Taking stab at 3520, -A for TFSA

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

Post by AliM »

Nelsona - Thanks. Your interpretation is based on treating the RESP as a Trust . According to the following, the RESP may not be a trust for US Tax purposes: a) it is called an "arrangement" in the Income Tax Act that created it, b) courts in Canada have ruled that an RESP is not a trust c) the IRS has not said it is a trust.
http://www.advisor.ca/tax/tax-news/be-c ... ons-211279
http://www.skltax.com/wp-content/upload ... cs2304.pdf
Accidental American's Dad
nelsona
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Location: Nowhere, man

Post by nelsona »

The only affect of not treating the RESP as a trust is in the 3520 filing (which you already said you were going to file). You can choose the non-trust approach if you wish. Most do not.

It is still income in the hands of your son, and not a gift to your son. And the TFSA was a gift in both directions., with generated income being his.

As your previous sources said, whether these are a trust in US depends not a whit on what Canada thinks, so I wouldn't base myself on Cdn courts, while choosing to ignore it at other times.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
jaxtaylor2
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Joined: Wed Oct 05, 2016 9:00 pm

Post by jaxtaylor2 »

I am trying to complete my Part III of 3520A and I am unsure how to handle the balancing of the statement. I had a professional accounting firm complete 2013 and 2014 3520/3520A filings last year through the streamline filing procedure. So I have the previous year filings.

1. Cash balance as of yearend in USD
6. Sold all securities in the TFSA so this will be 0 for current year, and will use number from End of Tax Year from 2014 return for Beginning of Tax Year
11. Total assets is the sum of 1 and 6
13. It looks like the accountant has entered the total contributions I made in years 2009 and 2010 in this line, and the same number was used in the 2013 and 2014 return for both columns B and D. I am not sure if this is the correct place for this, as I have seen on this thread where folks recommend putting this on line 17 (contributions to trust corpus)

17. The accountant has accumulated the running income of the account, including dividends & capital gains. This is a loss due to a large loss in 2013
18. I haven’t really been able to figure out exactly how they came up with this number, but it looks like it’s a combination of FX loss and Change in Market Value in Securities (as per the statement). Does this mean its unrealized gain?
19. This still ends up being a negative number; -600


Now at 2015 year end, here is where I stand;
• I have 500 in dividends
• a capital gain of $100 usd from liquidating position and
• 50 in account maintenance expenses.
• A total of 550 in trust income
• And 200 usd cash balance
• I thought I had withdrawn all the proceeds and instructed to close the account but it looks like a dividend hit the account after and the account wasn’t closed after all – hence the 200 cash balance. I reported this distribution in Part II a/b.

This is how I am I entering the information into column D Part III


1. Cash: 200
6. Other marketable securities: 0
11. Total assets: 200
13. Contributions, gifts, grants, etc. payable: 250 (in order to balance the balance sheet, I reduced this amount from the contribution to the TFSA since inception to this amount so that it equals = accumulated trust income (line 18) – total assets (line 11)
16. Total liabilities: 250
18. Accumulated trust income: -50 (I netted the Accumulated trust income (line 18) and other (line 19) from prior year and added this year’s income of 550 to come up with this)
19. Other: 0 (since the securities do not exist anymore and the cash balance is usd – I left this at 0) Is this correct?
20. Total net worth: -50
21. Total liabilities and net worth: 200



Any help or feedback on this would be greatly appreciated - I had filed an extension on my tax return and looking to have this sent to Ogden during the week.
AliM
Posts: 7
Joined: Tue Oct 04, 2016 1:10 pm
Location: Toronto

Post by AliM »

Nelsona, I am confused about RESP with an NRA grantor and a US beneficiary (my situation). It seems most experts regard RESP as a Foreign Grantor Trust. In this case the filing/reporting requirements are that the trustee (i.e. the parent) has to sign and provide a Foreign Grantor Trust Beneficiary Statement (found in IRS Form 3520-A) to the US beneficiary. The US beneficiary has to file Form 3520 (Part III Q 24,27 and 29 only besides page 1) for each year there is a distribution and attach the Beneficiary Statement. The “distributions to a U.S. beneficiary will be treated ... as non-taxable giftsâ€￾ (according to Deloitte and the following lawyer and several others). The distribution does become taxable to the US beneficiary if the Beneficiary Statement is missing.
http://www.americanbar.org/content/dam/ ... eckdam.pdf
http://www2.deloitte.com/content/dam/De ... 021315.pdf
I am still struggling with how to help my son report RESP distribution.
Accidental American's Dad
nelsona
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Post by nelsona »

You haven't shown in those docs that an RESP is a grantor trust, have you? I missed that piece.
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 »

Not that I disagree that an RESP is a grantor trust, its just that your url's didn't make that case.

Btw, As you no doubt have concluded from the other thread you posted on, how you and your son are proposing to report RESPs is in line with what I previously have advised.

I guess that is an example of when people say "He's forgotten more that you even know on a subject" ;o)

byt, for a Cdn taxpayer, not having to report the income in US is not much of a victory, since the Cdn tax burden will surely be more than the US.

But you still have the gift issue with the TFSA "exchange"
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
JohnSt
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Joined: Wed Mar 07, 2007 2:33 pm

Post by JohnSt »

There seems to be so much analysis of whether or not RESPs are trusts in Canadian vs. US law. The IRS seems to have no official position on them, and they have been excluded from FATCA reporting. I will just throw this out there for thought: Does the IRS care? Has anyone in Canada had the IRS make inquiries regarding RESPs? Has anyone received correspondence from the IRS indicating that 3520s are required for RESPs -- or been penalized as a result of late filing of RESP information?

I'm just thinking about these questions. I'm not saying anyone should not be filing their 3520s. It seems like the safer route to travel. But I have to wonder to what degree assumptions are made based on interpretations of a US tax law that has, in turn, received no confirmation from the IRS. (One may argue that they do not need to confirm anything, but then the application of that law would come with penalties, etc.)
jixca
Posts: 86
Joined: Wed Apr 06, 2016 9:12 am

Post by jixca »

I've read through the IRS instruction on 3520, but it's not clear whether one has to report all transactions during the year prior to becoming resident alien. Other forms (like 8938) specifically allows reporting of part year info only, so should I keep it consistent and consider only balances and transactions after I become resident US alien?
jixca
Posts: 86
Joined: Wed Apr 06, 2016 9:12 am

Post by jixca »

Also, questions regarding the transaction in my TFSA.

While I sold all assets prior to my US move to avoid capital gains they were in US stocks in US currency, I had to purchase a money market fund in TFSA(USD) then transfer to TFSA(CAD) then to Investment (CAD) and Investment (USD) to avoid currency exchange. Some of these were delayed and I completed these funds transfer after I moved, how do the in-kind transfer work in PFIC?

1. I consider the asset going out as distribution and it's not recorded on the income statement but on balance sheet.

2. I had some transaction fee rebated into my account about 4 months after due to the promotion my broker ran, should I consider this as other income and attach statement or as other expenses (negative input)? It's a fee I paid earlier and then rebated.

3. Both assumptions above are based on my part year residency (dual status) with the beginning balance as the date I moved, is that correct?
jayaamit
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Joined: Thu Jun 02, 2016 9:54 pm

Post by jayaamit »

I am a US person and have an RESP in which both me and my wife are subscribers, and our daughter is a beneficiary. We became US person last year for tax purposes as I moved to USA on TN-1 status. We are Canadian citizens. I have gone through this thread in details and the help from all the contributors has been immense and I am using that to file the 3520 now (I know that I have missed the March/15 deadline - but I didn't know that I had to file that by Mar/15 - I was under the impression that it's supposed to be file by Apr/18/2017).

Here are my questions:

A) In 3520 1a) it says US Person(s), so should I put both me and my wife's name together like this - A*** B**** and J*** S*****? Or, should we file 2 separate 3520s with each one of us just using our own names in the separate 3520s?

B) If we file joint 3520 and I put both of our names in 1a) then in b) do I put in both of our SSN/ITINs? Or, do I only put my SSN in 1b) as 1d) will have my spouse's ITIN anyways? It's confusing to me because the 3520 form that I downloaded doesn't let me enter both of our SSN/ITINs in 1b) and the only way to do it would be to print the form and hand-write it, but if only 1 SSN is allowed to be entered then should 1a) have only 1 name (back to question A)?

C) Since neither Knowledge First Financial (previously known as USC) for the RESP, nor Tangerine or Questrade (for the TFSAs) send the 3520-A to IRS - and I will be adding the substitute 3520-A with my forms for RESP and TFSAs. Do I still have to send the 3520-As in a separate mail to Ogden or the substitute one attached to the 3520 return be sufficient?

D) Since I became the US person for tax purposes in 2016 - should I use the creation date as the date I became the tax resident (and use the beginning amount as the amount on the day I became the resident) OR, should the creation date be 2008 when I had first created the accounts?

E) 5a) in 3520 - "Name of Trust Creator" - is that me or both me and my wife for the RESP or is it Knowledge First Financial for the RESP (or Tangerine or Questrade for the TFSAs)?

F) At this point I am leaning towards filing separate 3520 - one for me and one for my wife - however, I am not sure what to do regarding the amount as the transfers to the trust. If we transferred $2000 to the RESP in 2016 then should I put $1000 as transfer from me and $1000 from my wife, or do we both report $2000 as the transfer in our separate 3520s?

G) If I decide to cancel one of the TFSAs (say, in Tangerine) and transfer the amount to a different TFSA (to the one in Questrade) - (or vice-versa) - then for Schedule A 11a) will the transfer be considered as an Obligation from a Related trust? They were not related to each other but because of the transfer will they be considered as related? Though - I am not even sure if such a transfer will be allowed now that I am a US person - ideally I should have done that before moving to US. The only reason I am thinking about it so that there's less paperwork. Cancelling both TFSAs sound a better option at the moment to avoid all the paperwork but my Questrade TFSA has had a lot of unrealized capital gains - I should have sold them and re-bought them or taken them out before moving to US - but since I didn't now I am not sure what's the right approach considering I might be returning back to Canada after completing my TN-1 term in 3 years.

Any help from all of you 3520 Gurus would be appreciated. Thanks in advance.
jayaamit
Posts: 9
Joined: Thu Jun 02, 2016 9:54 pm

Post by jayaamit »

bumping this thread in hope that someone can reply to my earlier queries. I would appreciate if someone could try to reply to my specific questions. Thanks.
Ouch
Posts: 2
Joined: Wed Jun 06, 2018 5:07 pm

Re: Taking stab at 3520, -A for TFSA

Post by Ouch »

Great many thanks to everyone who contributed to this, Nelsona, Hapless, Buddy, Scongalong, at all! Without you I'd have been lost.

Bumping the topic because it seems that the 3520 instructions for Part III have been changed in 2016. If you are like me and have been copy-paste and update the values/dates in the forms from previous years please note that the instructions Part III used to state:
"If you received an amount from a portion of a foreign trust of which you are treated as the owner and you have correctly reported any information required on Part II and the trust has filed a Form 3520-A with the IRS, do not separately disclose distributions again in Part III"

However they now state: "If you received an amount from a portion of a foreign trust of which you are treated as the owner, please complete Lines 24 and 27 in Part III." IMHO this changes things a lot. I used to skip 3520 part III all together but year I am about to enter my distributions into line 24, 27. Still checking 29 and 30 N/A and leaving Shed A, B and C empty. Having no idea if this is the right thing to do.. Any thoughts?

And one more question - I have an ESPP that have been reporting on 3520&-a for several years thinking that it's a trust. Just found out it's not, it is a broker/custodian account instead. Does anyone know how to go about telling IRS this so that I don't have to file these horrific forms year after year?

Thanks again
ND
Posts: 291
Joined: Thu Feb 21, 2013 5:28 pm

Re: Taking stab at 3520, -A for TFSA

Post by ND »

Why not simply take the view of many practitioners that TFSA (or RESP) do not require 3520 reporting at all? No one has proven that they do nor has IRS opined or commented on the matter.
Ouch
Posts: 2
Joined: Wed Jun 06, 2018 5:07 pm

Re: Taking stab at 3520, -A for TFSA

Post by Ouch »

Because several years ago I was under the impression that I should be filing 3520s for these account, so I kept doing it. Now that I'm realizing I don't have to I want to stop but don't know how to tell IRS why I am stopping.
MGeorge
Posts: 313
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Re: Taking stab at 3520, -A for TFSA

Post by MGeorge »

Hello,

I've been wondering about this as well. I want to stop reporting my RESP and TFSA based on the arguments presented by Max Reed, but I don't know how to tell the IRS why I'm stopping. And, I'm worried that this could imply that I should have been reporting them elsewhere. Disregarded entity?, 8938? I've omitted them on my 8938 since the 3520 was filed.

I actually believe that the best thing for me to do is open a new TFSA and close the old one, then move forward not reporting the new one as a trust. Instead, I'll just report is as an ordinary taxable investment account.

Any thoughts on this approach?
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MGeorge is neither an accounting nor taxation professional.
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