IRS provides guidance eliminating tax filings for Canadians holding RESPs

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On March 2, 2020, the IRS released Revenue Procedure 2020-17 which has broad implications to US citizens in Canada who maintain Registered Education Savings Plans (“RESPs”) and possibly, Tax-free savings accounts (“TFSAs”).  The highlights are as follows:

  • Holders of Canadian RESPs will no longer have to file Forms 3520 and 3520-A for said accounts.
  • The announcement seemed to indicate the absence of an IRS appetite for administrating foreign trust returns for certain entities when they are not “real” foreign trusts in the conventional sense.
  • Though not covered by the recent announcement, we believe that the TFSA holders should also no longer be required to file Forms 3520 and 3520-A if they are US citizens. The overall sentiment expressed by the IRS in the announcement, coupled with various cases where similar arrangements in other countries were not considered trusts, give us a high level of confidence that the IRS will not enforce the filing of said forms for TFSAs.
  • Though separate reporting is not required, the earnings in said accounts will still be taxable in the US, and the accounts will still be subject to Foreign Bank Account Report (“FBAR”) reporting, etc.
  • The IRS should be following up the announcement with temporary and final regulations on the issue. It is hopeful that by the time the final regulations are issued that both RESPs and TFSAs will be explicitly exempt.

If you have any questions on how Revenue Procedure 2020-17 may affect you, please reach out to one of the following members of the Zeifmans US Tax Team today:

Stanley Abraham, sa@zeifmans.ca | 416.256.4000 ext. 356

Chaim Rosner, cyr@zeifmans.ca | 416.256.4000 ext. 315

Kobi Rosen, kr@zeifmans.ca | 416.256.4000 ext. 296