Taking stab at 3520, -A for TFSA
Moderator: Mark T Serbinski CA CPA
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Part III) I don't see how you can say this would never be used??? So what if you're the owner? When you take money out, that's a distribution, isn't it?
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That's a distribution, but it has no tax consequences for the owners, since they have been paying-as-they-go on the annual trust income.
In that sense, withdrawals from the TFSA are treated exactly the same by Canada and US -- for Canada the income is tax free, for the US we've already paid the tax on it.
And the bulk of the distrib. is likely return of contributions, which were made with after-tax dollars.
Ergo, AFAIK, Part III only applies to beneficiaries who are not also owners, which a TFSA doesn't have.
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While what hapless is saying makes sense, since when do IRS forms and filing make sense? I agree there <b>should</b> be no tax consequences in this scenario because all the income has already been declared but I don't see how to fill out the 3520. Does anybody else see how to do this? Do you propose just ignoring part III?
I've done this with an RRSP and Form 8891 allows you to differentiate between "distributions" and "taxable distributions". Taxable distributions I took to be withdrawals that I hadn't paid U.S. tax on yet (in that case everything but the corpus).
Form 3520A distinguishes between distributions to U.S. owners and distributions to U.S. beneficiaries so that seems clear. This is a distribution to a U.S. owner by my interpretation.
Form 3520 is not so clear to me. First on page 1, the third box says "(a) You are a U.S. person who, during the current tax year, received a distribution from a foreign trust". This seems to fit the situation, therefore "See the instructions for Part III." The instructions indicate if it is a distribution to the owner and the trust filed Form 3520-A you can skip this part but for Canadian trusts it is unlikely that the trust filed 3520A therefore I see no choice but to complete this section even though the section seems to relate entirely to beneficiaries and not owners. Maybe I could write a note in Part III indicating that I have attached the 3520-A filled out to the best of my ability so I will not fill in Part III.
Help anyone?
Relevant definitions:
<i>Distribution</i> - A distribution is any gratuitous transfer of money or other property from a trust, whether or not the trust is treated as owned by another person under the rules of sections 671 through 679, and without regard to whether the recipient is designated as a beneficiary by the terms of the trust. A distribution includes the receipt of trust corpus and the receipt of a gift or bequest described in section 663(a).
<i>U.S. Beneficiary</i> - A U.S. beneficiary generally includes any U.S. person that could possibly benefit (directly or indirectly) from the trust (including an amended trust) at any time, whether or not the person is named in the trust instrument as a beneficiary and whether or not the person can receive a distribution from the trust in the current year.
<i>Accumulation distribution (from f4970) </i> - An accumulation distribution is the excess of amounts properly paid, credited, or required to be distributed (other than income required to be distributed currently) over the DNI of the trust reduced by income required to be distributed currently.
<quote>
Part III) I don't see how you can say this would never be used??? So what if you're the owner? When you take money out, that's a distribution, isn't it?
</quote>
That's a distribution, but it has no tax consequences for the owners, since they have been paying-as-they-go on the annual trust income.
In that sense, withdrawals from the TFSA are treated exactly the same by Canada and US -- for Canada the income is tax free, for the US we've already paid the tax on it.
And the bulk of the distrib. is likely return of contributions, which were made with after-tax dollars.
Ergo, AFAIK, Part III only applies to beneficiaries who are not also owners, which a TFSA doesn't have.
</quote>
While what hapless is saying makes sense, since when do IRS forms and filing make sense? I agree there <b>should</b> be no tax consequences in this scenario because all the income has already been declared but I don't see how to fill out the 3520. Does anybody else see how to do this? Do you propose just ignoring part III?
I've done this with an RRSP and Form 8891 allows you to differentiate between "distributions" and "taxable distributions". Taxable distributions I took to be withdrawals that I hadn't paid U.S. tax on yet (in that case everything but the corpus).
Form 3520A distinguishes between distributions to U.S. owners and distributions to U.S. beneficiaries so that seems clear. This is a distribution to a U.S. owner by my interpretation.
Form 3520 is not so clear to me. First on page 1, the third box says "(a) You are a U.S. person who, during the current tax year, received a distribution from a foreign trust". This seems to fit the situation, therefore "See the instructions for Part III." The instructions indicate if it is a distribution to the owner and the trust filed Form 3520-A you can skip this part but for Canadian trusts it is unlikely that the trust filed 3520A therefore I see no choice but to complete this section even though the section seems to relate entirely to beneficiaries and not owners. Maybe I could write a note in Part III indicating that I have attached the 3520-A filled out to the best of my ability so I will not fill in Part III.
Help anyone?
Relevant definitions:
<i>Distribution</i> - A distribution is any gratuitous transfer of money or other property from a trust, whether or not the trust is treated as owned by another person under the rules of sections 671 through 679, and without regard to whether the recipient is designated as a beneficiary by the terms of the trust. A distribution includes the receipt of trust corpus and the receipt of a gift or bequest described in section 663(a).
<i>U.S. Beneficiary</i> - A U.S. beneficiary generally includes any U.S. person that could possibly benefit (directly or indirectly) from the trust (including an amended trust) at any time, whether or not the person is named in the trust instrument as a beneficiary and whether or not the person can receive a distribution from the trust in the current year.
<i>Accumulation distribution (from f4970) </i> - An accumulation distribution is the excess of amounts properly paid, credited, or required to be distributed (other than income required to be distributed currently) over the DNI of the trust reduced by income required to be distributed currently.
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EIN
I came across a couple of references today that seem to indicate that the trust itself should have an EIN which you could apply for as an individual but I'm not sure it really improves the reporting situation. You're obviously best off if the financial institution can handle some of that.
One reference here:
http://la-ventana.forumotion.com/t115-h ... ideicomiso
and from another:
Employer Identification Number
(http://www.comtrst.com/adx/aspx/Report% ... ements.pdf)
If a trust will be filing any forms with the IRS, it must have an Employer Identification Number, or EIN. A foreign nongrantor trust does not need an EIN unless it has US source income. A foreign trust with a US grantor does need an EIN, since it must file forms with the IRS, such as a 3520-A. A trust cannot file any forms with the IRS by using the grantor’s social security number. The EIN for a foreign trust cannot be obtained over the internet. The Form SS-4 can be mailed to the IRS or the number may be obtained via telephone. If a trust has a foreign grantor, the grantor is not required to obtain an ITIN (Individual Taxpayer Identification Number) before the IRS will issue an EIN for the trust. An EIN for a trust with a foreign grantor can be obtained only by calling the Philadelphia office of the IRS at 215-516-6999. [now 267-941-1099]
One reference here:
http://la-ventana.forumotion.com/t115-h ... ideicomiso
and from another:
Employer Identification Number
(http://www.comtrst.com/adx/aspx/Report% ... ements.pdf)
If a trust will be filing any forms with the IRS, it must have an Employer Identification Number, or EIN. A foreign nongrantor trust does not need an EIN unless it has US source income. A foreign trust with a US grantor does need an EIN, since it must file forms with the IRS, such as a 3520-A. A trust cannot file any forms with the IRS by using the grantor’s social security number. The EIN for a foreign trust cannot be obtained over the internet. The Form SS-4 can be mailed to the IRS or the number may be obtained via telephone. If a trust has a foreign grantor, the grantor is not required to obtain an ITIN (Individual Taxpayer Identification Number) before the IRS will issue an EIN for the trust. An EIN for a trust with a foreign grantor can be obtained only by calling the Philadelphia office of the IRS at 215-516-6999. [now 267-941-1099]
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Update on reporting a withdrawal on the 3520
Looking at the latest version of the 3520 I see that there is now a box on both line 29 and 30 labeled N/A. For a withdrawal by an owner/grantor I am going to take the approach that these are both N/A, fill out lines 24-30 and skip Schedules A,B,C. I will add a note in an attachment to explain my reasoning.
RESP specific info for US Tax
Diskdoctor or others,
Just read your post on RESP reporting in forms 3520 and 3520-A. Could I ask you a question on reporting 2010 earnings of my RESP in the US tax returns?
How do I obtain detailed earnings information for the RESP? It's probably an equivalent of Form 1099, which shows interest income, dividends, realized gain/loss for 2010. What tax slip carries this information for an RESP?
Thanks.
Just read your post on RESP reporting in forms 3520 and 3520-A. Could I ask you a question on reporting 2010 earnings of my RESP in the US tax returns?
How do I obtain detailed earnings information for the RESP? It's probably an equivalent of Form 1099, which shows interest income, dividends, realized gain/loss for 2010. What tax slip carries this information for an RESP?
Thanks.
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Baja_saf,
You won't get any tax documents in Canada for RESPs since they are not taxable.
Don't you receive regular financial statements from the provider? If you don't you should be able to ask them for the details you need. Don't forget values needed to be converted to USD. For capital gains you need to convert values on the date of acquisition and the date of selling as for Form 1040, Schedule D. It's a pain in the butt.
You won't get any tax documents in Canada for RESPs since they are not taxable.
Don't you receive regular financial statements from the provider? If you don't you should be able to ask them for the details you need. Don't forget values needed to be converted to USD. For capital gains you need to convert values on the date of acquisition and the date of selling as for Form 1040, Schedule D. It's a pain in the butt.
RE: RESP specific info for US Tax
Thank you so much, Diskdoctor!
I have received quarterly statements for the RESP. They have a line for each mutual fund in the RESP, called "the fund earned income and you re-invested it," followed by an CAD amount and fund units purchased.
But it does not tell me the components of the income, e.g. interest income, dividends, short-term capital gain distribution, and long-term capital gain distribution. The components seem needed for 3520-A's income statement section.
Does your brokerage provide quarterly statements with more detailed components of income, or were you able to approximate each of them based on the fund type?
Thanks again.
I have received quarterly statements for the RESP. They have a line for each mutual fund in the RESP, called "the fund earned income and you re-invested it," followed by an CAD amount and fund units purchased.
But it does not tell me the components of the income, e.g. interest income, dividends, short-term capital gain distribution, and long-term capital gain distribution. The components seem needed for 3520-A's income statement section.
Does your brokerage provide quarterly statements with more detailed components of income, or were you able to approximate each of them based on the fund type?
Thanks again.
no contribution for current tax year
Have had contributions for 2009 and 2010 but none for 2011. Do I still need to fill out Part 1 lines 5a - 10 of form 3520 for 2011? I'm assuming I don't have to but I could be wrong.
Thanks.
Thanks.
I found something useful! I was reading IRS Notice 97-34, IRB 1997-25 (6/2/97), Section F, "Examples". The first example (where FT is a foreign trust) is:
Contribution to FT. A contributes cash to FT, through a broker, in exchange for units in FT. The value of the units in FT is disregarded in determining whether A has received fair market value. Therefore, the contribution by A is a gratuitous transfer and A must report the contribution to FT under section 6048(a).
Even though the TFSA itself is not a unit trust, I think that settles the question of whether contributions are gratuitous.
Also, lvtscds, RBC is retarded. I'm helping a friend out and we made an appointment with a "US tax specialist" who had no idea what any of these forms meant. She even thought TFSAs mailed out T5 tax forms! Main RBC call centre has no idea either. Is RBC Direct Investing their only business unit with half a clue?
Contribution to FT. A contributes cash to FT, through a broker, in exchange for units in FT. The value of the units in FT is disregarded in determining whether A has received fair market value. Therefore, the contribution by A is a gratuitous transfer and A must report the contribution to FT under section 6048(a).
Even though the TFSA itself is not a unit trust, I think that settles the question of whether contributions are gratuitous.
Also, lvtscds, RBC is retarded. I'm helping a friend out and we made an appointment with a "US tax specialist" who had no idea what any of these forms meant. She even thought TFSAs mailed out T5 tax forms! Main RBC call centre has no idea either. Is RBC Direct Investing their only business unit with half a clue?
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Please correct me if I'm wrong, but for the balance sheet on form 3520A, there is always going to be a discrepancy between the total assets, total liabilities, and net worth if one only completes line 17 and 18 for the "net worth" section -- even neglecting currency exchange -- unless all the trust holds is US cash. Suppose for the moment that the trust is actually held in USD and all contributions are in USD, so currency exchange is not an issue. If the trust holds a stock, for example, that has gained in value but has not been sold, then the contributions have not increased and neither has the accumulated income (there is no income until the stock is sold). The problem seems to be more related to the fact that the assets section reflects unrealized gain due to appreciation of the assets, whereas the net worth section does not (unless you explicitly include that appreciation on line 19).
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What happens if you have 2 subscribers to the trust?
if you have two subscribers and a beneficiary , waht portion of the trust is the one subscriber who is a dual citizen considered as owning?
Early 3520A due date for closed TFSA or RESP?
Does anyone know whether form 3520a is due earlier than the using March 15 deadline the year that the TFSA or RESP is terminated?
According to 3520a instructions the form is due 2.5 months after the end of the tax year -- I guess normally March 15.
It appears that form 7004 can be used to apply for an automatic extension if filed before the due date.
On form 7004 there is a question marked "shortened tax year", where the reason for the shortened tax year is requested. One reason that be ticked off is final year.
This has me worried that if, say a TFSA was closed Sep 1, 2011, the IRS might view the tax year as having ended Sep 1, 2011, so that the form 3520A would be due on Nov 15, 2011 instead of March 15, 2012. Is this a reasonable interpretation?
According to 3520a instructions the form is due 2.5 months after the end of the tax year -- I guess normally March 15.
It appears that form 7004 can be used to apply for an automatic extension if filed before the due date.
On form 7004 there is a question marked "shortened tax year", where the reason for the shortened tax year is requested. One reason that be ticked off is final year.
This has me worried that if, say a TFSA was closed Sep 1, 2011, the IRS might view the tax year as having ended Sep 1, 2011, so that the form 3520A would be due on Nov 15, 2011 instead of March 15, 2012. Is this a reasonable interpretation?