Regarding my earlier comment about Hutcheson, I'm sure that they file Form 3520 only when necessary. And if their article skews to the scary side, all the better, because many U.S. citizens living abroad are not scared enough. I wish more accounting firms would do the same. It might help fill the void created by the lack of guidance from the IRS.
As for the IRS declaring RRSPs to be trusts, that's not how I read what happened back in 2003.
Notice 2003-25, Canadian Retirement Plan Trust Reporting
http://www.irs.gov/pub/irs-drop/n-03-25.pdf
They say:
"Treasury and the Internal Revenue Service have become aware that many taxpayers with interests in Canadian registered retirement savings plans (RRSPs), as well as the custodians of such plans, are unfamiliar with the requirements for filing Forms 3520 and 3520-A."
It's not that they unilaterally declared all RRSPs to be trusts. It's more like they discovered thousands of U.S. citizens and green-card holders were opening RRSPs as trusts without realising it, or without realising that such foreign trust accounts triggered filing requirements for Forms 3520 and 3520-A. It was such a mess that they had to let everyone off the hook and fix it themselves with the following updates that same year:
Notice 2003-57, Canadian Retirement Plan Trust Reporting
http://www.irs.gov/irb/2003-34_IRB/ar14.html
Notice 2003-75, RRSP and RRIF Information Reporting
http://www.irs.gov/irb/2003-50_IRB/ar10.html
Nowhere can you interpret that the IRS has declared a simple demand deposit savings account at a Canadian bank, if registered as an RRSP or a TFSA, to be a foreign trust. (Of course, the RRSP has unrelated deferral attributes that must be elected.) In fact, has the IRS ever said to file Form 3520 for something that's not actually structured as a trust in the foreign country?
Canadian mutual fund
Moderator: Mark T Serbinski CA CPA
All RRSPs are trusts, even the savings accounts.
http://www.hg.org/articles/article_747.html
That is why they have trustee, required to report to CRA yearly. And they are foreign in the eyes of IRS, obviously
IRS had previously taken the position that RRSPs were exempt from trust reporting because of therir 'special' treaty status. They unilaterally changed their mind in 2003, making them, from that time on, subject to 3520.
http://www.hg.org/articles/article_747.html
That is why they have trustee, required to report to CRA yearly. And they are foreign in the eyes of IRS, obviously
IRS had previously taken the position that RRSPs were exempt from trust reporting because of therir 'special' treaty status. They unilaterally changed their mind in 2003, making them, from that time on, subject to 3520.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
That Canadian court of appeals case argues the exact opposite -- that a savings account would not be a trust. I'll quote:
"The mere name retirement savings plan is not in and of itself a legal form giving any privilege whatsoever."
meaning it doesn't have to be a trust, but ...
"The existence of this limited right to give instructions regarding investments is compatible with the existence of a true trust."
meaning this particular RRSP certainly could be a trust.
So the Court of Appeals held that just because it's an RRSP doesn't make it a trust -- you have to have actually relinquished control to a trustee. They also clarified that if you do relinquish control and set it up exactly like a trust, then it's a trust, regardless of what you call it. It's the old "if it looks like a duck and quacks like a duck" argument.
My TFSA looks like a savings account and acts like a savings account and has no characteristics of a trust and is therefore not a trust. My rights are in no way limited in giving instructions. I don't even give instructions. I just do it, as there's no trustee even around as intermediary.
This Court of Appeals held that *an* RRSP -- this particular one under dispute -- was a trust. That's all. And what's this got to do with the U.S. IRS?
So again ... where has IRS declared that ALL Tax-Free Savings Accounts are trusts, or even, for that matter, that ALL RRSPs are trusts. That's not what the Hutcheson article says. That's not what the Quebec Court of Appeals said. That's not even what the IRS Notices back in 2003 said. Do you have any other source for your claim -- a claim that's causing at least one forum reader to "drain" his savings from a simple bank account at ING Direct?
"The mere name retirement savings plan is not in and of itself a legal form giving any privilege whatsoever."
meaning it doesn't have to be a trust, but ...
"The existence of this limited right to give instructions regarding investments is compatible with the existence of a true trust."
meaning this particular RRSP certainly could be a trust.
So the Court of Appeals held that just because it's an RRSP doesn't make it a trust -- you have to have actually relinquished control to a trustee. They also clarified that if you do relinquish control and set it up exactly like a trust, then it's a trust, regardless of what you call it. It's the old "if it looks like a duck and quacks like a duck" argument.
My TFSA looks like a savings account and acts like a savings account and has no characteristics of a trust and is therefore not a trust. My rights are in no way limited in giving instructions. I don't even give instructions. I just do it, as there's no trustee even around as intermediary.
This Court of Appeals held that *an* RRSP -- this particular one under dispute -- was a trust. That's all. And what's this got to do with the U.S. IRS?
So again ... where has IRS declared that ALL Tax-Free Savings Accounts are trusts, or even, for that matter, that ALL RRSPs are trusts. That's not what the Hutcheson article says. That's not what the Quebec Court of Appeals said. That's not even what the IRS Notices back in 2003 said. Do you have any other source for your claim -- a claim that's causing at least one forum reader to "drain" his savings from a simple bank account at ING Direct?
Form 3520 instructions stipulates that ownership of an RRSP is reportable, with the exception of those who file 8891.
The IRS has never made any distinction in types of RRSps, because there is none. They are indeed all trusts. I don't know how you read the above article and concluded that RRSPs are not trusts, but, in any event, the IRS considers all RRSPs trusts, perhaps because they have a trustee, or paerhaps because of the same reasons the court came to thaat decision.
TFSAs were drawn up under different legislation than RRSP, and I do agree that, for example, for ING, a savings account TFSA and a Mutual fund TFSA are not the same in terms of trustees. That is not the case for RRSPs however, as they all have trustees.
However, it is the IRS that must make that determinations, just like PFIC, etc.
Cdn companies have not changed, but all of a sudden PFIC is an issue -- because IRS changes their mind, as they have on at least six different occasions on RRSPs.
So, I continue to to be of the opinion, because of BOTH the taxability in US and the reporting liability, that US taxpayers avoid TFSAs and RESPs.
The argument that "I'll only use a TFSA that isn't a trust and that doesn't generate much income" doesn't make much sense either.
The IRS has never made any distinction in types of RRSps, because there is none. They are indeed all trusts. I don't know how you read the above article and concluded that RRSPs are not trusts, but, in any event, the IRS considers all RRSPs trusts, perhaps because they have a trustee, or paerhaps because of the same reasons the court came to thaat decision.
TFSAs were drawn up under different legislation than RRSP, and I do agree that, for example, for ING, a savings account TFSA and a Mutual fund TFSA are not the same in terms of trustees. That is not the case for RRSPs however, as they all have trustees.
However, it is the IRS that must make that determinations, just like PFIC, etc.
Cdn companies have not changed, but all of a sudden PFIC is an issue -- because IRS changes their mind, as they have on at least six different occasions on RRSPs.
So, I continue to to be of the opinion, because of BOTH the taxability in US and the reporting liability, that US taxpayers avoid TFSAs and RESPs.
The argument that "I'll only use a TFSA that isn't a trust and that doesn't generate much income" doesn't make much sense either.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Thank you for the detailed response. Your recommendation of avoiding TFSAs and RESPs is wise. Unfortunately, it's too late for me, as I opened my TFSA last year.
It's not necessarily ridiculous to want to shelter some interest income, which is taxed at higher rates than dividends or capital gains, from being taxed in Canada -- especially when it will be quite some time before it's taxed by the United States. And TFSAs are not explicitly for retirement, so many people don't want it in stocks -- using them for rainy days when they're unemployed or for a down payment on a house. I also wanted to keep things very simple, and I certainly was not aware that I might be adding 10 pages of forms to my already 20-page U.S. tax return. Now I wish I had never opened it, not because I have to fill out Forms 3520 and 3520-A, but because I have to figure out whether I have to fill out Forms 3520 and 3520-A.
So far my Canadian and U.S. accountants at a cross-border accounting firm say that I do not. Some Canadian accountants at Hutcheson in Victoria, B.C., seem to be saying that I do. And nelsona, from Nowhere, man, says I do. And there's no guidance from the IRS -- only hearsay. So now I'm faced with the possibility of $2000 in accounting fees to file two years of Forms 3520 and 3520-A, or a week or two trying to fill out the forms for complicated foreign trusts myself about a simple savings account, or penalties starting at $20,000 if I do neither.
And it's just a stupid savings account whose existence, maximum balance, and income I have already faithfully disclosed.
So I'll close my TFSA and see whether things at Hutcheson have calmed down enough in September for them to answer my call and confirm that they're actually filing Forms 3520 and 3520-A for simple savings accounts at ING Direct, or at Vancouver City Savings Credit Union, or at TD Canada Trust. They'll either say, "Oh, don't be silly," or "Indeed we are." If they are, I'll call my own accountants again and take it from there.
My only hope in all this is that as the confusion mounts, and the life-altering penalties start to be assessed, that maybe -- just maybe -- the U.S. will come to its senses and repeal citizenship-based taxation, just as The Philippines did in 1995. That would leave only the State of Eritrea, which at least applies a flat 2 percent tax on citizens abroad and reportedly simply beats up your relatives if you don't pay (or something like that). At least those rules are clear and unambiguous! :-)
It's not necessarily ridiculous to want to shelter some interest income, which is taxed at higher rates than dividends or capital gains, from being taxed in Canada -- especially when it will be quite some time before it's taxed by the United States. And TFSAs are not explicitly for retirement, so many people don't want it in stocks -- using them for rainy days when they're unemployed or for a down payment on a house. I also wanted to keep things very simple, and I certainly was not aware that I might be adding 10 pages of forms to my already 20-page U.S. tax return. Now I wish I had never opened it, not because I have to fill out Forms 3520 and 3520-A, but because I have to figure out whether I have to fill out Forms 3520 and 3520-A.
So far my Canadian and U.S. accountants at a cross-border accounting firm say that I do not. Some Canadian accountants at Hutcheson in Victoria, B.C., seem to be saying that I do. And nelsona, from Nowhere, man, says I do. And there's no guidance from the IRS -- only hearsay. So now I'm faced with the possibility of $2000 in accounting fees to file two years of Forms 3520 and 3520-A, or a week or two trying to fill out the forms for complicated foreign trusts myself about a simple savings account, or penalties starting at $20,000 if I do neither.
And it's just a stupid savings account whose existence, maximum balance, and income I have already faithfully disclosed.
So I'll close my TFSA and see whether things at Hutcheson have calmed down enough in September for them to answer my call and confirm that they're actually filing Forms 3520 and 3520-A for simple savings accounts at ING Direct, or at Vancouver City Savings Credit Union, or at TD Canada Trust. They'll either say, "Oh, don't be silly," or "Indeed we are." If they are, I'll call my own accountants again and take it from there.
My only hope in all this is that as the confusion mounts, and the life-altering penalties start to be assessed, that maybe -- just maybe -- the U.S. will come to its senses and repeal citizenship-based taxation, just as The Philippines did in 1995. That would leave only the State of Eritrea, which at least applies a flat 2 percent tax on citizens abroad and reportedly simply beats up your relatives if you don't pay (or something like that). At least those rules are clear and unambiguous! :-)
I was curious about the true nature of the TFSA, so I looked it up in the Income Tax Act!
http://laws-lois.justice.gc.ca/eng/acts ... .html#h-76
(under "qualifying arrangement")
There are three types of TFSA!
1. Trust
2. Annuity contract
3. Deposit
Only the first kind should be subject to 3520/3520-A reporting, but a friend's Royal Bank TFSA with just a high interest savings account turned out to be a trust! Signed documents include a trust agreement.
http://laws-lois.justice.gc.ca/eng/acts ... .html#h-76
(under "qualifying arrangement")
There are three types of TFSA!
1. Trust
2. Annuity contract
3. Deposit
Only the first kind should be subject to 3520/3520-A reporting, but a friend's Royal Bank TFSA with just a high interest savings account turned out to be a trust! Signed documents include a trust agreement.