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March 11, 2011 - Phil Hodgen

Form 3520-A filing deadline is March 15, 2011

WARNING (05 September 2013): I changed my mind. I think an ISA is not a foreign trust. Go read that blog post and tell me if you agree or not. As always, this is a reminder to not believe anything you read on the internet.

For those of you who must file Form 3520-A, a quick heads-up.  Your filing deadline is almost certainly going to be March 15, 2011.

There are two things that must exist for Form 3520-A to be required:

  • A foreign trust; and
  • A U.S. “owner” of the foreign trust.

Neither of these items is necessarily intuitively obvious.

Drastic penalties are incurred for being late.  I will leave the editorial comments for another day.

Target Number 1:  Fideicomiso

Typical scenario where this form is required and the innocent American taxpayer has no ****-ing clue:

Schoolteacher saves for years.  Retires.  Buys a condominium in Baja California.  The condominium is owned through a Mexican trust called a “fideicomiso” because the Mexican constitution says that foreigners aren’t allowed to own real estate too close to the coastline.

This is a “foreign trust” and you have filing requirements with the IRS.  Form 3520-A is one of them.

Target Number 2:  foreign IRA-like accounts

Typical scenario #2 where this form is required and the innocent American taxpayer has no ****-ing clue:

U.K. citizen sticks money into an ISA for years and years.  Immigrates to the United States. Guess what? That ISA is a “foreign trust” and Form 3520-A (and perhaps other things) will be required in the USA for tax purposes.

Australian citizen sticks money into a superannuation account. Immigrates to the United States. Same result: Form 3520-A and maybe other stuff will be required.

For those of you who aren’t from the U.K. or Australia, these accounts are just like the U.S. Individual Retirement Account.

Canadians have a similar type of account called an RRSP. Fortunately for them, there is a specific ruling by the IRS that says “You don’t have to file the foreign trust paperwork for your RRSP.”  There is no equivalent specific ruling for ISAs or superannuation accounts or other similar types of accounts from other countries.

Memo to all personnel

What you think is not a trust? It might be a trust.

What you think is a trust but is not a foreign trust? It might be foreign.

Our IRS Commissioner sees himself as the Chief Debt Collector for the United States government.  A correspondent of mine reports on a meeting in Washington, DC with Mr. Shulman in which the following exchange occurred:

When it was stated to Schulman that FATCA would be a hindrance to exports, his answer was that he was only responsible for collecting revenue, not for other issues.

Oooookay.

Tax and Trusts