Taking stab at 3520, -A for TFSA

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MGeorge
Posts: 313
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Post by MGeorge »

This thread has been very helpful - thanks to all involved!

I have a question and welcome comments - How are automatic re-invested dividend and interest distributions treated? I've been claiming a "distribution" then showing a "contribution" to the trust on the same day. I can see why it might not be necessary to do this, since no cash changes hands, but then wouldn't that make the trust income appear higher than it is? For example, when you're figuring the cost base for a capital gain, the re-invested distribution is considered a contribution - ie buying more shares or fund units.
CdnAmerican
Posts: 245
Joined: Tue Aug 30, 2011 12:15 am

Post by CdnAmerican »

Hi MGeorge - I believe I counted mine as a dividend which I claimed on my US 1040. I know that what the Canadians call a distribution is different from what the Americans call a distribution; I think your situation is more like a dividend. I'm curious what others say too ..
Not a professional opinion.
MGeorge
Posts: 313
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Post by MGeorge »

Hi CdnAmerican,

I think you're right. I'm probably making this way more complicated than it needs to be. I've revised my forms and only mentioned funds that I've added and taken out. Besides - they are Cdn mutual funds anyway, so once I apply the PFIC market to market election, it becomes simple.

Thanks for your feedback.

Hopefully I'll get the silent treatment from the IRS. I would like to keep this thread alive in case some of us get feedback from the IRS about the way these forms are completed.
Diskdoctor
Posts: 75
Joined: Wed Apr 21, 2010 9:46 am
Location: Winnipeg

Post by Diskdoctor »

[quote="graubart"]My reading of the instructions for 3520 and 3520-A (When and Where To File) is that the forms are sent only to Odgen and do not accompany the 1040.

Does anyone see anywhere that says to include these with the 1040?[/quote]

I have sent my 3520/3520As only to Ogden as well. Never attached to them to 1040.
nelsona
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Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Right. They are a completely separate return.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
Diskdoctor
Posts: 75
Joined: Wed Apr 21, 2010 9:46 am
Location: Winnipeg

Post by Diskdoctor »

[quote="zad888"]Hi Diskdoctor, you mentioned about form 3520a line 19:

Line 19 – Here we include a number which accounts for the change in value of contributions and income due to fluctuations in the average yearly exchange rate. This is necessary to balance the balance sheet.

Did you include this amount in your 1040 / schedule B? Does anyone know?[/quote]

zad,

For some reason I haven't been getting notifications of new posts so I didn't see your question earlier. I have never reported this amount anywhere on the 1040. As far as I understand it you report income within a trust you own just as you report any other equivalent income. Fluctuations in exchange rate do not generally enter into it. An exception would be capital gains(?).
CdnAmerican
Posts: 245
Joined: Tue Aug 30, 2011 12:15 am

Post by CdnAmerican »

I had thought that you would enter this as Other Income on your 1040. As well, if these are mutual funds, then they should add up correctly on your 8621. As such, you'd be claiming the gain each year along the way. But I'd like others' input as well ..
Not a professional opinion.
zad888
Posts: 32
Joined: Tue Jan 24, 2012 2:24 am

Post by zad888 »

Thanks Diskdoctor for your reply. My thoughts exactly so I didn't include the amount in Line 19 as part of my taxable income.
Diskdoctor
Posts: 75
Joined: Wed Apr 21, 2010 9:46 am
Location: Winnipeg

Post by Diskdoctor »

[quote="CdnAmerican"]I had thought that you would enter this as Other Income on your 1040. As well, if these are mutual funds, then they should add up correctly on your 8621. As such, you'd be claiming the gain each year along the way. But I'd like others' input as well ..[/quote]

I don't have a lot of experience with reporting gains on mutual funds but in the past I have treated it the same as if the mutual fund was not in a trust. If it's a straight forward TFSA bank account or GIC I personally wouldn't report the change in value due to the exchange rate fluctuation.
smzsul
Posts: 17
Joined: Sun Jan 06, 2013 8:11 pm

Post by smzsul »

Hi,

Looked at the 3520A today. I have stock as well as Index Mutual Funds in my Self directed RESP. TD reports both a book value and market value for these in the monthly statements.

In the trust income (line 18/19), should I report the unrealized gain in the stock and include it on Page 3 and 1040 as income ? (even though I have not taken a distribution i.e haven't sold the stock).

Also, I am not clear about where to report the Mutual funds in the balance sheet ?. Does it go under Other Marketable Securities. I see the form 8621 mentioned in some posts. Do I have to fill this form ?. It is quite confusing.

Thanks for your help.
andtyl
Posts: 4
Joined: Mon Feb 11, 2013 8:16 pm
Location: Vancouver BC

Post by andtyl »

Hi all-
I hae read all the previous posts and am still not understanding part III of 3520. I closed my TFSA in 2012 but it sounds like the IRS wants me to pay an interest penalty because the whole "trust corpus" (original investment) was returned in 2012, rather than being equally distributed every year I had the TFSA. Maybe the instructions have changed from previous years or maybe there's something I'm just not getting.

To walk through an example, suppose I had a TFSA called "My Mattress". I put $1000 under "My Mattress" and five years later, in 2012, I take it back out. As I understand it, the $1000 is the "trust corpus". In the 3520 instructions under the definition of "Distribution", it says, "A distribution includes the receipt of the trust corpus...." So I list the $1000 as a distribution on lines 24 and 27.

My Mattress did not send me a Foreign Grantor Trust Beneficiary Statement (although I filled out a 3520-A myself "to the best of my ability") so I fill in "No" on line 29. Now the instructions say I have to fill in Schedule A. I received no distributions from My Mattress until 2012, so line 37 shows the entire $1000 as an "accumulation distribuion". The Applicable Number of years of trust on line 37 is 2 1/2. Since line 37 is greater than zero, I also have to fill out Schedule C. After I get done filling out Form 4970 and recalculating my regular form 1040 income tax and Alternative Minimum Tax for years 2008, 2009, and 2010 (by the way, the 4970 instructions suggest that this will take me 1 hour and 25 minutes), I get to line 51 and find that my interest rate on the Accumulation Distribution is 0.0941, and that I am supposed to enter this on my 1040 as an additional tax.

Someone please tell me I where I am deviating from the instructions!
Diskdoctor
Posts: 75
Joined: Wed Apr 21, 2010 9:46 am
Location: Winnipeg

Post by Diskdoctor »

[quote="andtyl"]Hi all-
I hae read all the previous posts and am still not understanding part III of 3520. I closed my TFSA in 2012 but it sounds like the IRS wants me to pay an interest penalty because the whole "trust corpus" (original investment) was returned in 2012, rather than being equally distributed every year I had the TFSA. Maybe the instructions have changed from previous years or maybe there's something I'm just not getting.

To walk through an example, suppose I had a TFSA called "My Mattress". I put $1000 under "My Mattress" and five years later, in 2012, I take it back out. As I understand it, the $1000 is the "trust corpus". In the 3520 instructions under the definition of "Distribution", it says, "A distribution includes the receipt of the trust corpus...." So I list the $1000 as a distribution on lines 24 and 27.

My Mattress did not send me a Foreign Grantor Trust Beneficiary Statement (although I filled out a 3520-A myself "to the best of my ability") so I fill in "No" on line 29. Now the instructions say I have to fill in Schedule A. I received no distributions from My Mattress until 2012, so line 37 shows the entire $1000 as an "accumulation distribuion". The Applicable Number of years of trust on line 37 is 2 1/2. Since line 37 is greater than zero, I also have to fill out Schedule C. After I get done filling out Form 4970 and recalculating my regular form 1040 income tax and Alternative Minimum Tax for years 2008, 2009, and 2010 (by the way, the 4970 instructions suggest that this will take me 1 hour and 25 minutes), I get to line 51 and find that my interest rate on the Accumulation Distribution is 0.0941, and that I am supposed to enter this on my 1040 as an additional tax.

Someone please tell me I where I am deviating from the instructions![/quote]

You are the grantor/owner, correct? Then why would you receive a 'Beneficiary Statement'?

The way I have treated this is to check N/A on lines 29 and 30 and then skip through schedules A, B, C since they don't apply. The instructions are very confusing, especially in years past when N/A was not one of the options, but if you are the grantor/owner you are not a beneficiary and you are not going to receive a 'Foreign Grantor Trust Beneficiary Statement'. You would receive a Foreign Grantor Trust Owner Statement instead.

As far as I can tell the form is just poorly constructed and not really set up for this situation.
CdnAmerican
Posts: 245
Joined: Tue Aug 30, 2011 12:15 am

Post by CdnAmerican »

It seems like the instructions at the top of Part III (page 8) apply here - the first paragraph bewfore Line 24. I think I would interpret that as meaning that I don't need to fill out Part III, and hence don't check the 3rd box on page 1. I think the 3rd box has the abbreviated instructions which are described more thoroughly on page 8. But I agree that this form is not really written well for this circumstance. Seems to bear more on trusts set up to avoid tax rather than simple vehicles like the TFSA which is a trust to oneself?

Not sure if that's right or not, but it at least makes the rest of the form make more sense. Good luck!
Not a professional opinion.
Diskdoctor
Posts: 75
Joined: Wed Apr 21, 2010 9:46 am
Location: Winnipeg

Post by Diskdoctor »

Thanks CdnAmerican!

Honestly I didn't read through the instructions this year. I was just duplicating what I had done 2 years ago. Reading that paragraph now it seems pretty clear that your interpretation is correct. If the 'distributions' are reported on the 3520-A (or presumably the substitute 3520-A which you prepare yourself) there is no need to fill out part III at all! I was just about to send my forms in but I'll delete the information I had put in part III first.

Do you submit form 8082? The instructions at the end of Part II seem clear that you need to do this but I have not done so in the past. I found one other thread where this was mentioned: http://forums.serbinski.com/viewtopic.p ... light=8082
CdnAmerican
Posts: 245
Joined: Tue Aug 30, 2011 12:15 am

Post by CdnAmerican »

Hmm .. I think that may be making it too complicated? I file my 3520 & 3520-A together. I fill out my own Foreign Grantor Trust Owner Statement, so the instructions at the end of Part II don't apply. While the IRS has let me know when I have messed up these forms before, I haven't gotten a note aboutm essing that part up - so I presume it's OK. Good question though.
Not a professional opinion.
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