RESPs with U.S Citizen Subsciber--any hope?

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hello_image1978
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Joined: Sat Jan 24, 2009 12:46 pm

RESPs with U.S Citizen Subsciber--any hope?

Post by hello_image1978 »

As a U.S. citizen living as a permanent resident in Canada indefinitely, I naively opened an RESP for my daughter in a vain attempt to provide her with the financial security long-term college savings provides. Now I am panicking because I had no idea how complicated this RESP is to report to the IRS--and have actually scheduled a consultation with Serbinski Firms. I am seriously hoping that I can meet the March 15 deadline to file form 3520-A but am afraid I might be too late, even with their help.

I have been doing all sorts of reading about tax law and Foreign Trust reporting in the meantime in an attempt to educate myself and not screw things up permanently for myself or my dual-citizen daughter. After reading this (http://meetings.abanet.org/webupload/co ... orting.pdf) it seems that the American Bar Association is trying to change tax laws to make the reporting of Foreign Trusts simpler.

I don't have a question, per se, but has anyone else here gone through this process successfully? Is there any hope? According to the ABA, it seems that even the most skilled CPAs and tax preparers don't file forms 3520 and 3520-A correctly, because it is so difficult to do so.
stewak2
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RESP

Post by stewak2 »

Is your daughter's mother a USC? If not, and if she was co-owner of the RESP, you may be able to get your name removed from it entirely, so you won't have to go through this again next year. You could just report the gains, if any, on your 2008 return, and, I suppose, your 2009 return, and remove yourself from the RESP for 2010. I was able to do this with my Financial Institution. Of course she will have to fund the RESP, not you,
in 2009 and forward.
I'm not sure how your daughter's dual citizenship will play out when it is time to collapse the RESP. I have the same issue with my son. I believe it will be OK, since it will be no different from IRS view than if his Canadian mother had just written him a cheque.
Dissenting opinions?
nelsona
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Post by nelsona »

agree
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hello_image1978
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Post by hello_image1978 »

My husband is a Canadian citizen, but a super busy one, and in this case on the day I did the RESP he wasn't there. But I think I am going to definitely see what the possibilities are at Scotiabank, even if it involves closing the thing out and opening another one with my name nowhere near it. My daughter is a U.S. citizen though, so someday I suppose she'll have to do form 3520 as a beneficiary.

Maybe it won't be so bad once I figure out the correct way to complete the form--the account doesn't earn enough interest or CESG money to really impact my U.S. taxes. But I suppose it might someday.
Diskdoctor
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Post by Diskdoctor »

I wish I'd known more about this about 6 years ago. Our situation is we have family RESPs for our children that we've contributed to for 6 years with both my wife and I listed as contributors. My wife is a dual citizen and I'm Canadian. She hasn't been filing U.S. taxes because her income has not been high enough to meet the minimum level to require filing. This is perhaps a mistake in itself but I digress... I've just started investigating the RESP issue. If anybody has advice for us it would be appreciated.

What difference does it make if the beneficiary (child) is not a U.S. citizen (only Canadian)? Do the same forms need to be filed?

Does my wife need to go back and file tax forms for the past 6 years to claim the RESP money? I looked at the penalties listed on the form 3520 and it kind of scared me.

Also, anybody know what the IRS interpretation might be if we're both listed as contributors to the RESP? At the time of contributions I was making most of our household income so one could make the argument that I contributed all the money but with both our names on it the IRS may not take this same view.
nelsona
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Post by nelsona »

The fact that your wife is a US taxpayer is the key, not the child's citizenship.

3520 can and should be filed apart from any 1040 requirments. If her income does not come up to the filing requirement for MFS, then she still does not have to file 1040.

But she should be filing, every year, 3520 for RESP, 8891 for RRSP, and TDF-90.22.1 for all accounts we she touches either separately or jointly with you.

By the way, not filing a joint 1040 with you is probably costing you $1000 per year per child in IRS tax credit, so I would be filing a joint 1040 every year just to get that money.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Diskdoctor
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Post by Diskdoctor »

[quote="nelsona"]By the way, not filing a joint 1040 with you is probably costing you $1000 per year per child in IRS tax credit, so I would be filing a joint 1040 every year just to get that money.[/quote]

Thanks for the response. Reading over the instructions for the 1040 I understood that we shouldn't file jointly (see quote below). I didn't mention that we are living in Canada so I have no U.S. tax obligations. If we filed jointly wouldn't we then have to declare my income, etc?

From 1040 instructions:
"Generally, a husband and wife cannot file a joint return if either spouse is a nonresident alien at any time during the year."
Diskdoctor
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Post by Diskdoctor »

[quote="nelsona"]But she should be filing, every year, 3520 for RESP, 8891 for RRSP, and TDF-90.22.1 for all accounts we she touches either separately or jointly with you.[/quote]

Anybody out there gone back and filed the 3520 years after the fact? The penalties on the instructions for the form (35% of the gross value!) seem absolutely outrageous.

Interest, dividends etc. and CGSA in the RESPs are taxable in the U.S. based on the proportion of her contribution I assume?
nelsona
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Post by nelsona »

A citizen spouse can ALWAYS elect to file jointly with spouse. Besides, Cdns have a treaty right to file just as an amereicn would.

Yes, you would report all world income, but by applying foreign tax credits and/or foeign income exemptions, there would be no US tax owing, and certinly not so much as to outweigh the child tax credit.

Many US citizens living in canada are getting $1000/child every year from IRS.

As to what she would report, I guess it would be proportional. But if you file MFJ thta point is moot.


3520 is not something to be trifled with. Those penalties are real.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Diskdoctor
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Post by Diskdoctor »

Our children qualify as dependents but they are not U.S. citizens, U.S. nationals or U.S. resident aliens so they don't qualify for the child tax credit. So as far as me filing U.S. taxes goes it seems like more of a hassle than anything. Though there may be complications I'm not anticipating if we ever end up living in the U.S. again.
nelsona
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Post by nelsona »

it is rare that a US citizen has chidren that are not US citizens. You sure about your statement?

Obviously, if the kids don't qualify it is pointless to file an MFJ return.

But I would not categorically say that they don't qualify.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Diskdoctor
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Post by Diskdoctor »

Our children are not U.S. citizens at this time. My wife has American citizenship from her father but the laws require her to have lived at least 5 years in the U.S. in order to pass this citizenship on to her children. At some point they may acquire U.S. citizenship but it's not an automatic thing.
nelsona
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Post by nelsona »

Good point.

Since 2001, if your wife decides to move to US while they are still minors, they can first immigrate (like you can) and then immediately be granted US citizenship.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
nelsona
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Post by nelsona »

I think there is also a rule about allowing kids to become citizens if grandparent is still living in US, simply by taking the oath and without having to move to US.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
eortlund
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Post by eortlund »

Yes, I have US citizen children who have never lived in the US but obtained it through me and my husband. So unless they spend enough time in the US, marry an American, or their children are born in the US, they can't pass on their US citizenship to their children, should they have any. However, as the grandparents, my husband and I could apply for them and then they could become naturalized US citizens through us. Could be worth looking into--it may need to happen before they hit age 18.

"Whether or not the child intends to reside in the United States, an alternative procedure now exists for becoming a U.S. citizen. If the child is under eighteen years of age and has a U.S. citizen grandparent who meets the physical presence requirements as specified above, the child may qualify for expeditious naturalization under the Immigration and Nationality Technical Corrections Act of 1994. Although not entitled to U.S. citizenship at birth, the child can, through this procedure, become a U.S. citizen by naturalization without first having to take up residence in the United States. It is, however, necessary for the child to travel to the United States for the naturalization, and all applications and documentation must be submitted and approved beforehand"
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