How to fix failure to file 3520/3520-A

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maskdoll
Posts: 21
Joined: Sat Aug 17, 2019 12:40 am

How to fix failure to file 3520/3520-A

Post by maskdoll »

Dear hubby works in the US for 4+ years, and I am still working and living in Canada. So there is no reason for us to cancel RESP/TFSA. The first year, we hired an CPA to file US Tax return. She didn't file 3520/3520A. The following years, I filed returns. I didn't know we had to file 3520/3520A, the third year when I tried to fill the forms 3520/3520A, it's already passed the deadline. I also contacted People's trust and TD Canada Trust, they said they never dealt with US filing. Really?? Anyway, I haven't filed 3520/3520A so far.

This year I had filed an extension for my 1040. So I guess I have until Oct 15 for filing 3520. But not sure how to deal with missed deadline for 3520-A.
Is there an appropriate way to fix the failure of filing 3520/3520-A in the past? I heard it's not recommended to quietly provide these forms. Better to provide an explanation letter. Is it true? Will I get panalty if I fill them this year and IRS found that I didn't file in the previous years?

Many thanks.
CdnAmerican
Posts: 245
Joined: Tue Aug 30, 2011 12:15 am

Re: How to fix failure to file 3520/3520-A

Post by CdnAmerican »

Hi maskdoll, I'm not an expert, but think your best bet may be to file using the streamlined procedure. That was set up to accommodate Americans who made some kind of error or didn't realize that they had to file. I don't know if it would apply to you or not, but here's the link to get you started: https://www.irs.gov/individuals/interna ... ted-states . There's lots of info on this site about it too .. good luck!
Not a professional opinion.
SonicTraveller
Posts: 4
Joined: Mon Nov 11, 2019 12:33 pm

Re: How to fix failure to file 3520/3520-A

Post by SonicTraveller »

Hello maskdoll

Presumably you've already made your decision, but I wanted to chime in.

Having gone through the same decision some years ago (and choosing to file my TFSA as a foreign trust), my recommendation would be not to file as a trust. I can speak better for the TFSA account, but the RESP may be similar.

It's very possible the accounts in question do not even qualify as a foreign trust. This post gives a fairly good breakdown why these accounts, even though sometimes structured as an "Arrangement in Trust", may not be a trust for US tax purposes:

https://hodgen.com/canadian-tfsas-and-t ... tion-test/

Someone can chime in here if they've seen otherwise (and bear in mind - I'm not a tax practitioner), but having perused various forums I've not seen a case where the IRS pursued someone for a TFSA that failed to file as a foreign trust. I have however seen dozens of cases where the IRS applied the draconian "greater of $10,000 or 5% of assets" penalty for something as simple as a late filing of a single 3520 return (myself included - that is not a fun letter to open). It seems to be a penalty they apply automatically.

I would still make sure to report the accounts where necessary on your return, just not treat them as a foreign trust.

If you do choose to file those accounts as a TFSA, you will need to obtain an EIN for each 'trust', and then every year ensure to file a 3520 and (if your trustee doesn't provide one which is likely) a substitute 3520-A for each trust by the appropriate deadline. Each trust also needs a 1040NR. The $10k fines for these forms are enforced, so missing a deadline could result in a min $20k fine for both your accounts.

Speaking from my own experience, in your case I would let sleeping dogs lie.That being said - I'll make the same disclaimer as in the post I linked to - you've ultimately got to make your own decision based on what you're comfortable with.
Ron.Henderson
Posts: 81
Joined: Sun Jan 06, 2019 2:24 pm

Re: How to fix failure to file 3520/3520-A

Post by Ron.Henderson »

Stay the hell away from 3520 forms seems to be the best advice now that the penalty silliness has gotten out of hand.

For example: https://skltax.com/u-s-tax-implications ... red-plans/
adeboloj
Posts: 73
Joined: Fri Mar 24, 2017 10:50 am

Re: How to fix failure to file 3520/3520-A

Post by adeboloj »

@Ron.Henderson and 3520 Gurus,
I have read a number of posts on this forum that you people to stay away from 3520 & 3520-A due to IRS handling out 10k to U.S Residents recently.
So how do one go about the RESP accounts i.e. reporting on 1040?
I moved to the U.S after commuting for 4 years between Canada and U.S and happy to know that i filed 1040NR all those years, as there seems to be a lot of hassles with 1040 (resident tax).
My research indicated i can keep RESP, RRSP but just that I can not contribute into these accounts as a Non Resident of Canada which i did before leaving, sold all of the TFSA!!!
But seems RRSP is ok to keep until you switch it to money market or so but with RESP you will need to file 3520 form, so how do one go about this without IRS handling the 10k out (i read on a link that these errors has been rectified), OR should one not report this as trust on 1040 as mentioned by someone else on this forum?

Thank you
cqhg
Posts: 16
Joined: Fri Dec 14, 2018 11:18 pm

Re: How to fix failure to file 3520/3520-A

Post by cqhg »

---you may only report RESP / TFSA interests on 1040 Schedule B, RRSP doesn't need to be reported for tax.

I think if you didn't file 3520/3520A , so just close these two accounts immediately.

if you forget to send these two forms before due date, you will get the penalty 10K.

3520 due date: April 15
3520a due date: March 15

I have a feeling that they setup the complex laws just to trap us honest taxpayers.
Ron.Henderson
Posts: 81
Joined: Sun Jan 06, 2019 2:24 pm

Re: How to fix failure to file 3520/3520-A

Post by Ron.Henderson »

Like RRSP and RESP accounts, TFSA accounts are not required to be reported under FATCA. If you trust your Canadian bank not to "go above and beyond" by reporting accounts they don't need to report, then you can assume that the IRS will never learn about the TFSA accounts, and thus not declare them yourself. (Even better if you can avoid disclosing US person status to your Canadian bank, which prevents any form of FATCA reporting, but that might be difficult to do if they have a US address on file.)
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