrumentâ€) and the account financial statements. For the next two years, “Previously Attached†is then checked for (b) with the “Year Attached†blank filled in, with (e) “financial statements†being checked “Yes†with copies of only the yearly statements attached. The cycle begins again in the fourth year, in which the account terms must again be attached to the form ]
Sched C
19) No
Part II
20) N/A
21) CA, CA, date from 6c
22) No
23) amount from Form 3520-A, Part III, 11 " Total assets"
Part III
*** Will never be used since you're the owner. ***
*** All distribs (TFSA withdrawals) will either be trust "corpus" (return of your †“contributions) or income (which you paid tax on every year). Part III is the "wicked" part, so that's good! ***
[This is all correct. As the form instructions state, being a grantor trust, the amount of any distribution is reported on 3520-A. Part III would not be used except possibly in the unlikely event that distributions are received by a U.S. person other than the grantor.]
Part IV
Won't apply to TFSA.
3520-A
*** This is not the "kosher" form that the trust is supposed to file. It's the best-ability
“substitute†that you piece together from the TFSA monthly statements. ***
[N.B. This is very important to remember - as will be observed later. ]
Part I
*** 1-3) Copy from 3520 ***
[ Again, to be a bit more clear:
1 (a) - (c), remember, as on the 3520, the “trust†is your TFSA account No. at the financial institution, e.g. ‘RBC TFSA Account No. 777’.
2 - check “No†, then check boxes 2a & 2b “Yes†and the rest “No†, since the 3520-A is being attached to the 3520, to which the account terms are being attached, in turn.
3 - leave blank (as there is no U.S. agent) ]
4) ***Royal Trust Company, address "same as above" ***
[ Note that this is name of the “trustee†financial institution itself (minus the account name and No.) ]
5) No
6) 1
*** For signatures, I wrote (and did not sign) “This is a 'substitute 3520-A' per line 22 of Form 3520 " since Trustee does not provide the report. ***
[On the contrary, you should sign this and insert “Account Holder/Grantor†as “titleâ€. Although you are not the trustee, someone must certify that the information is correct, and that someone is you. ]
Part II
*** 1-8) scrape out of monthly statements, probably just interest and dividends
Only fill in capital gains if you sold something in the account.
I used annual average exchange rate for all these.***
[ Usually, for a TFSA, only #1 and #8 would be used. Being the year end total interest, I use the Dec. 31 exchange rate to remain consistent from year to year with other information. ]
9-15) if applicable (I had none)
16) add up
*** 17a,b) a distribution is a withdrawal (probably 0)***
[ If you have made a withdrawal, however, it must be reported in 17(a) and (b) ]
17c) not applicable for owner [i.e. grantor ]
Part III
*** Beginning will all be $0 (next year, copy this year's end) ***
[ That is, it would be -0- if the account was opened during the year of the return. Similarly, if you closed the account during the year, the “end of year†will be -0-. ]
I used Dec/31 exchange rate for all these end of year amounts:
1) cash and GICs
5) maybe if you have govt. bonds?
6) everything else
11) add up
12-16) all 0
17) beginning of year + transfers from 3520 Part I
18) line 11 assets minus line 17 income
20) add up
21) line 11 (matches line 20)
Page 3
*** 1-6) *** copy from 3520 ***
[Just to be clear: 1 - Name of Financial Institution with Account No. as previously, 2- check “Noâ€, 3 - leave blank (no U.S. agent), 4 - Name of Financial Institution & address as previously, 5 - Tax year, 6 - your name and address as previously, 6(h) - usually Austin, Texasâ€]
*** 7-8) ignore; this is for the trust co. sending the info to you ***
[This is incorrect. The trust company won’t be sending you anything of the sort. It is YOU who are filing this as an attached 3520-A form, not the trustee institution. For # 7, ATTACH a Sheet titled: “3520-A Foreign Grantor Trust Owner Statement Attachment Re: Item No. 7" stating to the effect:
“The grantor retains complete control and beneficial ownership of the subject savings account as sole account holder and beneficiary. Applicable I.R.C. sections include: s. 673 (reversionary interest); s. 674 (control); s. 676 (power to revoke); s. 677 (Income for benefit of grantor); s. 679 (U.S. beneficiary)â€
For # 8 - write in: “Account Terms†which are attached to your 3520/3520-A (as previously described under 3520, Part I, Schedule “Bâ€, #15-18 above ]
9) line 11 of Part III balance sheet
These get copied from Part II income statement, then applied to respective areas of 1040.
*** I didn't sign.***
[ This is incorrect - again, this should be signed by you, under the title of: “Account Holder/Grantorâ€. The IRS improperly refers to the “grantor†(actually the “trustor†or “settlorâ€) as the “ownerâ€. “Ownership†of a trust asset, however, is vested in the trustee. If ownership did not vest in the trustee, it would not be a trust, and you wouldn’t have to fill out these stupid forms. (Compare the approach of Revenue Canada, which bypasses all of this by simply refusing to recognise the existence of bare trusts at all for tax purposes.) ]
Page 4
*** This will never be used, since the owner is not a "beneficiary" in this sense.***
[It is correct that the page 4 “Beneficiary Statement†will never be used. In a grantor trust, the grantor is usually also the beneficiary, but the IRS use of the word “beneficiary†is exclusively concerned with beneficiaries other than the grantor, a situation ordinarily unlikely with a TFSA.]
Conclusion
I’ll just add a few further points.
A complication heretofore unmentioned is that the Internal Revenue Code section dealing with this form (26 U.S.C. s. 6048 and related I.R.S. Regulation 1.63-1) are at odds with the Form 3520 instructions as to when and where the Form is to be filed. Section 6048 and its regulation state that Form 3520 must be filed within 90 days of any “reportable eventâ€, i.e. the trust’s creation and any subsequent transfer of money into it, “or such later day as the secretary may prescribe“ and that the Form must be forwarded, not to Ogden as the instructions state, but to the “Director of International Operations, Internal Revenue Service, Washington, D.C., 20225".
It has thus been observed: “Conflicting authority exists for whether the grantor/owner must file Form 3520-A by the 15th day of the third month after the close of the trust’s tax year or within 90 days of the occurrence of a reportable event. This discrepancy is discussed further in the analysis below of CCA 201208028. Generally though, taxpayers file Form 3520-A by March 15. This date often comes as a surprise because the individual’s return is not due until April 15. It is possible to extend the 3520-A, on Form 7004, to September 15.â€
http://www.americanbar.org/publications ... 3520a.html
The above quote reflects the general confusion on this subject, even from reputable sources, in that the “within 90 days of a reportable event†“or such later day as the secretary may prescribe“ filing requirement is for 3520, not 3520-A. As the article quoted describes elsewhere, s. 6048's “later dayâ€, as now regarded, is that taken to be the date “prescribed†by the 3520 instructions: “In general, Form 3520 is due on the date that your income tax is due, including extensions.†i.e. April 15. However, that’s only “in generalâ€. The filing deadline for 3520-A is March 15th, and since, in the case of a TFSA “grantor trustâ€, the only 3520-A filed will be the one attached to your 3520, it seems to follow implicitly, if not explicitly, that the 3520 with its attached 3520-A must be filed in Ogden prior to March 15th. If you are tempted to think otherwise, study the ominous conclusion of 3520, Part II, #22: “See instructions for information on penaltiesâ€, which information, in the case of 3520-A, will include: “criminal penalties . . . for failure to file on timeâ€.
The trust isn’t sending the 3520-A, you are - attached to your 3520. Unless, and only if, a Form 7004 extension has been obtained, it is prudent to assume that the combined 3520/3520-A required filing deadline is not April 15, but March 15.
The 3520 instructions are viewed as not only having changed the s. 6048 filing frequency and deadline, but also the place of filing. As has been frequently mentioned, the 3520/3520-A forms are not sent to the Director of International Operations or attached to your income tax return, but to Ogden, Utah.
All interest or other income from any TFSA account, however, is to be scrupulously reported on your 1040 Schedule “Bâ€, such reporting being the sole reason for the existence of the entire form-filing merry-go-round (of which these forms are mere procedural incidents). Hence:
“The IRS will not impose a penalty for the failure to file the delinquent Forms 5471 and 3520 if there are no under-reported tax liabilities and you have not previously been contacted regarding an income tax examination or a request for delinquent returns.â€
http://www.irs.gov/Individuals/Internat ... -Interests
I hope any readers find this information sufficiently explanatory and logically consistent to be useful in their dealings with these hideous forms, and I extend to them my sympathy and best wishes. I sincerely thank “Hapless†(without whom I’d likely never have taken these forms on) and all the other contributors for their efforts, as well as Serbinski Accounting for maintaining this invaluable forum.
- Mon May 11, 2015 3:20 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Reporting OAS & CPP/QPP and Form 8833
- Replies: 43
- Views: 46190
Nelsona,
With all respect, it is not that CPP/OAS/SS are, for Canadian residents, “not taxableâ€, it is that, according to the IRS, CPP/OAS/SS are “exempt from U.S. taxâ€. It is also not a matter of “how†to report it. According to the IRS’s 1040 instructions, if income is exempt, it is not to be reported at all.
There is a difference between being “Not Taxable†and “Exemptâ€. The IRS may indeed require that certain “nontaxable†income be reported on a 1040. However, as stated in the earlier quoted 1040 instructions, the IRS does not require “exempt†income to be reported. “Exempt†means that, at least for the purposes of U.S. income tax, it does not exist.
If you’d care to read further, you may find IRS Publication 525, “Taxable and Non-Taxable Income†helpful, where it states at p. 2: “Income which is taxable must be reported on your return and is subject to tax. Income which is nontaxable may have to be shown on your tax return, but is not taxable†(which it then goes on to discuss). If you can provide any examples of “exempt†(as opposed to “nontaxableâ€) income which is reportable, I’d be very interested.
I confess that I too initially confused “non-taxable†and “exempt†(a distinction uncommon in Canada). I also have to give credit where credit is due. In reviewing this thread, I noticed in your first post here (June 13, 2010): “Your OAS and CPP are exempt from US tax, per the article you cite. . . â€. I thought: “Exempt! That’s it! The issue is: “Is exempt income reportable? Eureka! Thank you Nelsona!â€
I do not recall “we†ever having mentioned the fact that the IRS, by regulation, specifically waives use of 8833 for social security and public pension income, suggesting that the IRS would prefer to do without 8833 as a “courtesy†gesture. In any event, I’m happy that, after all these many years, we are all now aware of this. (The IRS might appreciate a nice greeting card now and then, however.)
I think this forum exists to assist us in providing information to each other to help find our way through this maze. A week or two ago, I only believed with about 87% certainty that CPP income was not reportable, everything I’d seen from the IRS pointing in that direction. Thanks to you, Nelsona, that certainty has risen to 98% (& anything more K104XYZ hears from ETLA should cinch it). I’d never have done it without you.
Yes, one may include income on a 1040 which is not required, modify forms to accommodate unintended purposes, and file un-required forms in an attempt to cover every contingency. And, if all taxable income is coherently reported, there most likely will never be any complaint from the IRS.
CPP/OAS not being reportable is, however, in harmony with virtually everything I’ve seen in IRS literature, and I can think of nothing more elegant in this case than simply doing as the IRS has directed. That’s just my opinion, however, and I hope the information I have provided is useful in helping readers make their own decisions.
(I should also take this opportunity to add that the Canadian “Guaranteed Income Supplement†(GIS) and “Allowanceâ€, being, under paragraph 5(b) of Treaty article XVIII, “not subject to Canadian taxâ€, are also exempt from U.S. tax).
With all respect, it is not that CPP/OAS/SS are, for Canadian residents, “not taxableâ€, it is that, according to the IRS, CPP/OAS/SS are “exempt from U.S. taxâ€. It is also not a matter of “how†to report it. According to the IRS’s 1040 instructions, if income is exempt, it is not to be reported at all.
There is a difference between being “Not Taxable†and “Exemptâ€. The IRS may indeed require that certain “nontaxable†income be reported on a 1040. However, as stated in the earlier quoted 1040 instructions, the IRS does not require “exempt†income to be reported. “Exempt†means that, at least for the purposes of U.S. income tax, it does not exist.
If you’d care to read further, you may find IRS Publication 525, “Taxable and Non-Taxable Income†helpful, where it states at p. 2: “Income which is taxable must be reported on your return and is subject to tax. Income which is nontaxable may have to be shown on your tax return, but is not taxable†(which it then goes on to discuss). If you can provide any examples of “exempt†(as opposed to “nontaxableâ€) income which is reportable, I’d be very interested.
I confess that I too initially confused “non-taxable†and “exempt†(a distinction uncommon in Canada). I also have to give credit where credit is due. In reviewing this thread, I noticed in your first post here (June 13, 2010): “Your OAS and CPP are exempt from US tax, per the article you cite. . . â€. I thought: “Exempt! That’s it! The issue is: “Is exempt income reportable? Eureka! Thank you Nelsona!â€
I do not recall “we†ever having mentioned the fact that the IRS, by regulation, specifically waives use of 8833 for social security and public pension income, suggesting that the IRS would prefer to do without 8833 as a “courtesy†gesture. In any event, I’m happy that, after all these many years, we are all now aware of this. (The IRS might appreciate a nice greeting card now and then, however.)
I think this forum exists to assist us in providing information to each other to help find our way through this maze. A week or two ago, I only believed with about 87% certainty that CPP income was not reportable, everything I’d seen from the IRS pointing in that direction. Thanks to you, Nelsona, that certainty has risen to 98% (& anything more K104XYZ hears from ETLA should cinch it). I’d never have done it without you.
Yes, one may include income on a 1040 which is not required, modify forms to accommodate unintended purposes, and file un-required forms in an attempt to cover every contingency. And, if all taxable income is coherently reported, there most likely will never be any complaint from the IRS.
CPP/OAS not being reportable is, however, in harmony with virtually everything I’ve seen in IRS literature, and I can think of nothing more elegant in this case than simply doing as the IRS has directed. That’s just my opinion, however, and I hope the information I have provided is useful in helping readers make their own decisions.
(I should also take this opportunity to add that the Canadian “Guaranteed Income Supplement†(GIS) and “Allowanceâ€, being, under paragraph 5(b) of Treaty article XVIII, “not subject to Canadian taxâ€, are also exempt from U.S. tax).
- Sat May 09, 2015 6:17 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Reporting OAS & CPP/QPP and Form 8833
- Replies: 43
- Views: 46190
rafa02: I can’t really give you any advice, but can point out the information from IRS publications 915 and the 1040 instructions, quoted in my earlier posting, which I encourage you to confirm for yourself. If the information cited from the IRS is correct - which is that, for Canadian residents, ...
- Sat May 09, 2015 6:12 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Reporting OAS & CPP/QPP and Form 8833
- Replies: 43
- Views: 46190
K104XYZ:
Thank you for passing on your interesting missive from IRS Tax Law Assistance.
As mentioned in an earlier post, I have seen instances where informal advice from the IRS has failed to distinguish between Canadian and U.S. residency. I think the message you received fits roughly into the same category, although the writer has made a valiant attempt to merge the Treaty obligations of the country of residence with those of the originating country. (The writer does describe the proper use of the often ignored worksheet - if CPP/OAS were reportable, that is . . . )
What is missing from the message you received is any acknowledgement that, for Canadian residents, CPP/OAS income is, as stated in IRS publications, exempt from U.S. taxes and consequently not reportable at all - the key word being “exemptâ€. This seems to be a classic example of tax legislation having reached a point of such complexity that the IRS cannot give advice without substantial danger of contradicting itself, as well as being an example of the often reported phenomenon of receiving different answers from different IRS sources to the same question.
It’s been my experience, however, that official publications are more thoroughly vetted to ensure that they accurately reflect statute and regulation. If I were you, I’d be tempted to reply to the message, cite the contradictory information found in Pub. 915 and the 1040 Instructions quoted in my earlier post, and ask if CPP/OAS benefits are no longer exempt from U.S. taxation. If so, I’d ask what date that change occurred, and that the IRS please cite the statute, regulation, and/or treaty which accomplished that change.
Thank you for passing on your interesting missive from IRS Tax Law Assistance.
As mentioned in an earlier post, I have seen instances where informal advice from the IRS has failed to distinguish between Canadian and U.S. residency. I think the message you received fits roughly into the same category, although the writer has made a valiant attempt to merge the Treaty obligations of the country of residence with those of the originating country. (The writer does describe the proper use of the often ignored worksheet - if CPP/OAS were reportable, that is . . . )
What is missing from the message you received is any acknowledgement that, for Canadian residents, CPP/OAS income is, as stated in IRS publications, exempt from U.S. taxes and consequently not reportable at all - the key word being “exemptâ€. This seems to be a classic example of tax legislation having reached a point of such complexity that the IRS cannot give advice without substantial danger of contradicting itself, as well as being an example of the often reported phenomenon of receiving different answers from different IRS sources to the same question.
It’s been my experience, however, that official publications are more thoroughly vetted to ensure that they accurately reflect statute and regulation. If I were you, I’d be tempted to reply to the message, cite the contradictory information found in Pub. 915 and the 1040 Instructions quoted in my earlier post, and ask if CPP/OAS benefits are no longer exempt from U.S. taxation. If so, I’d ask what date that change occurred, and that the IRS please cite the statute, regulation, and/or treaty which accomplished that change.
- Sat May 09, 2015 6:01 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Reporting OAS & CPP/QPP and Form 8833
- Replies: 43
- Views: 46190
I have now had the opportunity to look into this a bit further.
It’s been suggested that under Article XVIII of the Treaty (i.e. the “Convention between Canada and the U.S. with respect to Taxes on Income and on Capitalâ€), pension income is treated similarly to social security benefits (CPP/OAS). Paragraph 1 says, to paraphrase, that pensions may be taxed both in the recipient’s country of residence and in the country where the pension arises. Paragraph 3(a) then defines “pension†to exclude “any benefit referred to in paragraph 5". Paragraph 5 (social security benefits, i.e CPP/OAS) says, to paraphrase, that CPP and U.S. social security benefits are only taxable in the recipient’s country of residence. Pensions and social security benefits are thus treated fundamentally differently in that social security benefits (CPP/OAS) are only taxable in the recipient’s country of residence, whereas pensions are taxable both in the country of residence and the country of origin. Given this difference, I cannot see any basis on which to compare the requirements of line 16 with the issue at hand (being whether or not CPP/OAS benefits are reportable on line 20 by Canadian residents).
http://www.fin.gc.ca/treaties-conventions/usa_-eng.asp
Given that, under the Treaty, CPP/OAS is taxable in the U.S. for U.S. residents, I agree that lines 20a and 20b are certainly relevant, but only for U.S. residents, which the IRS accordingly describes in its Publication 915 “Social Security and Equivalent Railroad Benefits†at p. 5 :
“Under income tax treaties with Canada and Germany, social security benefits paid by those countries to U.S. residents are treated for U.S. income tax purposes as if they were paid under the social security legislation of the United States. If you receive social security benefits from Canada or Germany, include them on line 1 of Worksheet 1, shown later.†[p. 16]
www.irs.gov/pub/irs-pdf/p915.pdf at pp. 5 & 16
There isn’t the slightest hint in Pub. 515 of any intention on the part of the IRS that Canadian residents are to treat social security (CPP/OAS) benefits the same way. Instead, the IRS states on pp. 4 & 5 that benefits received by residents of Canada “are exempt from U.S. taxâ€, which is reiterated on p. 21:
“Benefits received by residents of Canada, Egypt, Germany, Ireland, Israel, Italy, Japan, Romania, and the United Kingdom are exempt from U.S. tax.â€.
www.irs.gov/pub/irs-pdf/p915.pdf at pp. 4, 5 & 21
The IRS discusses income which is “exempt†from U.S. tax in the Form 1040 Instructions at p. 20:
“Generally, you must report all income except income that is exempt from tax by lawâ€;
stated more specifically in the paragraph following:
“You must report all income, such as interest, dividends, and pensions, from sources outside the United States unless exempt by law or by a tax treaty.â€
http://www.irs.gov/pub/irs-pdf/i1040gi.pdf at p. 20 (under “Foreign-Source Incomeâ€)
In short, the IRS has stated quite explicitly that:
(a) CPP/OAS income is, for Canadian residents, exempt from U.S. tax;
(b) income which is exempt from U.S. tax is not reportable; and
(c) the use of Form 8833 is waived for purposes of social security and other public pensions.
Based on the unequivocal statements found in official IRS publications, I suggest, in the interests of moving on, that it is reasonable to conclude that CPP/OAS income is not reportable on a Canadian resident’s 1040 (whether on line 20a or anywhere else) and Form 8833 is completely inapplicable.
I hope this has been helpful.
It’s been suggested that under Article XVIII of the Treaty (i.e. the “Convention between Canada and the U.S. with respect to Taxes on Income and on Capitalâ€), pension income is treated similarly to social security benefits (CPP/OAS). Paragraph 1 says, to paraphrase, that pensions may be taxed both in the recipient’s country of residence and in the country where the pension arises. Paragraph 3(a) then defines “pension†to exclude “any benefit referred to in paragraph 5". Paragraph 5 (social security benefits, i.e CPP/OAS) says, to paraphrase, that CPP and U.S. social security benefits are only taxable in the recipient’s country of residence. Pensions and social security benefits are thus treated fundamentally differently in that social security benefits (CPP/OAS) are only taxable in the recipient’s country of residence, whereas pensions are taxable both in the country of residence and the country of origin. Given this difference, I cannot see any basis on which to compare the requirements of line 16 with the issue at hand (being whether or not CPP/OAS benefits are reportable on line 20 by Canadian residents).
http://www.fin.gc.ca/treaties-conventions/usa_-eng.asp
Given that, under the Treaty, CPP/OAS is taxable in the U.S. for U.S. residents, I agree that lines 20a and 20b are certainly relevant, but only for U.S. residents, which the IRS accordingly describes in its Publication 915 “Social Security and Equivalent Railroad Benefits†at p. 5 :
“Under income tax treaties with Canada and Germany, social security benefits paid by those countries to U.S. residents are treated for U.S. income tax purposes as if they were paid under the social security legislation of the United States. If you receive social security benefits from Canada or Germany, include them on line 1 of Worksheet 1, shown later.†[p. 16]
www.irs.gov/pub/irs-pdf/p915.pdf at pp. 5 & 16
There isn’t the slightest hint in Pub. 515 of any intention on the part of the IRS that Canadian residents are to treat social security (CPP/OAS) benefits the same way. Instead, the IRS states on pp. 4 & 5 that benefits received by residents of Canada “are exempt from U.S. taxâ€, which is reiterated on p. 21:
“Benefits received by residents of Canada, Egypt, Germany, Ireland, Israel, Italy, Japan, Romania, and the United Kingdom are exempt from U.S. tax.â€.
www.irs.gov/pub/irs-pdf/p915.pdf at pp. 4, 5 & 21
The IRS discusses income which is “exempt†from U.S. tax in the Form 1040 Instructions at p. 20:
“Generally, you must report all income except income that is exempt from tax by lawâ€;
stated more specifically in the paragraph following:
“You must report all income, such as interest, dividends, and pensions, from sources outside the United States unless exempt by law or by a tax treaty.â€
http://www.irs.gov/pub/irs-pdf/i1040gi.pdf at p. 20 (under “Foreign-Source Incomeâ€)
In short, the IRS has stated quite explicitly that:
(a) CPP/OAS income is, for Canadian residents, exempt from U.S. tax;
(b) income which is exempt from U.S. tax is not reportable; and
(c) the use of Form 8833 is waived for purposes of social security and other public pensions.
Based on the unequivocal statements found in official IRS publications, I suggest, in the interests of moving on, that it is reasonable to conclude that CPP/OAS income is not reportable on a Canadian resident’s 1040 (whether on line 20a or anywhere else) and Form 8833 is completely inapplicable.
I hope this has been helpful.
- Mon May 04, 2015 2:58 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Reporting OAS & CPP/QPP and Form 8833
- Replies: 43
- Views: 46190
Thank you, Nelsona, for your thoughts, as well as for all your efforts on this forum generally, which I have found very helpful over the years. I would not be looking at the Form 8833 (not 8893 - my apologies) issue had an acquaintance not recently raised the question. I have now had a chance to look into the topic further, including other discussions on this forum.
In this thread, line 20 (Social Security) of Form 1040 is mentioned only as reportable as “0" with Form 8833 added to explain why. Other, later discussions suggest that CPP/OAS income be reported on line 20a with line 20b reported as “0", again with Form 8833 added for explanation. (I’ll just add at this point that a CPP/OAS income combination can exceed the 8833 threshold.)
With all respect, I do not believe Form 8833 is applicable at all, and, for Canadian residents, I disagree with the approach of reporting CPP/OAS income on Form 1040 (whether on line 20a or anywhere else). I am aware that some readers have been doing otherwise without complaint or difficulty. All I can say is that, as long as all taxable income ends up being reported coherently, I would be surprised if the IRS would ever complain about anything. I’ve never received an answer to any written communication and it cannot be bothered to provide the equivalent of a “notice of assessmentâ€. The only acknowledgment of a return even having been filed in the past was getting new forms the following year, and now there isn’t even that. Providing notification of tax return errors would obviously increase the IRS’s costs and workload exponentially.
I can say, for myself, that I have not reported CPP/OAS income on my 1040 returns for the past 5 years, nor have I filed any 8833s, also without comment from the IRS (which, as suggested, in itself signifies nothing). Specifically, I leave both 20a and 20b (and other inapplicable lines) blank, (or occasionally have put a zero in 20b) and I do not file an 8833.
I will attempt to explain my rationale. There being nothing entirely explicit mandating one approach over the other, this may be a bit lengthy, for which I apologise in advance. Except as otherwise mentioned, the circumstances discussed are those of a Canadian resident with CPP income filing a U.S. tax return.
It is agreed that, under the Treaty, CPP/OAS income is only taxable in Canada for Canadian residents. The corollary is that that same income is not taxable in the U.S. Being not taxable in the U.S., I suggest that CPP/OAS income is not reportable on a Canadian resident’s 1040. This is reflected, I believe, in the quoted IRS response to the question of where such income should be entered on a 1040: “If the recipient is a U.S. citizen . . . who is a resident of Canada, the benefits are taxable only in Canada.â€.
The suggested approach of reporting CPP etc. income on line 20a of 1040 appears, in my opinion, to confuse the reporting requirements of Canadian residents with those of U.S. residents. A U.S. resident, for whom CPP income is taxable only in the U.S., reports that income on 20a, which then leads into a worksheet to calculate the taxable portion. A Canadian resident, for whom such income is taxable only in Canada, reports that income on line 114 of his Canadian T1. CPP income is thus different from most other income in that most other income, being taxable in both countries, is reportable on both returns. What has been suggested is that the same CPP income reported on the Canadian T1 be also reported on 20a of the U.S. 1040, exactly as if it were taxable in the U.S., but instead of completing the worksheet calculation, an 8833 is attached to explain its shift to “0" on 20b.
I cannot find any support for the suggestion that, for Canadian residents, CPP income, despite the fact that it is not taxable in the U.S., is nonetheless reportable on the 1040. CPP being taxable only in Canada for Canadian residents, reporting it on 20a as if it were taxable in the U.S. also cannot be said to be in accord with the Treaty. To do so, in fact, might be viewed as the taxpayer taking a position, at least initially, that such income is outside the treaty (exactly the opposite of what is desired). To then, in effect, reclaim the position abandoned by having reported CPP/OAS income on 20a in the first place, an 8833 is filed. I cannot find any suggestion of such a procedure in any IRS instructions or literature. Rather the contrary.
The use of 8833 is governed by regulation (26 C.F.R. 301.6114-1) which includes the following:
"(c) Reporting requirement waived
(1) Pursuant to the authority contained in section 6114 (b), reporting is waived under this section with respect to any of the following return positions taken by the taxpayer:
. . .
(iv) That a treaty reduces or modifies the taxation of income derived from dependent personal services, pensions, annuities, social security and other public pensions, . . . "
https://www.law.cornell.edu/cfr/text/26/301.6114-1
As mentioned earlier in this thread, the IRS refers to this waiver elsewhere:
"Exceptions - You do not have to file Form 8833 for any of the following situations: . . .
. . . You claim a treaty exemption that reduces or modifies the taxation of income from . . . social security and other public pensions . . . â€
http://www.irs.gov/Individuals/Internat ... y-Benefits
This regulation contradicts any suggestion that the Treaty position on foreign public pensions must be pointed out to the IRS in each individual case by filing 8833, or that it is at least good practice to do so. I suggest that it is precisely because the Treaty is both recognised and applied across the board that the IRS unequivocally waives any 8833 reporting requirement for public pensions. Further, the only authoritative source of information concerning CPP/OAS income being the Canadian government, there should be no basis for any concern of any future misinterpretation by the IRS of such income being other than a public pension exempt from U.S. taxation. It would seem to me, on the contrary, that if anything is likely to raise eyebrows, it would be reporting non-taxable income as taxable only to then subtract it with a non-prescribed form.
I am aware that other sources exist which are in agreement with the 20a /8833 approach, and that reports exist of informal advice from the IRS which appear also to confuse the respective Treaty implications of Canadian and U.S. residency. However, given the explicit and definitive statements found in both the regulations and the Treaty, bolstered by other IRS references to the subject, those sources appear incorrect.
Since both approaches have the same end result, and the IRS is unlikely to complain, it may all, in the end, be much ado about nothing. The method I use, however, resolves, I believe, the contradictions found in IRS regulation and literature, to say nothing of the advantage of: One Less Form.
I hope this has been helpful, and express my appreciation for this forum, its participants, and their patience.
In this thread, line 20 (Social Security) of Form 1040 is mentioned only as reportable as “0" with Form 8833 added to explain why. Other, later discussions suggest that CPP/OAS income be reported on line 20a with line 20b reported as “0", again with Form 8833 added for explanation. (I’ll just add at this point that a CPP/OAS income combination can exceed the 8833 threshold.)
With all respect, I do not believe Form 8833 is applicable at all, and, for Canadian residents, I disagree with the approach of reporting CPP/OAS income on Form 1040 (whether on line 20a or anywhere else). I am aware that some readers have been doing otherwise without complaint or difficulty. All I can say is that, as long as all taxable income ends up being reported coherently, I would be surprised if the IRS would ever complain about anything. I’ve never received an answer to any written communication and it cannot be bothered to provide the equivalent of a “notice of assessmentâ€. The only acknowledgment of a return even having been filed in the past was getting new forms the following year, and now there isn’t even that. Providing notification of tax return errors would obviously increase the IRS’s costs and workload exponentially.
I can say, for myself, that I have not reported CPP/OAS income on my 1040 returns for the past 5 years, nor have I filed any 8833s, also without comment from the IRS (which, as suggested, in itself signifies nothing). Specifically, I leave both 20a and 20b (and other inapplicable lines) blank, (or occasionally have put a zero in 20b) and I do not file an 8833.
I will attempt to explain my rationale. There being nothing entirely explicit mandating one approach over the other, this may be a bit lengthy, for which I apologise in advance. Except as otherwise mentioned, the circumstances discussed are those of a Canadian resident with CPP income filing a U.S. tax return.
It is agreed that, under the Treaty, CPP/OAS income is only taxable in Canada for Canadian residents. The corollary is that that same income is not taxable in the U.S. Being not taxable in the U.S., I suggest that CPP/OAS income is not reportable on a Canadian resident’s 1040. This is reflected, I believe, in the quoted IRS response to the question of where such income should be entered on a 1040: “If the recipient is a U.S. citizen . . . who is a resident of Canada, the benefits are taxable only in Canada.â€.
The suggested approach of reporting CPP etc. income on line 20a of 1040 appears, in my opinion, to confuse the reporting requirements of Canadian residents with those of U.S. residents. A U.S. resident, for whom CPP income is taxable only in the U.S., reports that income on 20a, which then leads into a worksheet to calculate the taxable portion. A Canadian resident, for whom such income is taxable only in Canada, reports that income on line 114 of his Canadian T1. CPP income is thus different from most other income in that most other income, being taxable in both countries, is reportable on both returns. What has been suggested is that the same CPP income reported on the Canadian T1 be also reported on 20a of the U.S. 1040, exactly as if it were taxable in the U.S., but instead of completing the worksheet calculation, an 8833 is attached to explain its shift to “0" on 20b.
I cannot find any support for the suggestion that, for Canadian residents, CPP income, despite the fact that it is not taxable in the U.S., is nonetheless reportable on the 1040. CPP being taxable only in Canada for Canadian residents, reporting it on 20a as if it were taxable in the U.S. also cannot be said to be in accord with the Treaty. To do so, in fact, might be viewed as the taxpayer taking a position, at least initially, that such income is outside the treaty (exactly the opposite of what is desired). To then, in effect, reclaim the position abandoned by having reported CPP/OAS income on 20a in the first place, an 8833 is filed. I cannot find any suggestion of such a procedure in any IRS instructions or literature. Rather the contrary.
The use of 8833 is governed by regulation (26 C.F.R. 301.6114-1) which includes the following:
"(c) Reporting requirement waived
(1) Pursuant to the authority contained in section 6114 (b), reporting is waived under this section with respect to any of the following return positions taken by the taxpayer:
. . .
(iv) That a treaty reduces or modifies the taxation of income derived from dependent personal services, pensions, annuities, social security and other public pensions, . . . "
https://www.law.cornell.edu/cfr/text/26/301.6114-1
As mentioned earlier in this thread, the IRS refers to this waiver elsewhere:
"Exceptions - You do not have to file Form 8833 for any of the following situations: . . .
. . . You claim a treaty exemption that reduces or modifies the taxation of income from . . . social security and other public pensions . . . â€
http://www.irs.gov/Individuals/Internat ... y-Benefits
This regulation contradicts any suggestion that the Treaty position on foreign public pensions must be pointed out to the IRS in each individual case by filing 8833, or that it is at least good practice to do so. I suggest that it is precisely because the Treaty is both recognised and applied across the board that the IRS unequivocally waives any 8833 reporting requirement for public pensions. Further, the only authoritative source of information concerning CPP/OAS income being the Canadian government, there should be no basis for any concern of any future misinterpretation by the IRS of such income being other than a public pension exempt from U.S. taxation. It would seem to me, on the contrary, that if anything is likely to raise eyebrows, it would be reporting non-taxable income as taxable only to then subtract it with a non-prescribed form.
I am aware that other sources exist which are in agreement with the 20a /8833 approach, and that reports exist of informal advice from the IRS which appear also to confuse the respective Treaty implications of Canadian and U.S. residency. However, given the explicit and definitive statements found in both the regulations and the Treaty, bolstered by other IRS references to the subject, those sources appear incorrect.
Since both approaches have the same end result, and the IRS is unlikely to complain, it may all, in the end, be much ado about nothing. The method I use, however, resolves, I believe, the contradictions found in IRS regulation and literature, to say nothing of the advantage of: One Less Form.
I hope this has been helpful, and express my appreciation for this forum, its participants, and their patience.
- Tue Apr 28, 2015 4:58 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Reporting OAS & CPP/QPP and Form 8833
- Replies: 43
- Views: 46190
- Sat Feb 21, 2015 5:30 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Closed TFSAs in 2014, are 3520/3520A forms still required?
- Replies: 12
- Views: 9028
I’d just like to add that a trust arrangement between an account holder and a financial institution must be stated in writing (i.e. an “express trustâ€). The place where a bank “says†(or, more commonly, “declaresâ€) that a given account is a trust is in the terms of that account (usually given to the account holder when the account is opened, and/or found (often buried) on the institution’s website).
If an account is a trust, its terms will include a form of trust agreement, or declaration of trust, in which it is expressly stated that the institution is appointed trustee for the account holder (using words such as: “We agree to accept the position as trustee of the TFSA . . .â€; “The Trustee . . . agrees to act as trustee of the account on behalf of the holder . . .â€; or We, . . . hereby declare that we accept the trust created between us and the Holder when the Application was signed . . .â€). There must be some form of trust agreement, and, indeed, 3520/3520-A require that that agreement, the “trust instrument†(the document which created the trust) be attached to those forms.
Unless an intention to create a trust is expressly stated within, or appended to, the terms of a given account, that account is not a trust.
If an account is a trust, its terms will include a form of trust agreement, or declaration of trust, in which it is expressly stated that the institution is appointed trustee for the account holder (using words such as: “We agree to accept the position as trustee of the TFSA . . .â€; “The Trustee . . . agrees to act as trustee of the account on behalf of the holder . . .â€; or We, . . . hereby declare that we accept the trust created between us and the Holder when the Application was signed . . .â€). There must be some form of trust agreement, and, indeed, 3520/3520-A require that that agreement, the “trust instrument†(the document which created the trust) be attached to those forms.
Unless an intention to create a trust is expressly stated within, or appended to, the terms of a given account, that account is not a trust.
- Fri Feb 20, 2015 5:01 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Taking stab at 3520, -A for TFSA
- Replies: 157
- Views: 216283
uscannew:
1. Part 1, #5 - the answer is: “Noâ€. As very vaguely hinted at in the instructions, in the case of a grantor trust, “another person†would be someone other than you, the “owner†(grantor).
2. Page 3, #9 - you are correct, this would be zero for an account closed out during the year.
As far as filing an amended return, it has been my experience so far that as long as the account income is clearly indicated and properly reported on your 1040, the IRS doesn’t seem to bother itself much with other form errors. I’d be surprised if 10% of the forms it receives are filled out entirely correctly. If you want to be conscientious, send a cover letter with your 2014 return (a good idea anyway) mentioning that your 2013 return contained error such and such.
1. Part 1, #5 - the answer is: “Noâ€. As very vaguely hinted at in the instructions, in the case of a grantor trust, “another person†would be someone other than you, the “owner†(grantor).
2. Page 3, #9 - you are correct, this would be zero for an account closed out during the year.
As far as filing an amended return, it has been my experience so far that as long as the account income is clearly indicated and properly reported on your 1040, the IRS doesn’t seem to bother itself much with other form errors. I’d be surprised if 10% of the forms it receives are filled out entirely correctly. If you want to be conscientious, send a cover letter with your 2014 return (a good idea anyway) mentioning that your 2013 return contained error such and such.
- Fri Feb 20, 2015 4:30 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Taking stab at 3520, -A for TFSA
- Replies: 157
- Views: 216283
nohairleft:
I don’t know if a trust is strictly necessary even for an “investment†TFSA. The Income Tax Act section cited says essentially that if the institution is in the business of being a trustee, it may hold TFSAs as trusts, without reference to the account contents.
I do see, however, that the “Tangerine Tax-Free Guaranteed Investment (GIC)†(which I think you are referring to) is structured as a trust (the terms of which provide a good example of typical trust language - to be found about mid-way down the page, under “Declaration of Trust - Tangerine Investment Funds Limited - Tax-Free Savings Accountâ€), here:
http://www.tangerine.ca/en/legal/mutual ... index.html
Rather than glorified bank accounts, I would say that TFSAs are bank accounts registered as TFSAs. TFSA “deposit†accounts may also be structured as trusts, however, so you can't make any assumptions. You must check the terms of your individual TFSA, "deposit" or "investment", to find out whether or not it is structured as a trust.
Whether the paperwork is worth it is an open question, but if you shop around, there are “deposit†TFSAs at 2.5%, which is a bit more attractive.
I don’t know if a trust is strictly necessary even for an “investment†TFSA. The Income Tax Act section cited says essentially that if the institution is in the business of being a trustee, it may hold TFSAs as trusts, without reference to the account contents.
I do see, however, that the “Tangerine Tax-Free Guaranteed Investment (GIC)†(which I think you are referring to) is structured as a trust (the terms of which provide a good example of typical trust language - to be found about mid-way down the page, under “Declaration of Trust - Tangerine Investment Funds Limited - Tax-Free Savings Accountâ€), here:
http://www.tangerine.ca/en/legal/mutual ... index.html
Rather than glorified bank accounts, I would say that TFSAs are bank accounts registered as TFSAs. TFSA “deposit†accounts may also be structured as trusts, however, so you can't make any assumptions. You must check the terms of your individual TFSA, "deposit" or "investment", to find out whether or not it is structured as a trust.
Whether the paperwork is worth it is an open question, but if you shop around, there are “deposit†TFSAs at 2.5%, which is a bit more attractive.
- Thu Feb 19, 2015 11:57 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Taking stab at 3520, -A for TFSA
- Replies: 157
- Views: 216283
nohairleft:
Yes, the “Tangerine†(formerly "ING") TFSA account is not structured as a trust. If you are interested, the terms of that account (Part “Hâ€) may be viewed here:
http://www.tangerine.ca/en/legal/accoun ... .html#tfsa
By way of contrast, the account terms of my current TFSA (which IS structured as a trust) are titled “Declaration of Trustâ€, and declare: “We agree to accept the position as trustee of the TFSA . . .†There is nothing remotely similar in the “Tangerine†TFSA terms. There is no appointment of a trustee and the word “trust†does not appear even once.
A trust relationship with a bank cannot arise out of thin air. Accordingly, 3520/3520-A ask that the “trust instrument†(i.e. the document which created the trust) be attached to the forms. If a TFSA is a trust, that trust instrument will be found within, or appended to, that TFSA’s account terms (to be found on the organisation’s website . . . somewhere).
I do not know why some banks choose to structure their TFSAs as trusts, but it was obviously unnecessary.
Yes, the “Tangerine†(formerly "ING") TFSA account is not structured as a trust. If you are interested, the terms of that account (Part “Hâ€) may be viewed here:
http://www.tangerine.ca/en/legal/accoun ... .html#tfsa
By way of contrast, the account terms of my current TFSA (which IS structured as a trust) are titled “Declaration of Trustâ€, and declare: “We agree to accept the position as trustee of the TFSA . . .†There is nothing remotely similar in the “Tangerine†TFSA terms. There is no appointment of a trustee and the word “trust†does not appear even once.
A trust relationship with a bank cannot arise out of thin air. Accordingly, 3520/3520-A ask that the “trust instrument†(i.e. the document which created the trust) be attached to the forms. If a TFSA is a trust, that trust instrument will be found within, or appended to, that TFSA’s account terms (to be found on the organisation’s website . . . somewhere).
I do not know why some banks choose to structure their TFSAs as trusts, but it was obviously unnecessary.
- Tue Feb 17, 2015 12:17 pm
- Forum: Canada / United States Tax & Accounting
- Topic: Taking stab at 3520, -A for TFSA
- Replies: 157
- Views: 216283
kylewkemp: I agree with sunnysga’s method. I’d just add for clarification that the distributions (withdrawals) are only shown in 3520-A Part II, lines 17a and 17b (not to be confused with line 17 in 3520-A Part III). Though factoring into the difference between the beginning and end of year bala...
- Tue Feb 17, 2015 11:52 am
- Forum: Canada / United States Tax & Accounting
- Topic: Taking stab at 3520, -A for TFSA
- Replies: 157
- Views: 216283
oswaldle1:
If your TFSA is structured as a trust, properly you would fill out the 3520/3520-A combination, checking, in your case, both the “Initial†and “Final†return boxes. The most important thing, however, is that any income from the TFSA be reported (usually on 1040 schedule “Bâ€), and if that income is reported, the substantive purpose of these forms will have been fulfilled.
Not all TFSAs are structured as trusts, however. Check your “terms of accountâ€. If your TFSA is not structured as a trust, it may be treated as an ordinary bank or investment account, and 3520/3520-A are not required.
If your TFSA is structured as a trust, properly you would fill out the 3520/3520-A combination, checking, in your case, both the “Initial†and “Final†return boxes. The most important thing, however, is that any income from the TFSA be reported (usually on 1040 schedule “Bâ€), and if that income is reported, the substantive purpose of these forms will have been fulfilled.
Not all TFSAs are structured as trusts, however. Check your “terms of accountâ€. If your TFSA is not structured as a trust, it may be treated as an ordinary bank or investment account, and 3520/3520-A are not required.
- Tue Feb 17, 2015 1:03 am
- Forum: Canada / United States Tax & Accounting
- Topic: Taking stab at 3520, -A for TFSA
- Replies: 157
- Views: 216283