IRS asking for a Form 1041 incorrectly

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CdnAmerican
Posts: 211
Joined: Tue Aug 30, 2011 12:15 am

IRS asking for a Form 1041 incorrectly

Post by CdnAmerican » Tue Jan 29, 2019 11:33 pm

I requested an EIN for a new Canadian RESP account that I'm assuming is a trust for IRS purposes. I wanted the EIN to be able to file the 3520/3520A. I called the IRS and they provided one, but when they followed this up with a letter, they said "Based on the information received from you, you must file the following form ..: Form 1041." But, this isn't accurate, as it's a foreign trust, and the beneficiary is a USC (not a non-resident alien, which would then require a 1041).

Should I simply send them a letter describing this, or just ignore it and send the 3520/3520A as I initially intended?
Not a professional opinion.

DrJFM
Posts: 9
Joined: Wed Jun 05, 2013 6:53 pm
Location: PEI

Re: IRS asking for a Form 1041 incorrectly

Post by DrJFM » Mon Apr 01, 2019 4:22 pm

When you requested the EIN for a Foreign Trust, the IRS likely assumed you are creating a new Trust Entity. This new Trust entity may well need an EIN to deal with all its employees busily creating trust after trust. What I am trying to convey is that you do not need an IRS EIN number unless you are going into the business of setting up trusts. Your bank or broker, like mine, does not do 3520A forms for RESP's etc. They might want an EIN if they were going to do 3520A reporting. You are gearing up to file a 3520 and that requires a substitute 3520A prepared by you, the trust Owner.

I have been doing these for over 10 years now and have never entered anything into the EIN field. I do, however, use a reference number year after year to correlate the 3520 to the 3520A and year to year correlation. The instructions for the 3520 state:

Line 1b(2). A reference ID number is required on
line 1b(2) only in cases where no EIN was entered for the
foreign trust on line 1b(1).

and go on to define the limits on the reference number -- basically, alphanumeric and less than 50 characters long. You must use a reference number for only one trust account and use the same one each year. You must use a unique number (for you and your filings, not for the world) for each account. I used R4 for one account and was not particularly concerned that another filer may have used the same reference number as long as I didn't use it for more than one of my accounts.

So -- forgo the use of your unnecessary and not pertinent EIN they sent you and leave it blank. Do assign a Reference ID of your invention to each account for which you are filing. It is the EIN of the Trust Holding Organization they want -- and they don't have an EIN or want you to get them one. You are filing a Substitute 3520A, I am not aware of any RESP granting organization that does 3520A's so might have bothered with an EIN or any that has appointed an official agent.

I changed RESP granting organizations at least twice (closing old RESP's and opening New) and collapsed two separate accounts into a Family account (moving from two 3520 sets to one) and finally dispersed all my money to my June graduating son(US citizen, helped him file too). It can be done.

I personally considered renunciation but ended up doing the following:
Stopped any RESP contributions to my accounts and my wife opened RESP accounts since she is a non US citizen.
Moved all RESP assets to a simple cash equivalent instrument that yielded only simple interest and was content with the 20% Government grant.
Closed a TFSA account since arguably they are trusts. Again, fully funded non-US wife's TFSA.
Make sure I only deal in freely traded stocks and no mutual funds. Have done some iShares that are listed on the NYSE. At this point, my investments are only in RRSP (RIF, now actually) or in my wife's account.
I am still mulling over renunciation...

Finally, the 3520A is supposed to be filed by Mar 15. You are filling a 3520 with a substituted 3520A attached but the IRS may still think they should have received this my March 15. I would include a letter explaining that you were waiting to receive a 3520A Owner's report and when you did not, you learned that you would have to file the substitute 3520A (attached). Next year I would file by March 15. I ended up filing a substitute 3520A and a separate 3520 that had a copy of the subsitute 3520 attached. I label each filing in a sealed envelope but do send both envelopes in one mailing envelope. There was some past reports of the IRS not wanting more than one filing at a time and I do recommend clearly sending in 1) A substitute 3520A and 2) A 3520 with a second attached copy of the 3520A. I also attached a letter each year stating that the filings were being done in a timely manner and providing contact info. and stating that no 3520 was provided.

When my son, (a US Beneficiary of a foreign trust) began withdrawing for education, he was "given" a beneficiary statement from my timely filed 3520A for his 3520 filing and this has been accepted to date (4 years and counting). I believe that the human (vs computerized) part of the IRS realizes that the whole foreign trust BS was not about $1000 dollars in interest in a Canadian RESP account but about the Trump foundation type stuff people with a lot more money than I might have going on.

As always, YMMV
James

CdnAmerican
Posts: 211
Joined: Tue Aug 30, 2011 12:15 am

Re: IRS asking for a Form 1041 incorrectly

Post by CdnAmerican » Wed Apr 10, 2019 1:10 am

Thanks again DrJFM! These are always the first forms I complete as they have the earliest deadline and the nastiest fine. I finished them this year in February. I wish I had not asked for the TIN, but I've got it now and I will assume that they will not require a 1041 next year; if they do, I will refer to the 3520 and its information which says (going by memory) that it replaces the 1041 for foreign trusts. I will cross my fingers and hope that works, noting that both forms go to the Ogden office so probably they've dealt with this before. in any event, the penalty is not crazy (like it is for the 3520's) so I won't stress about it too much … other than wishing I had taken your advice before initially applying for the TIN!
Not a professional opinion.

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