13 thoughts on “As we approach March 18, 2020, the 10th Anniversary of #FATCA (and all the forms it implies): A plea to “Form Freedom” Lovers everywhere”

1. The new name for the IRS is International revenue service. The USA runs the world now and you better do as they say or else. Guns guns guns and financial ruin. The world needs to take the power away from them and fast…..

2. I fully expect that the IRS will soon announce a new form that you must file in order to qualify your tax-deferred accounts for Revenue Procedure 2020-17. Sort of like that head-scratcher of a Relief Procedure they announced last fall for renunciants where you have to file a bunch of forms in order to not pay the tax that you weren’t going to pay anyway. Its what they do; they can’t help themselves.

3. At first glance, I’d say that UK pensions fail on at least two of these five conditions.

   Maximum contributions are any percentage of earnings you like, up to £40k/year, which is currently (only just!) above $50k, and while there is a lifetime allowance above which pensions are punitively taxed, this isn’t a limit on contributions. And non-earners can contribute a small amount, just over £3k/year. So that’s two conditions not met.

   Pension providers send some information to HMRC for ‘reportable events’, but these seem to be things that are exceptions to the normal business of holding and managing pensions in general (a QROPS transfer, for example). I don’t know the full details, but I’d hazard a guess that this condition is probably also not met.

   UK pensions are relatively well handled by the US/UK tax treaty, so in practice this failure to meet these restrictive conditions probably makes no difference to most US persons holding UK pensions; no need for any 3520 nonsense if covered by treaty. (There is an edge case where not treating a UK pension as a pension under the treaty can lead to a bit of a tax ‘edge’ if you plan to retire to the US, but I don’t know how widespread its use is.)

   To me, this latest ‘relaxation’ of US form rules looks flimsy overall. It’s certainly discriminatory, as per usual.

4. @Watcher

   Thank you for your well presented comment.

5. Come to think of it, our Canadian RRSPs fail on the last condition:

   “Allow withdrawals only upon reaching a specified age, or on death or disability – or early withdrawal penalties must apply.”

   Not only is there is no penalty for a withdrawal from an RRSP, there is no concept of “early withdrawal”, period. You can withdraw any amount at anytime. The amount withdrawn is simply added to one’s income in the year of the withdrawal and the resulting extra tax is paid.

6. The Canadian RRSP is already dealt with under the Canada/U.S. Tax treaty. Some people think that the TFSA also meets the definition for carve out under the Tax Treaty. But, the TFSA is not likely a trust in the first place.

7. Canadian RRSPs have been exempt since at least 2014. The rules are arcane but to simplify, RSPs are not reported. Money taken out is reportable as ordinary income. (Provided one feels obliged to report)

8. @Watcher I think it’s debatable whether this revenue procedure provides any reporting relief for UK retirement accounts.

   Check out this page: https://www.gov.uk/guidance/information-requirements-for-pension-schemes-the-basics#information-required-by-hmrc

   The scheme administrator is required to file a “relief at source annual return of information.” If you click through the sample spreadsheet for providing this return, it includes columns for the members’ names, NI numbers, and contribution amounts. I would think that should satisfy the requirement that annual information reporting “is provided, or is otherwise available, to the relevant tax authorities in the
   trust’s jurisdiction.”

   However, I think the requirement that “only contributions with respect to income earned from the performance of personal services are permitted” may be a problem. As I understand these plans allow contributions from what HMRC calls “relevant earnings,” which seems to generally correspond to what the IRS would consider earned income from personal services. But as you mentioned, there is an exception allowing non-earners to contribute around £3k/year. I don’t know whether the IRS would consider this exception disqualifying, but the literal language of the procedure would suggest the plans don’t meet the requirement.

   I think the requirement that “contributions to the trust are limited by a percentage of earned income of the
   participant, are subject to an annual limit of $50,000 or less to the trust, or are subject to
   a lifetime limit of $1,000,000 or less to the trust” is satisfied since the contribution limits include 100% of relevant earnings, which is a percentage of earned income of the participant, and a maximum of around £3k/year for non-earners, which is well below $50k. (As you know, there are other contribution limits, but these two are enough to satisfy the condition.)

   I am not sure the treaty provides any exception to 3520 or 3520-A reporting, though it would be good news if it did. But from what I can gather, most UK plans either qualify for the 402(b) exception or are entirely self-managed and (again, as far as I can tell) don’t meet the IRC definition of a trust due to no one performing the duties of a trustee or fiduciary.

   If the goal of the procedure was to give taxpayers and their tax preparers simple guidance they could rely on to conclude whether grantor trust is required, it has failed.

9. I have an idea?

   How about the US stops taxing other nations residents and citizens?

   Too simple, clearly.

10. @USCAbroad.

    Ah yes, thanks for the reminder re: RRSps. My (now that its been refreshed) recollection is that the treaty relief came about after years of Canadian complaints and a long discussion with the IRS. Form 8891 celebrated their “fix” for the problem. I remember the difficulty of filling out those because they were in “IRS speak” rather than ‘CRA speak”. Many years later, Form 8891 went away after they invented Form 8938. You can count on the IRS to come up with a form for any scenario.

    @Mike.

    For the same reason the Titanic was unable to miss the iceberg.

11. Hello, brilliant Brockers! This Rev Proc sounds like it makes it ok for us to hold Canadian RESPs for our kids without having to report it on Form 3520. Can anyone confirm this? My suspicion from reading it is that it does not affect Canadian TFSAs, which my understanding is still a contentious issue with some accountants saying that we have to report on a Form 3520 or 3520-A and others saying no additional reporting is needed. Confirmation of this would be appreciated as well! Thanks.

12. What Rev Proc?

13. If you mean Revenue Procedure 2020-17, that is precisely what it says.

    RESPs and RDSPs are no longer required to be reported.

    Unfortunately TFSAs are not exempt. However, what they don’t know……….The golden rule at IBS is “don’t tell them anything they don’t already know “