I have seen conflicting views on how RESPs are treated on a U.S. tax return. Looking at the old grasmick web site, I found a couple of places where it was stated that bank and brokerage RESPs are not trusts and don't require a form 3520. See the relevant posts at:
http://www.grasmick.com/board/?topic=topic2&msg=6677
http://www.grasmick.com/board/?topic=topic2&msg=9828
Can somebody explain this? Is it correct, and if so is it because trusts are defined differently in Canada and the U.S.? These RESPs have a trustee and a "declaration of trust" so they would appear to be trusts in Canada.
RESPs
Moderator: Mark T Serbinski CA CPA
I understand that they are taxable. The posts I refer to above say that they are to be treated like any investment account, and thus do not require a form 3520. This is the point I want to understand. The amount of pain required to fill out a 3520 and 3520-A makes it important to understand if they are in fact required. Simply reporting the investment income on a 1040 is pretty straightforward compared to filling out a 3520/3520-A.
The same question arises for Canadian mutual funds (mutual fund trusts). This question was asked by andied in a post on Nov. 2, but there is so far no reply.
The same question arises for Canadian mutual funds (mutual fund trusts). This question was asked by andied in a post on Nov. 2, but there is so far no reply.
Most Canadian mutual funds are structured as trusts. There are many U.S. citizens and residents who own them. However, I find it hard to believe that anybody ever files a 3520 for a mutual fund.
Are all these people in violation of U.S. tax law?
Any mutual fund owners out there want to comment on how they handle this?
Are all these people in violation of U.S. tax law?
Any mutual fund owners out there want to comment on how they handle this?
As you may have heard, many Canadian corporations have re-structured themselves as 'trusts'. So owning shares of these corporations makes you part of that trust as well.
You would need to check the IRS' definition of a trust as outlined in the instructions of 3520.
<i>nelsona non grata... and non pro</i>
You would need to check the IRS' definition of a trust as outlined in the instructions of 3520.
<i>nelsona non grata... and non pro</i>
Thanks, but I have already tried that and I can't decipher the IRS legalese around this. I don't think they actually define "trust" anywhere. They define "grantor trust" and "nongrantor trust" in terms of "trust" without ever defining "trust". Can somebody please help untangle this and how it applies to:
- a mutual fund trust;
- an RESP;
- and we might as well throw in income trusts too, since you have raised this;
Here is an example of a Canadian oil & gas trust that is treated as a corporation for U.S. tax purposes:
http://www.nal.ca/investor/library/ustaxinfo2005.pdf
Can a general statement be made about this, or is it case-by-case?
I am guessing that it is not just a matter of interpreting the letter of the law, but how it is applied in practice.
- a mutual fund trust;
- an RESP;
- and we might as well throw in income trusts too, since you have raised this;
Here is an example of a Canadian oil & gas trust that is treated as a corporation for U.S. tax purposes:
http://www.nal.ca/investor/library/ustaxinfo2005.pdf
Can a general statement be made about this, or is it case-by-case?
I am guessing that it is not just a matter of interpreting the letter of the law, but how it is applied in practice.
Most U.S. citizens in Canada aren't even aware of many IRS reporting requirements (eg. trusts, RRSPs) and the ones that are likely don't worry too much about them. I have never heard of anyone filing 3520 for a mutual fund if they are a U.S. citizen living in Canada. I'm not saying don't file it, just in practice I don't think they get filed for mutual funds, RESPs or most anything else that might be considered a trust by IRS.
just my opinion
just my opinion
In the past two years, I have spoken with US/Can tax accountants at five accounting firms (4 in Canada/1 in the US) and no one has had a definitive answer Re trust reporting. All told me that none of their clients reported RESP's, mutual funds or income trusts with form 3520. Two individuals told me they could do the research, speak with those more knowledgeable and for approx $2,500.00, provide me with more definitive information. I declined.
I have tried reading through the requirements for 3520 and 3520A, on numerous occasions and it certainly appears to me, that RESP's,mutual funds and income trusts are "Trusts", and should be reported as per the 3520/2520A requirements. However, I doubt the IRS is particularly interested in the "average" investor with some Canadian mutual funds, and/or units held in income trusts, but rather concerned about money laundering by drug cartels and terroists, and wealthy individuals using trusts to hide income and minimize taxes.
My solution was to sell my income trusts, so as not to worry about getting on the bad side of the IRS. Unfortunately, I have lost a fair bit of investment opportunties over the last 18 months, as income trusts have soared - perhaps I should have spent that $2,500.00.
I have tried reading through the requirements for 3520 and 3520A, on numerous occasions and it certainly appears to me, that RESP's,mutual funds and income trusts are "Trusts", and should be reported as per the 3520/2520A requirements. However, I doubt the IRS is particularly interested in the "average" investor with some Canadian mutual funds, and/or units held in income trusts, but rather concerned about money laundering by drug cartels and terroists, and wealthy individuals using trusts to hide income and minimize taxes.
My solution was to sell my income trusts, so as not to worry about getting on the bad side of the IRS. Unfortunately, I have lost a fair bit of investment opportunties over the last 18 months, as income trusts have soared - perhaps I should have spent that $2,500.00.
Like andied, I got rid of my RESP rather than take on IRS hassles after moving to the US. In addition to the 3520 issue, since there's no provision for education savings plans in the US-Canada tax treaty, RESP income has to be declared annually and taxes paid to the IRS.
While both RESPs in Canada and 529 plans in the US are useful vehicles, it's annoyingly impractical for the cross-border family to use either, unless confident of remaining in just one country until the child(ren) reach university age.
While both RESPs in Canada and 529 plans in the US are useful vehicles, it's annoyingly impractical for the cross-border family to use either, unless confident of remaining in just one country until the child(ren) reach university age.