(1) Are Canadian mutual fund distributions --
-- Schedule B "Dividends"?
-- or 1040 Line 21 "Other income" ?
(2) On the new form 8938 Part III, I presume I would classify Cdn mutual fund distributions the same way as for the answer to the preceding question (?)
For 20 years, my CA put Cdn MF distros down as Dividends on Schedule B; I have continued to do the same thing. But with the new Form 8938, I would like to get things right if I have been doing it wrong.
The actual mutual funds in question are money market funds (I presume that does not affect the answer). The account they're in is *not* an RRSP.
Are mutual fund distributions "dividends" on Sched
Moderator: Mark T Serbinski CA CPA
Mutual funds were not corporations (from the IRS's point of view) before tax year 2011. For 2011, mutual funds became corporations by virtue of a court decision which ultimately gave rise to the passing of the HIRE Act, which added a new section, 1298(f), to the U.S. Code.
The instructions for Form 8621 say, "Notice 2011-55, 2011-29 IRB 53, suspends the section 1298(f) reporting requirement for tax years beginning after March 18, 2010, for PFIC shareholders that are not otherwise required to file Form 8621." Since prior to the fiat declaration that mutual funds were "corporations" it was not required to report Canadian mutual funds on Form 8621, it will be neither necessary nor advisable to file Form 8621 until the IRS's promised "release of a subsequent revision of Form 8621, modified to reflect the requirements of section 1298(f)" is eventually released. We don't even know what the rules will be yet.
The instructions for Form 8621 say, "Notice 2011-55, 2011-29 IRB 53, suspends the section 1298(f) reporting requirement for tax years beginning after March 18, 2010, for PFIC shareholders that are not otherwise required to file Form 8621." Since prior to the fiat declaration that mutual funds were "corporations" it was not required to report Canadian mutual funds on Form 8621, it will be neither necessary nor advisable to file Form 8621 until the IRS's promised "release of a subsequent revision of Form 8621, modified to reflect the requirements of section 1298(f)" is eventually released. We don't even know what the rules will be yet.
OK, let's go with what you say.
If I have had a non-RRSP account holding a Cdn$ money market fund since the early 1980s and have reported every year on Schedule B the fund's Cdn "Other Income" (listed on Sch B as "Dividends") but have not filled in *any* other U.S. forms regarding this fund, what am I supposed to do about all that now?
There have been a couple of cash inputs and very few withdrawals over the last 30 or so years. The balance is not small enough to be neglected by any criterion.
If I have had a non-RRSP account holding a Cdn$ money market fund since the early 1980s and have reported every year on Schedule B the fund's Cdn "Other Income" (listed on Sch B as "Dividends") but have not filled in *any* other U.S. forms regarding this fund, what am I supposed to do about all that now?
There have been a couple of cash inputs and very few withdrawals over the last 30 or so years. The balance is not small enough to be neglected by any criterion.
@testone ("Interesting . . . But not true.") --
FWIW, this is the site where I got the above-stated opinion:
http://www.ica.bc.ca/kb.php3?pageid=477 ... 466a90e4bf
It says (in November 2010) --
"Earlier this year, the Internal Revenue Service changed its views with respect to the US tax treatment of non-US mutual funds. This change in policy was the result of Chief Counsel Advice (CCA) 201003013, issued on January 22, 2010, which determined that a Canadian mutual fund should be classified as a corporation rather than a trust for US tax purposes"
and later --
"A consequence of classifying Canadian mutual funds as corporations for US tax purposes is that the US PFIC rules will apply to US persons owning units in a Canadian mutual fund."
FWIW, this is the site where I got the above-stated opinion:
http://www.ica.bc.ca/kb.php3?pageid=477 ... 466a90e4bf
It says (in November 2010) --
"Earlier this year, the Internal Revenue Service changed its views with respect to the US tax treatment of non-US mutual funds. This change in policy was the result of Chief Counsel Advice (CCA) 201003013, issued on January 22, 2010, which determined that a Canadian mutual fund should be classified as a corporation rather than a trust for US tax purposes"
and later --
"A consequence of classifying Canadian mutual funds as corporations for US tax purposes is that the US PFIC rules will apply to US persons owning units in a Canadian mutual fund."
I guess you can't believe everything you read on the internet.
The idea that a trust can be treated as a corporation for U.S. tax purposes has been around since at least 1935. See Morrissey v. Commr., 296 U.S. 344 (1935).
Although the article says that the IRS "changed its views" the CCA itself says nothing about a change in view. It simply says that the mutual funds in that case appeared to be corporations for U.S. tax purposes, even if structured as trusts.
The idea that a trust can be treated as a corporation for U.S. tax purposes has been around since at least 1935. See Morrissey v. Commr., 296 U.S. 344 (1935).
Although the article says that the IRS "changed its views" the CCA itself says nothing about a change in view. It simply says that the mutual funds in that case appeared to be corporations for U.S. tax purposes, even if structured as trusts.
