Taking stab at 3520, -A for TFSA

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
aoleung
Posts: 11
Joined: Mon Feb 15, 2016 11:34 pm

negative growth reporting?

Post by aoleung » Thu Feb 18, 2016 12:36 am

I just went through this very helpful thread, I think I have a handle on everything except for the balance sheet (of course). This is how I filled it out for a pre-existing TFSA for 2015. I am a Canadian who is a resident alien in the US.

Part III
Beginning of Tax Year 2015
Line 1 Cash, Line 11 Total Assets: 2014 EOY value (USD)
Line 16 Total Liabilities: 0
Line 17 Contributions to trust corpus: 2014 EOY value (USD)
Line 18 Accumulated trust income: 0
Line 20, 21 totals: 2014 EOY value (USD)

End of Tax Year 2015
Line 1 Cash, Line 11 Total Assets: 2015 EOY value (USD)
Line 16 Total Liabilities: 0
Line 17 Contributions to trust corpus: 2014 EOY value + any contributions made during 2015 (I don't actually make contributions though, as I am a non-resident in Canada)
Line 18 Accumulated trust income: interest earned over 2015 (USD)
Line 19 Other: 2015 EOY - interest - line 17, mainly due to fluctuating exchange rates
Line 20, 21 totals: 2015 EOY (if lines 20, 21 calculated as instructed, should add up to 2015 EOY if line 19 done correctly)


Does this make sense to more experienced forum readers? I'm still a bit uneasy about the Beginning of Tax Year Net Worth figures (lines 17-20) but I can't figure out how else to do it.

aoleung
Posts: 11
Joined: Mon Feb 15, 2016 11:34 pm

Post by aoleung » Thu Feb 18, 2016 12:42 am

Am also using the Dept of Treasury EOY exchange rates for 2014 for the Beginning of Year figures, and the rate for 2015 for the End of Year figures. Should I be using the same exchange rate (2015) for both columns instead?

CdnAmerican
Posts: 229
Joined: Tue Aug 30, 2011 12:15 am

Post by CdnAmerican » Thu Feb 18, 2016 10:17 pm

I think you would use end of 2014 for start of year, and end of 2015 for end of year. If you did this form last year, you'd simply transcribe the numbers over from the right column to the left (that may not help this year, but it will help you next year). Good luck!
Not a professional opinion.

aoleung
Posts: 11
Joined: Mon Feb 15, 2016 11:34 pm

Post by aoleung » Fri Feb 19, 2016 12:24 pm

Thanks for the input.

Another quick question: if I made no contributions to the TFSA and it only accumulated interest, I ignore Part I of the 3520 and just report the taxable interest in the 3520-A, right?

aoleung
Posts: 11
Joined: Mon Feb 15, 2016 11:34 pm

Post by aoleung » Fri Feb 19, 2016 12:26 pm

*ignoring Part I except for lines 15-18 in the 3520 as I am acting as my own US agent

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

Post by DrJFM » Sun Feb 21, 2016 3:41 pm

[quote="aoleung"]Am also using the Dept of Treasury EOY exchange rates for 2014 for the Beginning of Year figures, and the rate for 2015 for the End of Year figures. Should I be using the same exchange rate (2015) for both columns instead?[/quote]

I use the Bank of Canada yearly average, but Dept of Treasury should be fine. The important issue is to reconcile multiple year records. Thus, the sum of my Part III Begining of year Assets, line 1 to 7, equals my prior year line 21 closing using the prior year exchange. This value is corrected to the current year exchange and any Gain or (Loss) due to the change in exchange I list on line 10. This has the effect of making my current line 11 Begining of Tax Year total = Last years ending balance in CND X this year exchange rate. Yet I have Assets in line 1 to 7 directly comparable to last years ending values.

I picked up the method of entry of Currency Exchange Gain (Loss) on line 10 from a post on this or some similar forum and have used it with no IRS objections for several years now, including rollovers of RESP's into new accounts etc.
I don't attach a separate statement page explaining line 10, but merely write in on the 3520A before the line ten entry "Currency Exchange Gain (Loss)"

This leaves all the rest of the numbers etc on the form as values simply converted using the current tax year exchange rate. It also made for a simpler listing of the change in value on years when the exchange rate had significantly changed vs prior year. All taxable items are summarized cleanly on the page 3 Statement of Foreign Trust Income Attributable to U.S. Owner.
Since I attach Jan and Dec statements, the Part III line 21 totals align well with these statements when converted to US with the current tax year rate.
There were a couple years with noticeable currency gains and I did not want these appearing as any sort of real income or gain -- my CND balance did not change between Dec 30 and Jan 1 just because at the end of the current tax year an average exchange rate has changed.

As always, what works well for me may not be good for you. This seems a clean way to deal with the currency exchange issue year to year. If the IRS ever decides they are unhappy with my treatment, I will modify this post accordingly.

AliM
Posts: 7
Joined: Tue Oct 04, 2016 1:10 pm
Location: Toronto

Post by AliM » Tue Oct 04, 2016 6:10 pm

I, a Canadian (NRA) am filing US taxes for my "Accidental American" son via the "Streamlined Foreign Offshoreâ€￾ program (2013, 2014 and 2015). I was planning on reporting my son's TFSA like a brokerage account and include all the income (dividends and capital gain) in the tax return. This legal analysis suggests that TFSA is not a "Foreign Trust" for US Tax purposes even if it is structured as a "Trust" in Canada:
http://wolterskluwertaxcentre.intellico ... -purposes/

I am also planning on reporting all dividends as "Qualified Dividends"

My son closed his TFSA this year - 2016.

For the RESP, the same expert above suggests RESP is also not a "Foreign Trust" in a separate piece. I wound up the RESP in 2015 and distributed the EAP (dividends, cap gain and grants) to my son and took back the corpus I had contributed. My son lived in Canada throughout 2015 and was going to university. My son did not have any control of the RESP account, he was just a beneficiary and will file form 3520 (and not form 3520A).

In 3520, my son will report the distribution in Part III, line 24 and tick line 29 "Yes". He will not fill Part III's schedule A or B. He will not report the distribution as income on his US Tax return. It seems that I, owner of the RESP account, have to give my son a "Foreign Grantor Trust Beneficiary Statement" for him to include with his 3520 (although I am non-US)?

What I am proposing to do is radically different from what has been suggested in this thread and the RESP Withdrawal thread by nelson, MGeorge, CdnAmerican, DrJFM and others. I am making big leaps of faith here and I am no expert. Is this appropriate? Can anyone correct me? Thanks.
Accidental American's Dad

nelsona
Posts: 16359
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Wed Oct 05, 2016 8:19 am

Interesting arguments presented in article. Remember that the TFSA is still subject to PFIC reporting and, of course, income tax.

So, if using the argument RESP is not a foreign trust, why would there be any 3520?

And what is your argument for your son not reporting the income on his 1040?
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

jaxtaylor2
Posts: 2
Joined: Wed Oct 05, 2016 9:00 pm

Post by jaxtaylor2 » Wed Oct 05, 2016 11:55 pm

Hi,

I just discovered this thread today, and have been reading the very useful information. I wanted to confirm deadlines for Form 3520/3520-A relating to my TFSA.

I filed an extension for my regular 2015 income tax return and also filed Form 7004 for the extension for 3520-A ( before 3/15/2015) . I just realize that the extension deadline for Form 3520-A was 9/15 and not 10/15. Since my account is a TFSA, and I need to report a substitute Form 3520-A together with my Form 3520 (since the trust is not filing a Form 3520-A) does this mean my deadline is still October 15 for both forms? Would my earlier extension request on Form 3520-A with Form 7004 complicate things here?

Some background, last year I filed under the Streamlined Offshore Program for 2012 and 2013 ( didn't hear anything from the IRS, assuming that was a good thing), and I filed my 2014 Form 3520/3520-A on 4/14/2015 (so again after the 3/15 Form 3520-A deadline, but I had not filed Form 7004 for an extension on Form 3520-A however had filed a regular extension on my 2014 tax return - which was sent in a month later).

I am expecting to have my Form 3520/3520-A and 2015 tax returns ready to be filed this weekend, am I in trouble with Form 3520-A if I can mail everything in before October 15?

Also am I ok to e-file my 2015 tax return, while I mail Form 3520/3520-A to Ogden?

Thanks in advance!

CdnAmerican
Posts: 229
Joined: Tue Aug 30, 2011 12:15 am

Post by CdnAmerican » Thu Oct 06, 2016 1:00 am

Hi AliM - I'll take a swing at this, though I will defer largely to Nelsona who has about 100x as many posts as I do, and probably about 100x the expertise too. The unfortunate answer about the TFSA and RESP is that the IRS has not provided solid, clear guidance one way or the other. As such, the conservative and safe approach has been to treat them as trusts, and do the 3520/3520A for them. I have always wondered whether this was necessary, but honestly it just helps me to sleep at night to know I've done something that might be overkill but which will not get me into trouble.

The prevailing wisdom (noting that tax attorneys are likely to be conservative as well as motivated to complicate the system) has been to treat these as trusts, hence requiring this extra paperwork. Prevailing wisdom is not always right, of course, and I don't know of anyone who has gotten into trouble for not filing the 3520's on these in good faith. (That doesn't mean it's never happened - it's just that I have not heard of it on this forum.)

But of course you would claim all income from these on the 1040, and if there are Cdn mutual funds then I think you'd have to deal with those using the 8621 (I've only done mark-to-market, though others justify other approaches - again, I just don't know for sure).

So that's probably not very helpful advice, but since you called my name I thought I should respond.

Jaxtaylor2 - I can't help you much, other than to say that Yes, you send the 3520/3520A to Ogden, and that paperwork is mailed totally separately from your 1040. I don't know about the e-filing approach as I always use snail mail because I am old.
Not a professional opinion.

AliM
Posts: 7
Joined: Tue Oct 04, 2016 1:10 pm
Location: Toronto

Post by AliM » Thu Oct 06, 2016 5:44 pm

Thanks Nelsona and CdnAmerican. I should have done some research about the RESP and the TFSA we set up for our son. While we funded our son's TFSA (for his wedding expenses), he was the legal owner of the account at Canadian Shareowner and it was not organised as a trust. Our son closed the TFSA this year and returned the moneys, with the earnings, to us (less than CAD$100k). No wedding yet!
For US Tax purposes, he will report the income like it was from a brokerage account and will not file 3520 or 3520A. None of the investments were mutual funds.

We, Canadian parents, (NRAs) also established an RESP for our son's education with TD Direct and the RESP account is also not organised as a trust. We paid for his education out of pocket and did not withdraw from the RESP (bad idea). Last year, 2015, we withdrew all moneys from the RESP - taking back our corpus and distributing the EAP (Grants, dividends and Cap Gain) to him which he promptly transferred to us (as we had already paid his education expenses). He included the EPA in his Canadian tax return and paid tax on it.
For US Tax purposes, the education expenses we paid for our son were merely gifts (not exceeding USD$20k/year) and he will not report any RESP distribution as income.

I hope this treatment is okay. Any comments - thanks in advance.
Accidental American's Dad

nelsona
Posts: 16359
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Thu Oct 06, 2016 6:49 pm

A non-US person setting up an RESP for a US child is NOT a bad idea, why would you think it was? There ws no need to collapse it (unless there was not going to be any schooling expenses). Who gave you that bad advice?
He would merely report the income on both returns along with deducting the expense. A 3520 would be filed each year until the funds were depleted.
By collapsing it prematurely, you gave up all that grant money, etc.

Also, you as a Cdn, the IRS doesn't doesn't care how much your gift your child everuy year. He would simply report the gift (no tax, no penalty) on a 3520 if it was more than $100K in the year. So you were completely mixed up on that count.

It is US PARENTS that should not have an RESP.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

AliM
Posts: 7
Joined: Tue Oct 04, 2016 1:10 pm
Location: Toronto

Post by AliM » Thu Oct 06, 2016 10:37 pm

Thanks Nelsona. Sorry, I should have been clearer. The 'bad idea' was waiting till the end to withdraw from RESP until the last year of my US son's university education meant he received all EAP in a single year pushing him into a higher tax bracket in Canada. Of course RESP with a non-US parent was a good idea. Since the education expenses he got from me (or the distribution from the non-trust RESP) were less than $100k each year does he have to file 3520?
Accidental American's Dad

nelsona
Posts: 16359
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Fri Oct 07, 2016 9:53 am

The RESP is a trust, so he has to report it on a 3520 each year he received the proceeds, and it is indeed income for him in those years.

RESP money is not a gift. But if you did give him some other money as a gift, then I've already answered (and you can look up the info on the 3520 instructions) what the reporting requirements are.

Now, as to him returning money to you, THAT is a gift from HIM, which could result in gift tax.

You REALLY got this mixed up.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

nelsona
Posts: 16359
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona » Fri Oct 07, 2016 10:01 am

You seem to have acted like YOU were the US citizen and your some was the non-citizen, in almost every action you took.

For US purposes:
RESP: he has to report any income from the RESP that he received, regardless of what he did with it. he can claim any expenses against it, and any Cdn tax he paid as a credit. He needs a 3520 for each year for proceeds from a trust, since you treated it like a trust. None of these funds are treated like gifts from you.

TFSA: He must report the internal income on his US return each year. He should file a 3520 and any FBAR, PFIC or FATCA filings required. This was gift from you to him, but under 100K so no need to report.

Gifts: Any money he gave back to you, is a gift from HIM to YOU. He must determine any gift tax he owes IRS.
Nelsona Non grata. Non pro. Search previous posts. Happy Browsing :D

Post Reply