This is a multi-part message in MIME format. ---------------------- multipart/alternative attachment From: David Ingram - the CEN-TA Group - www.centa.com This is a short note with a bit of a follow-up to the notice I sent out on April 16th about the new reporting rules for US form 3520. Form 3520 has been around for a long time. It requires US residents and US Green Card holders and US Citizens (no matter "where" they live) to report any contributions to foreign trusts and any withdrawals from foreign trusts to the IRS. Failure to file this form upon contribution is an automatic penalty of the 35% of the amount of the contribution. Failure to report a withdrawal is an automatic penalty of 35% of the withdrawal. A sister form, 3520-A requires the US resident or US citizen or US green card holder (no matter "where" he or she lives) to report internal earnings within their foreign trust on an annual basis. Canadian RRSP accounts were given special treatment and exemption from this form. From 1980 to 1996, Article XXIX.5 of the US/Canada Income Tax Treaty exempted internal earnings of a Canadian RRSP although you had to report the earnings and claim the exemption. Some problems arose here because the State of California (for instance) did not recognize the exemption and technically a California resident with a $100,000 Canadian RRSP which earned $6,000 internally was supposed to pay tax on the $6,000 to California, even though he or she was NOT taxable federally. This meant that the ACB (adjusted cost base) of the plan was different for California than the Federal Government but this is true of many items in California and some other states. Then in 1989, REV.PROC 89.45 was pronounced and the new rules were that a US person with an RRSP was required (on an annual basis) to report (for EACH RRSP): The opening balance of the RRSP at Jan 1 of the current year. The amount of any new contributions. The amount of any internal earnings in the current year. The balance at the end of the year. This information went to the IRS and "should" have been reported on Schedule B which also asks about foreign accounts and foreign trusts at the bottom of the schedule. If you check yes to the foreign accounts (bank, credit union, cash value life insurance, debit cards, etc.,) you were then referred to form TDF-90 which is filed with the Department of the Treasury in Detroit, Michigan. Just for the record, failure to file the form TDF-90 carries a possible penalty of 5 year in jail PLUS a fine of up to $500,000. It "IS" a real fine. I have seen a $10,000 fine assessed against a 105 year old US citizen whose only crime was an account containing $380,000 at the Royal Bank of Canada in Edgemont Village in North Vancouver. Another 68 year old woman received a $60,000 fine and a 6 month jail sentence in Arizona. This is not new. Click on http://www.assetlaw.com/upcoming_actions_by_the_internat.htm for another person's opinion of this FIVE YEARS AGO. And, in a 60 Minutes Special about 14 years ago, 60 Minutes exposed the "CASTLE ROCK" affair which documented fines against some 472 US citizens who had accounts at the CASTLE ROCK Trust Company in the BAHAMAS. Apparently, the Castle Rock Trust Company was owned by the CIA. It no longer exists. In 1995, Canada and the United States signed some new Protocols to the Treaty. The old exemption under Article XXIX.5 was changed to an exemption under ARTICLE XVIII.7. In 1997, IRS NOTICE 97-34 specifically exempted Deposits to a Canadian RRSP from the requirements of Form 3520 and we should note that until the 2001 Form 3520, the instructions clearly exempted DEPOSITS AND WITHDRAWALS to and from a Canadian RRSP. In 2001, the form suddenly dropped the withdrawal portion of the instructions which meant that (following the instructions on the bottom of Schedule B of EVERY US 1040 Income Tax Form filed, a US person who read the forms properly and had withdrawn money from his or her RRSP would just naturally fill in the Form 3520. Did Americans with a withdrawal from a Canadian RRSP fill in their 3520? Not very likely. In 2002 (the year you filled in your 2001 return) the IRS even released REV.PROC 2002-23 which replaced REV.PROC 89-45 and gave further apparent relief from any onerous reporting for Canadian RRSP accounts. It is also important to realize here that an American with a German, French, New Zealand, Australian, United Kingdom or any other country's retirement plan was NOT exempt from the Form 3520 reporting requirements. Then the bombshell. On April 11, 2003, Treasury released REV.PROC 2003-25 which pointed out in no uncertain terms that Canadian RRSP accounts were NO LONGER exempt from withdrawal reporting. It went on to state that there would be no retroactive penalties for 2001 but that the reporting WAS expected for 2002 and gave an automatic extension to August 15, 2003 for the 2002 report. I have to tell you that this is an onerous and EXPENSIVE form to fill out. The IRS published figures suggest that it takes 4 1/2 hours to learn about the form and 6 hours and 28 minutes to prepare the six page form. It is actually more complicated than the typical US tax return with a foreign tax credit (the IRS says it only takes an hour and 53 minutes to fill in the foreign tax credit). You can find the form at: http://www.irs.gov/pub/irs-pdf/f3520.pdf In the meantime, REV.PROC 2003-25 is very explicit. Failure to follow its precepts will result in the following fines which are devastating to say the least: 1. Failure to report the purchase of your RRSP under REV.PROC 3520 will be a fine of 35% of the amount of the deposit. 2. Failure to report the annual earnings on an annual basis will result in a fine of 5% per year of the Dollar value (principal) of the plan. If you comply with REV.PROC 2003-25, you do NOT need to file Form 3520A. 3. Failure to file the Form 3520 upon withdrawal OR TRANSFER TO A RRIF will result in a fine of 35% of the withdrawal or transfer. However, I have it on good authority that a rollover from one RRSP to another RRSP does NOT require the filing of a form 3520. 4. PAYMENTS TO ANY RRIF require a Form 3520 to be filed. Failure to file results in an automatic fine of 35% of the deposited amount. 5. Payments by an employee to a COMPANY Registered Pension Plan also require a Form 3520 to be filed. Failure to report the $3,000 you had deducted by your employer for the company pension plan will result in an automatic fine of 35%. These RRIF and RPP requirements have not been discussed any where else that I am aware of. The information came to me very explicitly from US Treasury officials involved in the planning of the policy. The CEN-TA Organization will be conducting a series of seminars on this subject in Vancouver. We will also be making the results available by video streaming. I will keep you advised about dates and times. I would remind you that we make our living as international tax advisors. If you need help with your US <> Canadian or your US <> Australian or your US <> New Zealand or your UK <> US tax returns, please keep us in mind. An average of 3,000 people worldwide access our website at www.centa.com. david ingram - [email protected] 108-100 Park Royal South West Vancouver, BC, CANADA, V7T 1A2 (604) 913-9133 - (604) 913-9123 www.centa.com Cell is (604) 657-8451 (10 AM to 10 PM seven days a week) US / CANADA / MEXICO Working Visa and Income Tax Specialists --- Outgoing mail is certified Virus Free. Checked by AVG anti-virus system (http://www.grisoft.com). Version: 6.0.476 / Virus Database: 273 - Release Date: 4/24/03 ---------------------- multipart/alternative attachment An HTML attachment was scrubbed... URL: http://lists.centa.com/mailman/private/centapede/attachments/cc6f9d2d/attachment.htm ---------------------- multipart/alternative attachment--
