Penalty for Form 3520 for TFSA

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

Post Reply
aed11
Posts: 9
Joined: Sat Apr 19, 2014 11:37 pm

Penalty for Form 3520 for TFSA

Post by aed11 » Sat Apr 06, 2019 4:36 pm

I am a dual citizen living in Canada. This past week I have received two huge penalties for failing to timely file Form 3520- the first for 10k for failing to file part II and the second for 10K+interest for failing to file parts I and III. I was shocked by this as I have always diligently filed this form and my taxes on time by June 15. I called to IRS and they said that the forms were not received until the beginning of July, so they are considered late unless I can prove otherwise. I had them double and triple check that there was no postmark on their scan of the envelope but they say there was not, and I do not have any other proof that I filed these on time. I generally always make a point to ensure the post office postmarks my taxes to the IRS, so I am not sure if I forgot to ask this time, or was just advised that they would be postmarked and trusted that.

The IRS official advised me to write in and try to request a tax abatement. After receiving the first penalty letter (and before receiving the second), I wrote a letter to plead my case, and also mentioned that I was not even sure if form 3520 needed to be filed for TFSA's to begin with, as the IRS has refused to make any statement on this matter, and so I was filing them protectively "just-in-case". Having received the second letter, and after doing more research on tax abatements (which is not reassuring, as I probably can not provide what the IRS considers a "reasonable cause" for being late) I am even more sick to my stomach. As I prepare to write a second letter to request abatement of the second penalty, I am reaching out to anyone who can help me provide a just argument to support my case. I am planning to reference online articles that support that a TFSA is not a trust, however I am not sure whether the fact that I have filed the form in the past would be seen as me believing that they are a trust, and thus the IRS position may be irrelevant? Any help is appreciated as I have recently bought a house and do not have this kind of money to spare.

I am guessing this is the result of notices I have recently read about the IRS cracking down on 3520 noncompliance as of August 2018. I wonder if other Canadians are also in my position?

CdnAmerican
Posts: 218
Joined: Tue Aug 30, 2011 12:15 am

Re: Penalty for Form 3520 for TFSA

Post by CdnAmerican » Wed Apr 10, 2019 1:03 am

Hi aed11 - I'm sorry you are having this experience. I don't have any specific advice, but there are a number of threads on here which deal with people who have had such a penalty assessed. I believe that in all the ones I've seen (including one of my own), the penalty was fully abated, once the filer was able to talk with a reasonable human at the IRS rather than the computer. It may be worth a follow-up call to see if the agent can abate it in your call, as several people have had that experience too (that way, you don't have the stress of waiting for the letter). There's also the Taxpayers Advocate, who could potentially help too. Good luck and let us know how this turns out. It is indeed stressful!
Not a professional opinion.

MGeorge
Posts: 299
Joined: Fri Jun 22, 2012 9:23 am
Location: Canada

Re: Penalty for Form 3520 for TFSA

Post by MGeorge » Tue Apr 16, 2019 11:00 am

Hi aed11,

I'm very sorry to hear about what is happening to you. I too have received letter after letter about my 3520/3520A filings and I'm getting so sick of it. I agree with CdnAmerican - just get a hold of someone at the IRS office and see if you can get the penalties fully wiped out. The legal arguments for why a TFSA isn't a trust are pretty solid sounding, maybe when you talk to someone you can argue that the 3520 was never needed to begin with. I think the best advice is to talk to a human before replying to their letters.
------------------------------
MGeorge is neither an accounting nor taxation professional.

aed11
Posts: 9
Joined: Sat Apr 19, 2014 11:37 pm

Re: Penalty for Form 3520 for TFSA

Post by aed11 » Thu Aug 01, 2019 1:32 pm

After writing two lengthy letters to the IRS and waiting over 3 months I finally received a letter today saying that the penalties have been removed from my account (naturally, no explanation whatsoever). So Relieved! I had made many phone calls as well but was unable to get anyone to help me, as it was a special division that dealt with these 3520 fines. A couple of the people I talked to had hoped that they could lift the fine for me over the phone under the first time abatement policy but found out that they didn't have the ability to for these fines. Now to go about filing to relinquish my citizenship...

CdnAmerican
Posts: 218
Joined: Tue Aug 30, 2011 12:15 am

Re: Penalty for Form 3520 for TFSA

Post by CdnAmerican » Mon Aug 12, 2019 7:21 pm

Congratuations aed11! That kind of mirrors my experience as well, except that for me the agent was indeed able to abate them over the phone, with paperwork gradually following over the next 6 weeks or so. I still have not heard of anyone on this forum who had an actual $10K fine which was enforced, which is nice (if I'm wrong, please let me know). Good job!
Not a professional opinion.

Post Reply