TFSA reporting for Canadian who moved to the US

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WhySoComplicated
Posts: 2
Joined: Tue May 05, 2020 1:07 am

TFSA reporting for Canadian who moved to the US

Post by WhySoComplicated » Tue May 05, 2020 1:35 am

I moved to the US last year in March 2019. My wife and I still have our TFSA's open. When I looked up what we needed to do to file the 3520 and 3520a, I had read from some others that they applied for an EIN which they used to report their TFSAs.

I've just received a letter from the IRS stating that I needed to submit Form 1041 a month ago. I was not aware I needed to fill out other forms than 3520 and 3520a.

Furthermore, the letter is ALSO saying that I need to file all the back dated tax returns starting from 2015, which is when I opened the TFSA. This makes zero sense as I was not a tax resident until March 21 2019.

I'm at a loss what to do, and I can't afford paying the thousands of dollars accountants require to file the paperwork for the TFSA. Please help!

MGeorge
Posts: 304
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Re: TFSA reporting for Canadian who moved to the US

Post by MGeorge » Thu Jun 04, 2020 8:04 am

Hello,

I file 3520/3520A for my TFSA, but regret it. There is very good set of legal arguments that the TFSA is not a trust. I believe the safest thing is to stay away from forms 3520/3520A. I've gotten scary letters saying that I filled them incorrectly, even though they were correct. It's like getting a robo letter assessing a $10k fine. I found out that, because I attached statements, their computer didn't read in the form data correctly, and they thought line 23 was blank (it wasn't).

Do a google search on "US tax classification of TFSAs" and read the document by Max Reed and decide if you agree with it.

In your situation, I would just update your tax returns for the time you were a US tax resident (2019) and include all of your TFSA income. If you need to file forms 8938, list the TFSA account as a PART V account. No need to spell out that it is a TFSA, treat it as an investment account.

Just as a disclosure, I'm moving all my TFSA assets to a non-registered account this year. I will close it and file a final 3520/3520A pair showing the final $0 balance and complete distribution out. This will satisfy the robots that scan 3520 data. Then, next year, I will open a new TFSA at a different financial institution and then treat it as an ordinary investment account on forms 1040, and 8938.
I'm not a lawyer or accountant, but that is what I'm doing based on my experience.
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MGeorge is neither an accounting nor taxation professional.

cullen
Posts: 41
Joined: Sun Mar 27, 2005 1:34 am
Location: Greenville SC

Re: TFSA reporting for Canadian who moved to the US

Post by cullen » Thu Jun 04, 2020 8:42 am

There is a possibility that the TFSAs will become exempt from information reporting - Last Feb the IRS exempted foreign trusts geared toward education, disability etc from the reporting and is allowing penalty abatement. They stated that other account classifications will be included shortly
Joe

MGeorge
Posts: 304
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Re: TFSA reporting for Canadian who moved to the US

Post by MGeorge » Fri Jun 05, 2020 8:58 am

Hi Cullen,

This is great news - thanks for providing this update!
Forbes has an article on it.
https://www.forbes.com/sites/robertwood ... 91e8a9598f

This should be the end of 3520/3520A reporting for TFSAs and RESPs.

The revenue procedure provided as a link in the Forbes article, specifically outlines foreign tax favored plans. Is it possible that the income in these plans is or will be exempt from US taxation?
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MGeorge is neither an accounting nor taxation professional.

cullen
Posts: 41
Joined: Sun Mar 27, 2005 1:34 am
Location: Greenville SC

Re: TFSA reporting for Canadian who moved to the US

Post by cullen » Fri Jun 05, 2020 11:49 am

Note :
"It applies only to trusts that are established and operated exclusively or almost exclusively to provide pension or retirement benefits, or to provide medical, disability, or educational benefits."

TFSAs do not fit these categories so we have to wait on additional inclusions
Joe

MGeorge
Posts: 304
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Re: TFSA reporting for Canadian who moved to the US

Post by MGeorge » Fri Jun 05, 2020 12:26 pm

Oh yeah, I just noticed that in section 5.04 "non-retirement foreign trusts"
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MGeorge is neither an accounting nor taxation professional.

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