Is a TFSA Account reported on FBAR, Form 8938, 3520 or 8621

Are TFSA Accounts reported on FBAR, Form 8938, 3520 or 8621?

Are TFSA Accounts reported on FBAR, Form 8938, 3520 or 8621?

The TFSA (Tax-Free Savings Account)  is a very common investment for Canadian citizens and residents of Canada. The TFSA is a tax-free savings account and it comes in all different shapes and sizes. Some TSFAs are comprised of foreign mutual funds, others are comprised of foreign stock and some are even comprised of U.S. stock and US mutual funds. The question then becomes whether the TFSA is taxable and/or reportable in the United States on the various IRS international information reporting forms. The short answer is that a TFSA is taxable in the United States and it is reportable on several different international reporting forms. But, depending on what assets are contained within the TFSA a may impact the extent of the reporting required. Let’s take a brief look at the U.S. reporting of TFSA.

FBAR and TFSA

The FBAR is used to report foreign bank and financial accounts located overseas. The TFAA is an account and therefore it would be reportable on the annual FBAR. Typically, even if the account is comprised of several different assets when it comes to reporting for the FBAR, only the main account is reported and not each specific account or asset owned by the TFSA.

Form 8938 and TFSA

Form 8938 refers to FATCA. FATCA is the Foreign Account Tax Compliance Act. It is similar to the FBAR but has some additional reporting required. The TFSA would also be reportable for form 8938 since it qualifies as a FATCA asset.

Form 8621/PFIC

Form 8621 reporting where it starts to get a bit more complicated. Form 8621 is used to report Passive Foreign Investment Companies (PFIC) to the IRS. Typically, the account itself would not be considered a PFC, but if there are mutual funds being held within the TFSA, then generally those individual mutual funds would be required to be disclosed on Form 8621. Typically, foreign mutual funds qualify as PFICs and so when the threshold requirements for filing Form 8621 are met, the Taxpayer typically files a separate Form 8621 for each PFIC. Noting, that Form 8621 is required even if the taxpayer is not required to file a tax return but is otherwise considered a US person for tax purposes and meets the threshold reporting requirements.

Form 3520/Form 3520-A

There is some debate as to whether a TFSA qualifies as a Form 3520 trust. The general consensus is that in most circumstances,  Form 3520 is not filed to report the TFSA. It is also important to note that under Revenue Procedure 2014-55, RRSPs and RRIFs are excluded from the type of accounts that need to be reported on Forms 3520 and 3520-A.

Current Year vs. Prior Year Non-Compliance

Once a taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting. 

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure. 

Contact our firm today for assistance.