American expats in Canada exempted from IRS trust reporting requirements

Pedro Gonçalves
American expats in Canada exempted from IRS trust reporting requirements

Americans living in Canada are to be exempted from US trust reporting requirements regarding foreign retirement trusts or non-retirement savings trusts, according to a new US Internal Revenue Service (IRS) procedure.

According to Canadian tax law firm Moodys Gartner, Treasury and the Internal Revenue Service (IRS) intend to issue proposed regulations that would modify the requirements under section 6048 to exclude eligible individuals' transactions with, or ownership of, these applicable tax-favored foreign trusts from information reporting.

The Treasury Department and the IRS request comments about these and other similar types of foreign trusts that should be considered for an exemption from section 6048 reporting.

Many common Canadian investment plans are classified as foreign trusts for US purposes, and require annual disclosure on Forms 3520 and 3520-A under s.6048 of the US tax code. These forms also come with high late-filing and non-filing penalties, and many otherwise compliant taxpayers have been hit with penalties in excess of $10,000 because of inadvertent late filings.

The procedure will apply to tax-favoured foreign retirement trusts and non-retirement savings trusts, which are common savings and investment plans in Canada. They include, in particular, Registered Education Savings Plans and Registered Disability Savings Plans, though not Canadian Tax Free Savings Accounts.

US persons who are compliant with all the requirements for filing US income tax and information returns are eligible for the new relief. Notably, this also includes former US citizens and residents who have renounced their US citizenship or surrendered their green card.

In order to be deemed compliant, the US person must have reported all contributions to, earnings of or distributions from eligible foreign trusts on their personal US income tax return.

The new rules will benefit American expats all over the world, as International Investment has reported.

The Trump administration is likely to push back the deadline for filing income tax returns as part of its fiscal stimulus plan to combat the impact of the coronavirus outbreak, The Wall Street Journal reported late Tuesday.


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