RRSP Form 3520 Reporting & the IRS

RRSP Form 3520 IRS Reporting and Rev. Proc. 2014-55

RRSP Form 3520 Reporting

RRSP and Form 3520: While the IRS has significantly increased enforcement of international tax matters involving form 3520 and foreign trust reporting, they have also published multiple revenue procedures with the intention of limiting and excluding certain foreign trusts from 3520 reporting as well, including the specific exemption of the RRSP from Form 3520 reporting.

Most recently, the IRS Published Revenue Procedure 2020–17, which exempts certain foreign tax-deferred retirement trusts and even non-retirement trusts, if they are tax-deferred.

There is a more specific Revenue Procedure that impacts the reporting of Canadian Registered Retirement Savings Plans (RRSP) and Canadian Registered Retirement Income Funds (RRIF), which is referred to as Rev. Proc 2014-55.

IRC 6048 Foreign Trust Reporting

IRC 6048 requires the reporting of foreign trusts.

Specifically:

“Section 6048

Code section 6048 requires information reporting with respect to contributions to, distributions from, and ownership of certain foreign trusts. Section 6048(a)(3)(B)(ii)(I) provides an exception for contributions to certain foreign compensatory trusts, including a foreign trust that is described in section 402(b).

Information reporting under section 6048 is generally required with respect to a U.S. citizen or resident’s contributions to, distributions from, and ownership of a Canadian trust for which an election may be made under Article XVIII(7) of the Convention. Persons who are subject to the section 6048 reporting requirements must file Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Foreign Gifts, or Form 3520–A, Annual Information Return of Foreign Trust With a U.S. Owner.”

RRSP and RRIF are “Foreign Trusts”

Technically, RRSP and RRIF are foreign trusts.

There is the grantor who is the employer, the beneficiary is the employee, and an administrator who serves as the trustee of the trust.

Clearly, when IRC 6048 and form 3520 were introduced, it was not with the goal of requiring a foreign employment trust to be included in the mandatory reporting regime.

FBAR & 8398 Duplicate Reporting 

RRSP and RRIF are required to be reported on the FinCEN Form 114 (FBAR) and FATCA Form 8938.

Therefore, requiring taxpayers to duplicate report their ownership on the foreign trust form 3520 would be overburdensome and not achieve the desired result behind Form 3520.

RRSP Form 3520 Instructions

The Form 3520 Instructions refers specifically to IRS Revenue Procedure 2014–55, which provides the following as an exemption to reporting:

“Transfers to, ownership of, and distributions from a Canadian registered retirement savings plan (RRSP), a Canadian registered retirement income fund (RRIF), or any other Canadian retirement plan that is within the meaning of section 3 of Rev. Proc. 2014-55. See Rev. Proc. 2014-55, 2014-44 I.R.B. 753, available at IRS.gov/irb/2014-44_IRB/ar10.html.”

Rev. Proc. 2014-15 Specific 3520 Exclusion Language

As provided by the IRS:

“Reporting Rules for a Beneficiary or Annuitant of a Canadian Retirement Plan. Subject to any future guidance that may be issued by the Treasury Department and the IRS, beneficiaries (regardless of whether they are “eligible individuals” within the meaning of section 4.01 of this revenue procedure) and annuitants are not required to report contributions to, distributions from, and ownership of a Canadian retirement plan under the simplified reporting regime established by Notice 2003–75 (Form 8891) or pursuant to the reporting obligations imposed by section 6048 (Form 3520).

In addition, custodians are not required to file Form 3520–A with respect to a Canadian retirement plan.

This revenue procedure does not, however, affect any reporting obligations that a beneficiary or annuitant of a Canadian retirement plan may have under section 6038D or under any other provision of U.S. law, including the requirement to file FinCEN Form 114, Report of Foreign Bank and Financial Accounts (FBAR), imposed by 31 U.S.C. § 5314 and the regulations thereunder.”

Rev. Proc. 2020-17 Exemptions for Other Pensions

As the economy has turned more global, and many U.S. persons having worked in various different countries worldwide, there are many U.S. taxpayers who have foreign pensions.  

Since the IRS does not have time or resources to specifically exclude or exempt the reporting requirements of each foreign pension trusts, it instead promulgated revenue Procedure 2020–17.

Rev. Proc. 2020-17 further limits reporting for many other types of foreign pension/employment trusts.

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