Is a 3520 unnecessary for a Tangerine TFSA?

DaveM · Post by **DaveM** » Thu Apr 02, 2015 5:25 pm

The point raised by nelsona above is critically important if one is going to decide whether or not to file 3520/A forms annually (or whether to close TFSA(s)).

When I opened 2 RESPs at a small Canadian bank, I was referred to as a subscriber and the RESP managing company as the 'promotor'. The only thing indicating anything remotely related to a trust was the fact that there were beneficiaries (which they would also be called under the 529 U.S. college savings plan which ordinarily doesn't operate as a trust).

Just for giggles, on a recent visit to Canada, I told the banker that opened my RESPs about the revelations of the U.S. 3520/A form requirements. She responded that 'they aren't trusts'. However, if you happen to read the Canadian Education Act (as I did some time ago) that defines the RESPs, it discusses them very much as a trust eg. when you are a subscriber, you are a trustee.

Yes, this is a different situation than TSFAs, but the point that is the same is that you can't trust the Canadian bank to give you accurate information- you may have to dig deeper. Parenthetically, you would think that, by now, there was clarification from the IRS ie. that perhaps if you have information from the bank that the TFSA operates no different than a savings account or a GIC then it is not a trust, that would suffice.

nelsona · Post by **nelsona** » Thu Apr 02, 2015 9:22 pm

Exactly dave.
As I said, RESPs and TFSAs and RRSPs are ALL trusts in the eyes of IRS.

rafa02 · Post by **rafa02** » Thu Apr 02, 2015 9:48 pm

nelsona, I have tremendous respect for your knowledge and your efforts helping people on this board, but I have read numerous comments from you where you state categorically that the IRS considers RESP's and TFSA's as trusts. Where is this information from the IRS? I have searched over and over on the IRS website and can find no such definitive statement(or any statement). Is this info only available to certain groups and not the general public, or perhaps I have just missed it. I have also spoken extensively with a very knowledgeable and experienced cross border tax accountant and he has made very cogent arguments as to why these may not be reportable grantor trusts.

I am just curious, I have no dog in the hunt, but I would be interested in possibly opening a TFSA.

nelsona · Post by **nelsona** » Thu Apr 02, 2015 9:59 pm

Yes, and for years the same cogent arguments were made for RRSPs, and they were proven incorrect.
Nothing I have ever read has stated that IRS has accepted that tFSAs are not trusts, nor have I read categorically that IRS considered RESPs trusts, but RESPs are universally considered reportable on 3520, so why would TFSA's not be.

TFSAs don't only have the trust issue, they have the tax issue, the PFIC issue and the FATCA/FBAR issue.

nelsona · Post by **nelsona** » Thu Apr 02, 2015 10:09 pm

http://cardinalpointwealth.com/how-the- ... s-account/
http://www.collinsbarrow.com/en/cbn/pub ... .-citizens
http://www.moodysgartner.com/irs-says-h ... an-trusts/
http://www.bdo.ca/en/Library/Services/T ... Canada.pdf

All state either that TFSAs are trusts, or they might be.
NONE of these say they are not trusts.

I could go on, and I'm sure so could you.

However I have not heard of a penalty for filing an 3520 unnecessarily, while the penalties for NOT filing 3520 are well-known.

nelsona · Post by **nelsona** » Thu Apr 02, 2015 10:10 pm

and as dave said, one simply cannot rely on the TFSA trustee to tell you whether or not the TFSA is considered a trust by IRS, other than by a private letter ruling from them.

nelsona · Post by **nelsona** » Thu Apr 02, 2015 10:13 pm

btw, one of the papers was written by Terry Ritchie; I dare say that whomever you spoke to is NOT of his calibre.

tennishepcat · Post by **tennishepcat** » Fri Apr 03, 2015 12:21 am

[quote="nelsona"]However I have not heard of a penalty for filing an 3520 unnecessarily, while the penalties for NOT filing 3520 are well-known.[/quote]

Definitely going to play it safe then and file a 3520 for my Tangerine TFSA.

For Tangerine specifically, would I put them down as the US agent on the form?

rafa02 · Post by **rafa02** » Fri Apr 03, 2015 12:45 am

Thanks nelsona for your response and the interesting and informative links; however, these are are all simply opinions and interpretations (no doubt knowledgeable and experienced, but nevertheless opinions - not from the IRS).

I would have no issue with people clearly stating their opinion and so stating that it is their opinion, but it is so often stated as though it is gospel, handed down from the IRS, and I do not see anywhere that the IRS has made such a determination. I see these declarations on this and other websites and it scares the heck out of people, and of course, that is the basis of the voluntary tax system - frighten people to disclose and pay their taxes. Even if the IRS determines that these are reportable trusts, it does not necessarily follow that a tax court would agree.

DaveM · Post by **DaveM** » Fri Apr 03, 2015 2:05 am

rafao: 'I would have no issue with people clearly stating their opinion and so stating that it is their opinion, but it is so often stated as though it is gospel, handed down from the IRS, and I do not see anywhere that the IRS has made such a determination... Even if the IRS determines that these are reportable trusts, it does not necessarily follow that a tax court would agree.'

I sympathize with your frustration particularly since I've been around the block on all things 3520/A even to the extent of having an international tax attorney and accountant at one point. The hard-core truth is that until proven otherwise, the IRS has likely chosen to define a trust far more broadly than banks and accountants do. People are not just simply giving their opinion on things that are not clearly stated one way or another by the IRS, they are telling you how things ARE.

It's a tough pill to swallow, but the fact is that one can choose to rail against the IRS universe and go to tax court if necessary or one can bite the bullet and file the frickin' forms! :)

nelsona · Post by **nelsona** » Fri Apr 03, 2015 11:42 am

Rafo2,

"but it is so often stated as though it is gospel, handed down from the IRS,".

No one here as said that, and certainly not me. However no one has ever quoted IRS on RESP either, but it is well established that they need 3520. So don't be claiming to disagree with something that no one has said, just because it disagrees with your opinion.

As I said, I can probably find more "experts" that say 3520, and you can find more that say no 3520. You seem to be hanging your hat on one expert. None would be the IRS.

Al I'm saying is that ALL the experts felt for YEARS (you,re new at this, I'm not) that RRSPs were exempt from 3520. IRS decided they were not exempt.

I'm also saying that there is no harm in filing 3520 when not required, especially when some/most are suggesting it, and are filing it, rather than being caught having not done it.

I'm typically quite aggressive with minimizing what should be filed with IRS, but in this case, given IRS track record, and given the difficulties which can be faced when IRS does make a decision, I have consistently said to file 3520 for TFSA.

And finally, I'm saying that one CANNOT take the work of the Cdn trustee that they are not a trust as defined by IRS, since none of them actually say this. They simply dsay they are not a trust, per their own, or per CRA definition.

rafa02 · Post by **rafa02** » Sat Apr 04, 2015 12:39 pm

Thanks nelona and DaveM, for your comments. I agree with the cautious approach (that is why I have never opened a TFSA)., and report information that may not be required, even though it is very annoying and an invasion of my privacy.