Penalty for Form 3520 for TFSA

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aed11
Posts: 13
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: 220
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: 13
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: 220
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.

kdash0138
Posts: 1
Joined: Tue Oct 22, 2019 8:21 pm

Re: Penalty for Form 3520 for TFSA

Post by kdash0138 » Tue Oct 22, 2019 8:27 pm

Hi OP, it's reassuring to hear your successful story. My spouse and I are also facing the same situation, except our fines add up to be 4x of yours!
Feeling very distraught and stressed out right now. I called the number on the CP15 notice many times but could never get a definitely answer from anyone. It seems that even internally there isn't anyone familiar with this form and the penalty charge. They could not direct me to the right department either. It is very time consuming and tiring to deal with this mess. ='(

CdnAmerican
Posts: 220
Joined: Tue Aug 30, 2011 12:15 am

Re: Penalty for Form 3520 for TFSA

Post by CdnAmerican » Mon Oct 28, 2019 12:00 am

Hi kdash - I'm sorry to hear of your experience. Another approach you could try is through the Taxpayer Advocate office. Or, you could also try through your US representative's office; they sometimes have a connection that regular folks don't have. Good luck ..
Not a professional opinion.

Lili1234
Posts: 1
Joined: Tue Oct 01, 2019 10:52 pm

Re: Penalty for Form 3520 for TFSA

Post by Lili1234 » Fri Nov 01, 2019 10:07 pm

I am also in the same situation. I can not have information by phone on my file. No one can confirm that the mail I sent was processed. I think I will have to return my 3520-A for a third time (by certified mail and signed each time). It is a very frustrating situation, we try to follow the course dictated by IRS, but nothing happens. I am more and more worried because the CP15 threatens me with another penalty after 90 days. I am not able to speak with anyone who can tell me about my file. My pénalty is for a RESP.

Ron.Henderson
Posts: 10
Joined: Sun Jan 06, 2019 2:24 pm

Re: Penalty for Form 3520 for TFSA

Post by Ron.Henderson » Sun Nov 03, 2019 5:52 pm

The lesson here is to minimize "form-crime" risk by either not filing 3520s for TFSA/RRSP/RESP accounts, or to not declare them at all because they are not reported under FATCA. Furthermore, dual citizens without any US financial exposure (no property or investments or income) really should not be filing US returns at all. For Canadian residents there is generally more downside than upside to US tax compliance.

jeroro014
Posts: 1
Joined: Sun Nov 10, 2019 3:05 am

Re: Penalty for Form 3520 for TFSA

Post by jeroro014 » Sun Nov 10, 2019 3:08 am

CdnAmerican wrote:
> 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 [url=https://www.baloune.com/guide-sante-chiens/] comparateur assurance chat [/url] 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!
This is a good article because there are many tips and also many advices that will be very useful for me.

SonicTraveller
Posts: 4
Joined: Mon Nov 11, 2019 12:33 pm

Re: Penalty for Form 3520 for TFSA

Post by SonicTraveller » Mon Nov 11, 2019 12:43 pm

I just received a similar penalty notice for $10,000 related to form 3520-A, tax year 2017.

In my case it also relates to a TFSA. With 20/20 hindsight, I wish I'd never reported this account as a foreign trust. A closer look at the account has me seriously doubtful whether such an account qualifies as a foreign trust (I have 100% control over investment decisions, can withdraw funds or close the account at any time). The 'trustee' serves basically as a custodian rather than a fiduciary.

I had attached a substitute 3520-A when I filed my form 3520. In any event - hopefully I can reach someone reasonable at the IRS this week.

For anyone else encountering this issue, I also found this post quite helpful:
https://www.americanexpatfinance.com/op ... ng-and-did

SonicTraveller
Posts: 4
Joined: Mon Nov 11, 2019 12:33 pm

Re: Penalty for Form 3520 for TFSA

Post by SonicTraveller » Tue Nov 12, 2019 1:42 pm

An update on my situation to anyone who is interested.

I called the IRS, first 5-6 times I called I went straight to busy signal, but eventually got through. After the usual long holding times and being transferred to a different person, I managed to speak to someone.

The IRS rep advised me to send a letter to an address in Utah (note this was a different address than the Austin address in the penalty notice) describing the situation. In my case, I had timely filed (thank goodness) Form 4868 that extended the time for my personal return (including 3520) to October 15th. Since I filed my 3520 with an attached substitute 3520-A in August 2018, it would seem the penalty was applied in error and the rep agreed. She added a 'Hold' status to the penalty.

So I'll be sending the letter and fingers crossed the penalty will be revoked.

Not sure what would happen if I didn't have that supporting Form 4868, and if the 3520 was in fact late. I previously found it hard to imagine they would apply a $10,000 penalty under such innocuous circumstances but this situation has given a rude awakening.

I'm sending a letter discussing the situation (overly punitive penalty for 3520, and lack of clarity around Canadian self-directed TFSA accounts) to the taxpayer advocate, and also to the member of Congress for the district that I was born in. I'd encourage anyone in similar circumstances to do the same - hopefully if enough letters come in they may actually do something to address it.

Ron.Henderson
Posts: 10
Joined: Sun Jan 06, 2019 2:24 pm

Re: Penalty for Form 3520 for TFSA

Post by Ron.Henderson » Tue Nov 12, 2019 2:57 pm

Remember that there is a huge difference between assessing a penalty, and collecting a penalty. If you're a Canadian citizen living in Canada with no US assets or income sources, the IRS can't do a thing. You can tell them to pound sand. Recycling their letters unopened beats paying them $10k fines.

Gregoires88
Posts: 2
Joined: Mon Nov 25, 2019 4:52 am

Re: Penalty for Form 3520 for TFSA

Post by Gregoires88 » Sun Dec 01, 2019 2:44 pm

aed11 wrote:
> 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.
> [url=http://www.rachat-de-credit-simulation. ... -de-credit] Rachat de crédit trésorerie travaux[/url]
> 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?

Hello everyone. Everything you say here, are really very interesting and detailed I find . Thank you for sharing them with us. Thank you for your return. Force to us. Sincerely

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