As a US citizen or resident of the United States, you are required to annually file a Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts in order to postpone your transactions with a foreign trust. For US purposes, holding a tax-free savings account (TFSA) falls within the definition of a foreign trust. Therefore, distributions from your TFSA and contributions transferred to it must be reported on Form 3520.

Even if you received no distribution during the year or made no contribution to your TFSA, you still have the obligation to file Form 3520. Such a form is also necessary if a non-resident person or corporation has made a donation to you that exceeds the applicable thresholds. As of 2020, although the Registered Education Savings Plan (RESP) is considered a foreign trust, it no longer has to be declared on this form.

A form 3520-A must also be prepared to report the annual information relating to the TFSA. It must be attached to Form 3520, otherwise the Internal Revenue Service (IRS) will normally issue a notice requesting that the form be produced.

Applicable penalties

If the TFSA or donation is not reported on Form 3520 by the deadline, a minimum penalty of $10,000 US may apply. Likewise, if Form 3520-A is not prepared within the prescribed time frame, the IRS may apply a penalty representing the greater of $10,000 US or 5% of the gross value of the TFSA.

Other forms

As a US citizen or US tax resident, other forms may apply to you depending on your situation. This will be the case in particular if you are a shareholder of a foreign company or if you hold mutual funds. Finally, you will normally be required to file the Report of Foreign Bank and Financial Accounts (FBAR) form and Form 8938, Statement of Specified Foreign Financial Assets if you exceed certain thresholds.

Do not hesitate to make an appointment with one of our tax experts or to drop your file on our virtual platform; it will be our pleasure to assist you in the preparation of forms 3520 and 3520-A. Being specialists in US tax, we are used to preparing these forms and understanding their intricacies!

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About the author

Olivier Custeau, tax expert, B.A.A., M. Fisc., EA

Holder of a bachelor's degree in business administration (B.B.A) from Université Laval and a master's degree in taxation (M. Fisc.) from the Université de Sherbrooke, Olivier has developed expertise in American and international taxation by working in a renowned firm. Over the years, he has developed a keen interest in US taxation. In fact, he was awarded Enrolled Agent status in 2019, the highest level a professional can attain to represent clients to the Internal Revenue Service (IRS). Recognized for his rigorous, dynamic and human approach, Olivier is an asset to the team.