IRS Forms 3520 and 3520-A for my TFSA and RESP
Published on May 12, 2020
Updated on April 17, 2025
Reviewed by
Table of Contents
Do I need to file IRS Forms 3520 and 3520-A for my TFSA and RESP?
If you only hold an RESP account, then you are not required to file Forms 3520 and 3520-A, thanks to the new IRS Revenue Procedure 2020-17 implemented in 2020.
If you hold a TFSA account, it may depend on the kind and ownership control you have. Usually, TFSAs set up as an “Arrangement In Trust” require filing Form 3520 and 3520-A.
What is inside the new Revenue Procedure 2020-17?
The new Revenue Procedure 2020-17 exempts certain tax-favored foreign trusts from filing Forms 3520 and Form 3520-A, provided that they meet specific criteria. This includes Canada’s RESPs. Most RESPs qualify for the relief, especially those set up for education or medical disabilities.
How can US expats be exempt from filing Forms 3520 and 3520-A?
US expats must meet all four criteria below to be exempt from filing 3520 and 3520-A forms:
- The trust should have a tax-favored treatment on where it is based. In Canada, RESPs are tax-deferred and TFSAs are tax-free.
- Annual reporting to the Canadian government is a requirement.
- Annual contribution limits should be followed. TFSAs have a contribution room for taxpayers that could be carried over in the future.
- Withdrawals must match the trust’s purpose. An example is a withdrawal from an RESP that must be used for educational purposes.
Are TFSAs eligible for exemption from filing Forms 3520 and 3520-A?
The nature of TFSAs doesn’t normally qualify for relief from the revenue procedure. TFSAs are general-purpose savings accounts, so the funds contributed under a TFSA have no specific purpose such as for education or disability.
Since TFSAs don’t meet that rule, they’re not automatically exempt from filing Forms 3520 and 3520-A. It’s best to consult a tax expert for advice on how to proceed with this.
Are RESPs eligible for exemption?
Yes, an RESP is a tax-favored savings trust that is specifically designated for education. This means it qualifies for the revenue procedure, so as long as contributions stay within the allowed limit, it is automatically exempt from Form 3520 and 3520-A.
What happens if I over-contribute to an RESP or TFSA?
Since contribution limits are part of the criteria of the filing exemption, over-contributions may trigger IRS filing requirements, and you might lose exemption from Form 3520 and Form 3520-A.
Why use the IRS Streamlined Tax Amnesty Program?
It’s for American citizens that didn’t know they had to file US tax returns each year, and have therefore fallen behind. Some more than 30 years! With the IRS Streamlined Procedure, say goodbye to overdue tax returns, late fees, and penalties.
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What if I used RESP funds for something other than education?
This could violate the terms of the trust and disqualify it from exemption, which could trigger IRS filing and penalties. On top of that, you will lose the Canadian government grants and may potentially pay a penalty to the CRA as well.
Is my TFSA or RESP taxed in the US?
Yes, any income generated within the accounts will be taxed by the IRS as per US tax laws. This includes interests, dividends, and capital gains for both RESPs and TFSAs. Additionally, foreign grants are also included in the case of RESPs.
The revenue procedure 2020-17 only exempts reporting requirements for Forms 3520 and 3520-A but does nothing to the taxation of these accounts.
Do US expats have to report their TFSA or RESP to the IRS?
Yes, aside from Forms 3520 and 3520-A, there is a reporting requirement for these accounts. Here is what you need to report to the IRS:
- Income generated: You will need to report any income earned within these accounts through Form 1040 since it is subject to US taxation and treated as ordinary income.
- FATCA compliance: If your trusts exceed a certain threshold amount, depending on your filing status. You will need to complete Form 8938 and attach it to your Form 1040.
- FBAR reporting: If your account exceeds US$10,000 at any time during the calendar year, you need to file a separate FBAR through FinCEN Form 114.
These are some of the considerations US expats should take into account when investing across borders, particularly regarding tax-favored accounts like TFSAs and RESPs.
Can I avoid double taxation for RESP and TFSA?
Yes, there are available foreign tax credits to help prevent double taxation. In addition to that, the US-Canada tax treaty allows you to claim credits and deductions for taxes paid in the US.
Seeking professional help is also beneficial in your tax planning and minimizing your overall liability.
What if I haven’t been filing previously?
Good news! The IRS offers a Streamlined Tax Amnesty Program for taxpayers to catch up on their filings and avoid severe penalties as long as their non-compliance is non-willful.
This program helps US taxpayers stay on track and comply with their tax obligations.
How can I avoid penalties for filing Form 3520 and 3520-A?
The best way to avoid penalties and additional fees on your US taxes is to know if you’re required to file Form 3520 and Form 3520-A in the first place.
So, properly classifying your tax-favored accounts in Canada is essential, and tax professionals can help you with this. Here are other things to consider to avoid penalties:
- Filing on time: The deadline for Filing Form 3520 is the same as your tax return (April 15 or June 15 with automatic extension), while Form 3520-A is due March 15 with an available extension.
- Complete and correct information: Make sure to include all required details like account value, contributions, distributions, and trustee info.
- File even if you’re unsure: It’s better to file protectively than skip it and face penalties. If you are unsure whether to file, talk to a US tax expert for guidance.
