Taking stab at 3520, -A for TFSA

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kylewkemp
Posts: 6
Joined: Mon Jan 26, 2015 1:05 am
Location: California

Post by kylewkemp »

Hi All,

Does anyone know if TD has a US agent applicable for form 3520? I hear the BMO and RBC do but my attempts to contact TD about this have ended all in frustration. I get the feeling none of the people I've talked to know what I'm talking about.

I've applied for an EIN already but need a name and address for an agent.

Kyle
Kyle
complete
Posts: 23
Joined: Wed Mar 04, 2015 12:02 pm

Post by complete »

Hi.
I am new to the 3520A/3520 complications.

My questions are:

Foreign exchange issues.
1. Because the Canadian dollar dropped so much this year's ending balance will be lower than the opening regardless of whether interest was accumulated. People had suggested using Box 18 or 19 in 3520A Part 3. Should I just put a negative entry to balance the beginning to ending and attach a statement saying this is due to foreign exchange.

2. The overall value of the fund has decreased (RESP) due to the foreign exchange but I still have interest. Do I still need to show the interest on my income and pay taxes on it even though the fund is worth less than last year?

3. If I made no contributions to the fund (RESP paid in full), but it accumulated interest, do I need to note in 3520 that I indirectly transfered income to the trust. I was thinking about adding the interest to the corpus as I own all of it. Note that last year I put all principal, interest and grants into one amount and designated that as corpus and total worth.

Thanks!
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

Just like any other investment account, interest is taxable year-by-year. Investment losses are only claimable when you sell the investment (a capital loss).

All dividends, intersts and cap gain distributions you get from RESP, TFSA, and non-retirement accounts need to be reported every year (on your 1040), along with nay cap gains/losses from trades and sales you made within those accounts.

For IRS TAX purpoes, you have to forget that they are treated specially in Canada.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
complete
Posts: 23
Joined: Wed Mar 04, 2015 12:02 pm

Post by complete »

Thank you!

What about these questions?
1. Because the Canadian dollar dropped so much this year's ending balance will be lower than the opening regardless of whether interest was accumulated. People had suggested using Box 18 or 19 in 3520A Part 3. Should I just put a negative entry to balance the beginning to ending and attach a statement saying this is due to foreign exchange?

3. If I made no contributions to the fund (RESP paid in full), but it accumulated interest, do I need to note on Form-3520 that I indirectly transfered income to the trust? Note that I was thinking about adding the interest to the corpus as I own all of it. Last year I put all principal, interest and grants into one amount and designated that as corpus and total worth.
nelsona
Posts: 18311
Joined: Wed Oct 27, 2004 2:33 pm
Location: Nowhere, man

Post by nelsona »

We read your quaestions, no need to repeat.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing :D
wlasicn
Posts: 3
Joined: Sat Feb 28, 2015 4:26 pm

Closing the account

Post by wlasicn »

So, here's my take on closing my 2014 account.
I've had the account for a few years and the first filing was done by a professional so followed their forms for subsquent years. As such, I am the trust (my name plus TFSA account number), trustee, owner and US Agent.

3520:
- shown as Final
- Part II, lines 21 - 23 are completed with me as owning the full value of the TFSA (trust) in line 23
- Part III, as suggested by others in this thread I have put lines 29 and 30 as N/A

3520A:
- shown as final
- again, as per professional filing I am both US agent and trustee (lines 3 and 4)
- line 5 = No, line 6 = 1
- Part II, line 17a shows the amount of the account at closing as a distribution. 17b my information as it came to me as owner
- Part III, line 19 column d shows the same amount as Part II, 17a. This makes lines 20 and 21 equal 0
- Foreign Grantor statement of trust again shows me as trust, agent, trustee and owner.
- Income attributable on Owner statement (1a) is the interest earned in 2014 prior to closing. That is the only amount that will appear on my 1040.

Does that sound like it makes sense?
filkry
Posts: 13
Joined: Tue Feb 24, 2015 5:27 pm

Post by filkry »

Do I have to file 3520/A on a TFSA that I transferred no money into/out of in 2014? It looks like Schedule A/B at least don't apply to me. I still intend to report the interest income on my 1040NR (I do not pass the green card or substantial presence tests).
Buddy
Posts: 16
Joined: Sun Dec 08, 2013 9:50 pm
Location: British Columbia

Post by Buddy »

Greetings:

I’m going to add, for what it’s worth, comments on certain aspects of these forms which differ markedly from both the original posting and the practice of many subsequent commentators. Though not an expert, the approach described, which has been applied it to my own filings of these forms for the past five years without adverse (or any) comment from the IRS, reflects a number of years of experience in Canadian trust law.

In what follows I will reiterate Hapless’ original instructions with triple asterisks *** starred *** to set off areas which I will comment upon [in brackets following].

3520
*** Check 1st 2 boxes "US transferor" and "US owner" ***
[Just to be clear, 1) a-h is you and your address, and j is usually Austin, Texas. If you have withdrawn funds, the 3rd box “U.S. Receiver of a distributionâ€￾ also comes into play, (in which case, despite what the box says, Part III is not completed, as discussed later.) So, depending on the nature of your account activity, any of the following box combinations are possible: 1 & 2, 2 & 3, or 1, 2 & 3.]

*** 2) RBC Direct Investing (TFSA, Acct No); EIN ; address ***
[Contrary to popular belief, an “EINâ€￾ is NOT required, To Wit:
“An EIN is not required for line 2b . . . c. when the trust in question is a grantor trust and all relevant information is being reported on the respective 1040". Procedural Update WI-03-1212-1961 www.irs.gov/pub/foia/ig/spder/IPU_CPR_W ... 2-1961.pdf
A grantor trust is a trust in which the grantor (or trustor) retains full beneficial control of the trust asset. A TFSA account holder retains full beneficial control of his account, so a TFSA is a grantor (or “bareâ€￾) trust. An EIN is not required since you, the grantor will, of course, be reporting “all relevant informationâ€￾ i.e. any interest or other income, on your 1040 Schedule “Bâ€￾ (required filing for anyone with any foreign account). Given this reality, I suggest any perceived requirement that the trust must file its own income tax return (Form 1041 or 1040NR) is also inapplicable. Also, take note that the “foreign trustâ€￾ is your individual account at your financial institution. It is NOT the financial institution itself - a fact which provides a contextual clue for completion of the remainder of this form.]

*** 3) Yes ***
*** 3a) #2 is a Qualified Intermediary (QI), fax no...***
[Both 3 and 3a are incorrect. The answer to #3 should be “Noâ€￾ and #3a (Did the foreign trust appoint a U.S. agent? etc.) should be left blank. Again, the foreign trust is your individual TFSA account itself, not the trustee institution (RBC or whatever). Although a trustee institution may, for some purposes, be a qualified intermediary (primarily for purposes of withholding and remitting taxes) this is not happening with any TFSA I’ve ever seen, nor has any “U.S. agentâ€￾ ever been appointed to do anything at all. Any such agent would have to have been specifically appointed as such in the terms of your account (in which any “trustâ€￾ declaration or agreement appointing the trustee would also be found) and the scope of such agency clearly delineated. You yourself are in fact fulfilling all the duties required. You do not have or need an agent, and you cannot act as an agent on your own behalf. I suggest that the simplest, most accurate, as well as most prudent and expedient approach, is to simply check “Noâ€￾, and complete lines 15-18 of Part I as directed. (Note: The terms of your account were provided to you when you opened your account, or may be found on your financial institution’s website. If the terms do not appoint a trustee, your account is not a trust, may be treated as an ordinary bank account, and you do not need to file these forms. Nonetheless, you must, however, report any interest on 1040 Schedule “Bâ€￾.) ]

Part I
6a,b) CA
6c) date TFSA opened
7a) No
[7b) leave blank]
8) No
9a) Yes
10) Yes
Sched A
11a) No
Sched B
13) Yes
(a) date of contribution
(b) Cash
(c) USD equivalent of e.g. C$5000 (I used that day's exchange rate)
(d) same amount
(e) 0
(f) 0
*** Totals 0 ***
[As subsequently reconsidered by Hapless in his later post (24 July, 2010) column (i) is normally the same figure as in columns (c) & (d), and “totalsâ€￾ are not “0", but are the total of column (i). Also, (g) is usually “n/aâ€￾ and h is usually “0". ]

14) all No
*** 15-18) skip since trust is a QI ***
[This is incorrect. As suggested under #3) above, #15-18 are not skipped, but filled out. #15 is yourself, being beneficiary as well as grantor (though this is admittedly somewhat at odds with the IRS’ use of the term as I will describe later). For a TFSA, #16 is the trust organisation (RBC or whatever). #17 is empty or “N/Aâ€￾, there being no one else with trust powers. #18 (b) (trust instrument) and (e) (financial statements) are checked “Yesâ€￾ and (a), (c), (d) and (f) (which normally do not apply to a TFSA) are checked “Noâ€￾. If your TFSA is a trust, your account terms will constitute, in and of themselves, the “trust instrumentâ€￾. Then, for the first year, you ATTACH COPIES of the account terms (i.e. the “trust instrumentâ€￾) and the account financial statements. For the next two years, “Previously Attachedâ€￾ is then checked for (b) with the “Year Attachedâ€￾ blank filled in, with (e) “financial statementsâ€￾ being checked “Yesâ€￾ with copies of only the yearly statements attached. The cycle begins again in the fourth year, in which the account terms must again be attached to the form ]

Sched C
19) No

Part II
20) N/A
21) CA, CA, date from 6c
22) No
23) amount from Form 3520-A, Part III, 11 " Total assets"

Part III
*** Will never be used since you're the owner. ***
*** All distribs (TFSA withdrawals) will either be trust "corpus" (return of your â€￾ “contributions) or income (which you paid tax on every year). Part III is the "wicked" part, so that's good! ***
[This is all correct. As the form instructions state, being a grantor trust, the amount of any distribution is reported on 3520-A. Part III would not be used except possibly in the unlikely event that distributions are received by a U.S. person other than the grantor.]

Part IV
Won't apply to TFSA.

3520-A
*** This is not the "kosher" form that the trust is supposed to file. It's the best-ability
“substituteâ€￾ that you piece together from the TFSA monthly statements. ***
[N.B. This is very important to remember - as will be observed later. ]

Part I
*** 1-3) Copy from 3520 ***
[ Again, to be a bit more clear:
1 (a) - (c), remember, as on the 3520, the “trustâ€￾ is your TFSA account No. at the financial institution, e.g. ‘RBC TFSA Account No. 777’.
2 - check “Noâ€￾ , then check boxes 2a & 2b “Yesâ€￾ and the rest “Noâ€￾ , since the 3520-A is being attached to the 3520, to which the account terms are being attached, in turn.
3 - leave blank (as there is no U.S. agent) ]

4) ***Royal Trust Company, address "same as above" ***
[ Note that this is name of the “trusteeâ€￾ financial institution itself (minus the account name and No.) ]

5) No
6) 1

*** For signatures, I wrote (and did not sign) “This is a 'substitute 3520-A' per line 22 of Form 3520 " since Trustee does not provide the report. ***
[On the contrary, you should sign this and insert “Account Holder/Grantorâ€￾ as “titleâ€￾. Although you are not the trustee, someone must certify that the information is correct, and that someone is you. ]

Part II
*** 1-8) scrape out of monthly statements, probably just interest and dividends
Only fill in capital gains if you sold something in the account.
I used annual average exchange rate for all these.***
[ Usually, for a TFSA, only #1 and #8 would be used. Being the year end total interest, I use the Dec. 31 exchange rate to remain consistent from year to year with other information. ]

9-15) if applicable (I had none)
16) add up
*** 17a,b) a distribution is a withdrawal (probably 0)***
[ If you have made a withdrawal, however, it must be reported in 17(a) and (b) ]

17c) not applicable for owner [i.e. grantor ]

Part III

*** Beginning will all be $0 (next year, copy this year's end) ***
[ That is, it would be -0- if the account was opened during the year of the return. Similarly, if you closed the account during the year, the “end of yearâ€￾ will be -0-. ]

I used Dec/31 exchange rate for all these end of year amounts:
1) cash and GICs
5) maybe if you have govt. bonds?
6) everything else
11) add up
12-16) all 0
17) beginning of year + transfers from 3520 Part I
18) line 11 assets minus line 17 income
20) add up
21) line 11 (matches line 20)
Page 3
*** 1-6) *** copy from 3520 ***
[Just to be clear: 1 - Name of Financial Institution with Account No. as previously, 2- check “Noâ€￾, 3 - leave blank (no U.S. agent), 4 - Name of Financial Institution & address as previously, 5 - Tax year, 6 - your name and address as previously, 6(h) - usually Austin, Texasâ€￾]

*** 7-8) ignore; this is for the trust co. sending the info to you ***
[This is incorrect. The trust company won’t be sending you anything of the sort. It is YOU who are filing this as an attached 3520-A form, not the trustee institution. For # 7, ATTACH a Sheet titled: “3520-A Foreign Grantor Trust Owner Statement Attachment Re: Item No. 7" stating to the effect:
“The grantor retains complete control and beneficial ownership of the subject savings account as sole account holder and beneficiary. Applicable I.R.C. sections include: s. 673 (reversionary interest); s. 674 (control); s. 676 (power to revoke); s. 677 (Income for benefit of grantor); s. 679 (U.S. beneficiary)â€￾
For # 8 - write in: “Account Termsâ€￾ which are attached to your 3520/3520-A (as previously described under 3520, Part I, Schedule “Bâ€￾, #15-18 above ]

9) line 11 of Part III balance sheet
These get copied from Part II income statement, then applied to respective areas of 1040.
*** I didn't sign.***
[ This is incorrect - again, this should be signed by you, under the title of: “Account Holder/Grantorâ€￾. The IRS improperly refers to the “grantorâ€￾ (actually the “trustorâ€￾ or “settlorâ€￾) as the “ownerâ€￾. “Ownershipâ€￾ of a trust asset, however, is vested in the trustee. If ownership did not vest in the trustee, it would not be a trust, and you wouldn’t have to fill out these stupid forms. (Compare the approach of Revenue Canada, which bypasses all of this by simply refusing to recognise the existence of bare trusts at all for tax purposes.) ]

Page 4
*** This will never be used, since the owner is not a "beneficiary" in this sense.***
[It is correct that the page 4 “Beneficiary Statementâ€￾ will never be used. In a grantor trust, the grantor is usually also the beneficiary, but the IRS use of the word “beneficiaryâ€￾ is exclusively concerned with beneficiaries other than the grantor, a situation ordinarily unlikely with a TFSA.]


Conclusion
I’ll just add a few further points.

A complication heretofore unmentioned is that the Internal Revenue Code section dealing with this form (26 U.S.C. s. 6048 and related I.R.S. Regulation 1.63-1) are at odds with the Form 3520 instructions as to when and where the Form is to be filed. Section 6048 and its regulation state that Form 3520 must be filed within 90 days of any “reportable eventâ€￾, i.e. the trust’s creation and any subsequent transfer of money into it, “or such later day as the secretary may prescribe“ and that the Form must be forwarded, not to Ogden as the instructions state, but to the “Director of International Operations, Internal Revenue Service, Washington, D.C., 20225".

It has thus been observed: “Conflicting authority exists for whether the grantor/owner must file Form 3520-A by the 15th day of the third month after the close of the trust’s tax year or within 90 days of the occurrence of a reportable event. This discrepancy is discussed further in the analysis below of CCA 201208028. Generally though, taxpayers file Form 3520-A by March 15. This date often comes as a surprise because the individual’s return is not due until April 15. It is possible to extend the 3520-A, on Form 7004, to September 15.â€￾
http://www.americanbar.org/publications ... 3520a.html

The above quote reflects the general confusion on this subject, even from reputable sources, in that the “within 90 days of a reportable eventâ€￾ “or such later day as the secretary may prescribe“ filing requirement is for 3520, not 3520-A. As the article quoted describes elsewhere, s. 6048's “later dayâ€￾, as now regarded, is that taken to be the date “prescribedâ€￾ by the 3520 instructions: “In general, Form 3520 is due on the date that your income tax is due, including extensions.â€￾ i.e. April 15. However, that’s only “in generalâ€￾. The filing deadline for 3520-A is March 15th, and since, in the case of a TFSA “grantor trustâ€￾, the only 3520-A filed will be the one attached to your 3520, it seems to follow implicitly, if not explicitly, that the 3520 with its attached 3520-A must be filed in Ogden prior to March 15th. If you are tempted to think otherwise, study the ominous conclusion of 3520, Part II, #22: “See instructions for information on penaltiesâ€￾, which information, in the case of 3520-A, will include: “criminal penalties . . . for failure to file on timeâ€￾.

The trust isn’t sending the 3520-A, you are - attached to your 3520. Unless, and only if, a Form 7004 extension has been obtained, it is prudent to assume that the combined 3520/3520-A required filing deadline is not April 15, but March 15.

The 3520 instructions are viewed as not only having changed the s. 6048 filing frequency and deadline, but also the place of filing. As has been frequently mentioned, the 3520/3520-A forms are not sent to the Director of International Operations or attached to your income tax return, but to Ogden, Utah.

All interest or other income from any TFSA account, however, is to be scrupulously reported on your 1040 Schedule “Bâ€￾, such reporting being the sole reason for the existence of the entire form-filing merry-go-round (of which these forms are mere procedural incidents). Hence:
“The IRS will not impose a penalty for the failure to file the delinquent Forms 5471 and 3520 if there are no under-reported tax liabilities and you have not previously been contacted regarding an income tax examination or a request for delinquent returns.â€￾
http://www.irs.gov/Individuals/Internat ... -Interests

I hope any readers find this information sufficiently explanatory and logically consistent to be useful in their dealings with these hideous forms, and I extend to them my sympathy and best wishes. I sincerely thank “Haplessâ€￾ (without whom I’d likely never have taken these forms on) and all the other contributors for their efforts, as well as Serbinski Accounting for maintaining this invaluable forum.
pp_cdn
Posts: 1
Joined: Tue Jul 14, 2015 1:20 pm

Line 2b(2) reference ID number

Post by pp_cdn »

Thank you everyone for this great post, very detailed info for one who wants to file 3520/A.

What would be Line 2b(2) reference ID number? Is it something IRS gives/assigns to TFSA trust or Is it something bank provides?

OR Should I make any unique reference number by myself ???

Guide says "For Form 3520 purposes, a “reference ID numberâ€￾ with
respect to the foreign trust is a number established with
respect to the foreign trust by or on behalf of the U.S. person
that is engaged in a transaction with such foreign trust with
respect to which Form 3520 reporting is required. This
number is used to uniquely identify the foreign trust in order
to keep track of the trust from tax year to tax year. The
reference ID number must meet the requirements set forth"
CdnAmerican
Posts: 245
Joined: Tue Aug 30, 2011 12:15 am

Post by CdnAmerican »

I think it's optional, and if you want one you can just make one up. I guess you could do that if you wanted it to help keep your trusts straight (like, if you had dozens of them). I don't really know for sure, though, as I've never used one for a 3520. Maybe someone else can help more?
Not a professional opinion.
DaveM
Posts: 52
Joined: Thu Jun 12, 2014 12:46 am

Post by DaveM »

The IRS form 3520 instructions are pretty clear:
Line 2b(2). A reference ID number is required on line 2b(2) only in cases where the foreign trust has no employer identification number, EIN. However, filers are permitted to enter both an EIN on line 2b(1) and a reference ID number on line 2b(2). If applicable, enter the reference ID number (defined below) you have assign

Typically, it could be the bank account number. The same number would be used for the FBAR form.
DaveM
Posts: 52
Joined: Thu Jun 12, 2014 12:46 am

Post by DaveM »

Sorry, the quote got cut off above:

Line 2b(2). A reference ID number is required on line 2b(2) only in cases where the foreign trust has no employer identification number, EIN. However, filers are permitted to enter both an EIN on line 2b(1) and a reference ID number on line 2b(2). If applicable, enter the reference ID number (defined below) you have assigned to the foreign trust.
CdnAmerican
Posts: 245
Joined: Tue Aug 30, 2011 12:15 am

Post by CdnAmerican »

Thanks DaveM. I was going by memory but the instructions are the better way to go :)
Not a professional opinion.
CdnAmerican
Posts: 245
Joined: Tue Aug 30, 2011 12:15 am

Post by CdnAmerican »

Hi everyone - just a bump for this thread about how to do 3520/3520-A. I'm not sure if there are any changes for the 2015 tax year, and as always I'm not sure if this is correct, but I've done these forms this way for several years with no problems (after I finally got all caught up). Please correct any mistakes you see - good luck!
Not a professional opinion.
CdnAmerican
Posts: 245
Joined: Tue Aug 30, 2011 12:15 am

Post by CdnAmerican »

And a thanks to hapless for starting this extremely popular thread! He's only had 4 posts but he made the most of them ..
Not a professional opinion.
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