Algorithm for doing a 3520-3520A in 2nd year and beyond

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CdnAmerican
Posts: 229
Joined: Tue Aug 30, 2011 12:15 am

Algorithm for doing a 3520-3520A in 2nd year and beyond

Post by CdnAmerican » Mon Jan 14, 2013 1:32 am

Hello! This is my 3rd year to do these forms, and each year I feel like I have to reinvent the wheel. So I thought I would put out an algorithm that could be used. I'm open to feedback on this, if I've missed something. But hopefully it can be an aid to others, at least as a starting point. I am not a professional, just a US citizen in Canada.

This is designed for people who have done a 3520 and 3520 A in a prior year, and it's mainly designed for RESPs. It's also for people who are just making contributions, and not taking out distributions. I have no idea yet how to do the distributions, and will hopefully figure that out before my children are in university.

If you have never done these forms, a better starting point is in this thread: http://forums.serbinski.com/viewtopic.p ... light=3520

I'm no professional, so keep that in mind. This is not advice in any way shape or form, but rather is what I have done. Note that my success with the 3520 has not been stellar in the past, as evidenced by my prior posts. But hopefully I have learned from my mistakes.

1) I pulled out last year's 3520 & 3520-A, as well as my quarterly statements. For 3520-A, Part III, I moved everything in the End of Tax Year column for 2011 into the Beginning of Tax Year column for 2012.

2) I figured out a) my contributions, b) any dividends, and c) any government matching funds.

3) I computed the current value (as of the end of your tax year, typically 12/31) in C$, then converted to US$. This number will go on 3520A, page 2, Part III, Lines 1, 11, 20 & 21 (right hand side).

4) I converted all my contributions, dividends, and govt matching funds to US$, and then added it to my prior year's contributions to trust corpus (Line 17).

5) So now I have my total value of my trust, and my actual contributions. I think the Accumulated Trust Income (Line 18) is the difference between these amounts, in US$. This should, I believe, reflect the change in the value of the fund over time. This is a simple subtraction. That should end Part III. I’ve filled in Lines 1, 11, 16, 17 ($0), 18, 19, 20 & 21.

6) Now, to Part II. I put interest in Line 1, dividends in Line 2, Govt matching funds in Other Income (Line 7), and then the sum of these in Line 8. Line 15 is 0, so Line 16 is equal to Line 8. Line 17 is 0. None of these values match up with any of my values in Part III, by the way.

7) I put these values from Line 2 and Line 7 into page 3 (Foreign Grantor Trust Owner Statement) in lines 1, 2 and 7. I then claim these on my 1040.

8) **VERY IMPORTANT** I make sure I fill in Line 9 on page 3, just above the lines 1-13. I forgot this on a form last year and it created quite a bit of havoc. It’s an easy line for me to miss.

So, that’s it for Form 3520-A. For Form 3520,

9) I checked the top 2 boxes on the first page, because I put money into the trust (first box) and am the owner of the trust (2nd box). This means I have to do Parts I and II of 3520.

10) On Part I, Line 13, I put in the amount of cash in US$ I put into the trust. This includes all the contributions, govt matching funds, and reinvested dividends. (It equals the difference between the current and prior tax year on 3520-A, Part III, Line 17.)

11) In Part II, I put in NA in line 20. I got asked once for more info in this area, and the only thing that was missing was an NA in this line. So now I put NA there. Most importantly, I put in the amount from 3520-A, page 3, line 9, in at line 23.

12) I fill in all the other stuff too, including my name and address and bank info in multiple places. I put “see aboveâ€￾ once and got asked for a resubmission, so now I just retype it multiple times to make my life easier down the road.

13) I sign and date it. For 3520-A, I write in “government grantâ€￾ on page 3, line 7, and page 2, line 7.

14) I send it to Ogden via Express Post, so I can have a record of its receipt. Last year, I send these all my trust forms in one envelope, and I think this confused them (to their credit, there were a lot of forms in the package). So this year I will send them in separate envelopes (including the 3520 and 3520-A) for each trust. Then I’ll put all these envelopes into a bigger Express Post envelope to save on postage.

I would love feedback on this if anyone does it differently or sees a flaw. I have based this largely on info I’ve gained from this site, and thought it might be useful to put it all in a single place.
Not a professional opinion.

MGeorge
Posts: 304
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Post by MGeorge » Mon Jan 14, 2013 4:00 pm

Thanks CdnAmerican - I will try the algorithm and let you know if I have any comments!

smzsul
Posts: 17
Joined: Sun Jan 06, 2013 8:11 pm

Post by smzsul » Tue Jan 15, 2013 2:34 pm

Thanks for this. Do we need to file for EIN ?. My RESP is with TD Waterhouse - it is Self Directed.

Thanks,

CdnAmerican
Posts: 229
Joined: Tue Aug 30, 2011 12:15 am

Post by CdnAmerican » Tue Jan 15, 2013 10:13 pm

Well, if you have filed these before, you should have an EiN already. If not, there's another thread about how to get one - it's very easy.
Not a professional opinion.

Diskdoctor
Posts: 73
Joined: Wed Apr 21, 2010 9:46 am
Location: Winnipeg

Post by Diskdoctor » Tue Feb 05, 2013 12:14 am

CdnAmerican,

Thanks for the detailed information on filling out this form. This is the type of thing I was looking for a few years ago!

I have taken a slightly different approach to some of these items, mostly detailed in the thread you referenced. A few comments:

1) Where it asks for 'Title' by signature in 3520 page 1 I put 'Grantor/Owner'

2) For the 3520-As I do not sign the signature lines. I put the following text "This is a 'substitute 3520-A' per line 22 of Form 3520 since Trustee does not provide the report"

3) I just send mine in by regular mail and include a copy of the cover letter asking that they stamp it and return it to verify their receipt. They generally do. (Learned that trick from an accountant that consulted with me a few years back) Registered mail is the more secure option.

4) 3520-A line 2e I usually check 'yes' and write something beside it like 'Financial statement; RESP application and declaration of trust attached previously' and attach a copy of whatever financial statements I have.

5) I have made sure that for 3520-A values in part II match values in part III. I have made use of part III line 19 (other) to account for changes in value due to exchange rate fluctuations and then added an explanation in an attachment. Since there are no details in the instructions and the IRS will not answer questions on this form it seems to me that my approach is no more or less correct than that of CdnAmerican.

I am just a lay person so my approach is probably not worth much. I have so far never received any questions back from the IRS.

CdnAmerican
Posts: 229
Joined: Tue Aug 30, 2011 12:15 am

Post by CdnAmerican » Tue Feb 05, 2013 11:30 pm

THanks Diskdoctor. We are awfully close, I think. Our differences are probably not important.

1) I hadn't done that, but that's a good idea. I'll probably do that this year.
2) I just sign there. Not sure which way is right. BUt when I've signed in the past it's been fine.
3) That's a good idea. I just pay the $23 and send it ExpressPost because I am compulsive and will worry otherwise. Your approach is cheaper and makes sense if you are not so anxious.
4) I choose Yes, but don't attach financial statements. It hasn't been necessary yet, and I fear it will just complicate the situation. I don't think they want these. BUt it probably doesn't hurt.
5) I think the difference is that I account for the change in value on Line 18, and you do it on Line 19. I doubt it matters, really.

Good stuff. Thanks for doing that!
Not a professional opinion.

carfey
Posts: 2
Joined: Mon Mar 25, 2013 11:01 pm

Post by carfey » Mon Mar 25, 2013 11:03 pm

CdnAmerican,

I'm curious how you factor in FX rate fluctuations?

I was thinking I'd include it as "Other Income" (3520 Part II line 7) but I only ever have reported interest converted to USD on my 1040, so that doesn't cover the fluctuations in the account when you convert to USD. Thoughts?

carfey
Posts: 2
Joined: Mon Mar 25, 2013 11:01 pm

Post by carfey » Mon Mar 25, 2013 11:13 pm

Oops, I missed your last response. For what it's worth, I think either approach makes sense.

Sylvia
Posts: 14
Joined: Sat May 25, 2013 9:52 pm

Post by Sylvia » Sun Feb 09, 2014 7:40 pm

Excellent post. Nice refresher for this year's 3520-As :)

One thing that has always confused me -- why is there a space for Accumulated trust income in Part III for "Beginning of Tax Year"? Shouldn't this number always be zero, since last year's income gets moved up to the Contributions space in "Beginning of Tax Year"? Why don't they just block it off, it messes with my head every year!

CdnAmerican
Posts: 229
Joined: Tue Aug 30, 2011 12:15 am

Post by CdnAmerican » Sun Feb 09, 2014 10:52 pm

Hi Sylvia - I wondered the same thing, but I think I've figured out how to deal with it. Basically, I move by prior year's End of Tax Year section over to the new year's Beginning of Tax Year section. Basically, I am carrying over the Accumulated Trust Income. My guess is that the IRS is asking us to do that so that they are able to track how much accumulation has occurred over the years, but that's only a guess.

Anyway, what I do to figure out the new End of Tax Year info is to a) determine the current value of the trust & put that in Line 1 (Cash), b) figure out the increase in value since last year, c) split out that increase from i) dividends/interest, ii) government grant (from the resp), iii) my own contributions, and iv) increase in the value of the investment above and beyond i, ii, and iii.

i) dividends/interest are accounted for inluced in Part II, line 1 or 2
ii) government grant goes in Part II, Line 7 with a written-in note "Canadian Government Grant"
iii) my own contributions are the 3520, Schedule B, Line 13
iv) the increase in value is on Part III, line 18.

Hope this helps! I am not at all convinced that I am doing it right, but Ihaven't gotten hassled for this accounting method so far (knock wood). I might be leaving out some other places those figures go in the 3520 or 1040, but I am thinking I referenced those last year. If not, send a note and I'll give more detail. Good luck!
Not a professional opinion.

MGeorge
Posts: 304
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Post by MGeorge » Mon Feb 10, 2014 11:56 am

Hi All,

I have a question about line 3 of 3520 "Did the trust appoint a US agent"?
In other threads I've seen that we could answer "yes" and just simply state that the trust (Say CIBC Investor's Edge) is a "qualified intermediary".
I have used this in the past and haven't had any problems. Is this generally what you folks do? I'm trying to get a concensus.

Does "Qualified Intermediary" = "US Agent"?

MGeorge.

zad888
Posts: 32
Joined: Tue Jan 24, 2012 2:24 am

Post by zad888 » Mon Feb 10, 2014 8:32 pm

[quote="Sylvia"]Excellent post. Nice refresher for this year's 3520-As :)

One thing that has always confused me -- why is there a space for Accumulated trust income in Part III for "Beginning of Tax Year"? Shouldn't this number always be zero, since last year's income gets moved up to the Contributions space in "Beginning of Tax Year"? Why don't they just block it off, it messes with my head every year![/quote]

Hi Sylvia,

I'm not sure if this applies to you...my TFSA is in a GIC. The way I've been doing it is just transferring the figures from previous year's EOTY [end of tax year] to current year's BOTY [beginning of tax year].

line 17 - contributions - remain the same unless I made a contribution to my TFSA
line 18 - accumulated trust income - is the interest I earned for the year which basically increases each year as my GIC earns interest each year.
line 19 - other - is where I account for the fluctuation in the yearly average exchange rate...which can increase or decrease. Based on last year's [2013] exchange rate, this amount has decreased.
line 20 - total of all 3 lines which is equal to my total assets since there are no liabilities to account for.

I have been doing this for the past 4 years and so far no issues. I hope I've been doing it right. :D

DonMurphyCanada
Posts: 65
Joined: Sat Mar 01, 2014 11:41 pm

Post by DonMurphyCanada » Sat Mar 15, 2014 8:09 pm

I have a question about the amounts to place on the 1030 from the 3520A. (Wife is filing a her US taxes - USC living in Canada since 2010 and we have a joint RESP - doh)

Assuming I have the following 3 values on 3520-A for the RESP:

Page 2 - Part 2 - Line 1 - Interest (Calculated 2013 RESP interest)
Does this go to 1040 Schedule B Part 1

Page 2 - Part 2 - Line 7 - Other Income (Calculated 2013 RESP govt. matching)
Does this go to 1040 - Income - Other Income - Line 21?

Page 2 - Part 3 - Contributions (17b/d) and [Matching + interest] (18b/d)
Is this simply for reporting the beginning and end values of contributions, interest+matching and totals for the RESP? In other words not used when filing the 1040.

TIA,

Don





[quote="zad888"][quote="Sylvia"]Excellent post. Nice refresher for this year's 3520-As :)

One thing that has always confused me -- why is there a space for Accumulated trust income in Part III for "Beginning of Tax Year"? Shouldn't this number always be zero, since last year's income gets moved up to the Contributions space in "Beginning of Tax Year"? Why don't they just block it off, it messes with my head every year![/quote]

Hi Sylvia,

I'm not sure if this applies to you...my TFSA is in a GIC. The way I've been doing it is just transferring the figures from previous year's EOTY [end of tax year] to current year's BOTY [beginning of tax year].

line 17 - contributions - remain the same unless I made a contribution to my TFSA
line 18 - accumulated trust income - is the interest I earned for the year which basically increases each year as my GIC earns interest each year.
line 19 - other - is where I account for the fluctuation in the yearly average exchange rate...which can increase or decrease. Based on last year's [2013] exchange rate, this amount has decreased.
line 20 - total of all 3 lines which is equal to my total assets since there are no liabilities to account for.

I have been doing this for the past 4 years and so far no issues. I hope I've been doing it right. :D[/quote]

CdnAmerican
Posts: 229
Joined: Tue Aug 30, 2011 12:15 am

Post by CdnAmerican » Sun Feb 08, 2015 5:14 pm

Hi everyone - just a bump for this thread, as I sit down to do my own 3520s for 2014. Again, please add notes or edits or corrections as you see fit. Good luck to all!
Not a professional opinion.

MGeorge
Posts: 304
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Post by MGeorge » Mon Feb 09, 2015 1:24 pm

Hi CdnAmerican, and others,

This is a useful post on filling out 3520A and 3520. I do pretty much everything consistent with the first part. If I could add something it would be this:

3520A:

Part 1 line 2: I answer that the trust did not appoint a US agent. In previous years (2012 and before) I tried to make the claim that my RESP is a QI which is close enough to a US agent. Now I believe that I have to answer "no" to this question. Then I go about filling in line 2a-e. I plan to attach some documents explaining what an RESP is "RC4092" from the government of Canada for 2a and "declaration of trust" for 2b.

Page 3, line 8: I list the above documents as attachments.

Another thing I do which isn't mentioned, is that I only claim 50% of the income on page 3 "trust owner statement". My NRA spouse contributes to the RESP, and since Quebec, Canada is a community property region, I claim 50% of the income, and my wife claims 50% of only the US source income (ie. nothing). To do this, I do the following:

3520A, page 3, line 7: Attach a statement explaining the application of community property rules. 50-50 ownership and income liability.

3520A, page 3, line 9: Indicate 1/2 the value has having a US owner.

Form 3520, Part 1, line 7a: "yes" the contributions will be considered owned by another person. below, I put my spouse's name, and mention code section 671.

On my form 1040, for dividends, I declare the entire RESP dividends, and then use the "nominee distribution" to remove 1/2 of them. Same for interest.
On Schedule D, there is a 1099 code you can enter to "nominee distribute" away 1/2 of the capital gain.

This is only the 2nd year I've done this where I assume liability for only half of the account - but I believe this is correct. I'd appreciate any feedback on this.
------------------------------
MGeorge is neither an accounting nor taxation professional.

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