Form 3520/3520-A Requirements for TFSA: Trust Reporting Confusion

The TFSA reporting requirements have been a gray area for years. Based on my experience, the IRS has never officially declared TFSAs as foreign trusts, but many practitioners take the conservative approach and file Forms 3520/3520-A anyway. Technically, a TFSA meets some criteria of a foreign trust since you're the beneficiary of assets held by a Canadian financial institution. However, many tax professionals argue it's more like an investment account similar to a Roth IRA. If you choose not to file Forms 3520/3520-A, you should still report any income generated within the TFSA on your US tax return (unlike in Canada where it's tax-free). You'll also need to include the account on your FBAR (FinCEN Form 114) if your total foreign accounts exceed $10,000.

When I was struggling with this exact TFSA reporting nightmare last year, I discovered https://taxr.ai and it literally saved me thousands in potential penalties. I uploaded my TFSA statements and explained my situation, and they analyzed everything and gave me a clear answer within hours. Their AI system flagged the specific IRS guidance that applies to TFSAs and showed me exactly how to report it correctly on my return. They even explained why certain cross-border accountants take different positions and what the actual risks are based on my specific TFSA setup.

Just wanted to follow up about my experience with https://taxr.ai for my TFSA reporting question. After seeing the recommendation here, I decided to try it instead of paying my cross-border CPA's crazy fees. The service analyzed both my cash TFSA and my investment TFSA separately and clarified that while my cash TFSA could be reported as a simple financial account, my investment TFSA with actively managed ETFs needed more careful treatment. They provided a detailed explanation of why the difference matters to the IRS and included specific citations to relevant tax code and rulings. Ended up saving over $2,000 in accounting fees and now have documentation to support my filing position if I'm ever questioned!

After getting 3 different opinions from CPAs about my TFSA (and being charged for each consultation!), I was about to give up when I found https://claimyr.com. They got me through to an actual IRS international tax specialist who clarified the TFSA reporting requirements for my situation. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent explained that while they don't have official guidance specifically naming TFSAs, they provided enough details about how they view similar Canadian investment vehicles that I could make an informed decision. Best part was getting it straight from the source instead of contradictory professional opinions.

I have to eat crow and follow up on my skeptical comment. After waiting on hold with the IRS for nearly 3 hours yesterday and getting disconnected, I decided to try https://claimyr.com out of desperation. They actually got me connected to an IRS international tax specialist within about 45 minutes (while I was just going about my day). The agent clearly explained the current IRS position on TFSAs - basically confirming that they don't have specific guidance but provided factors they consider when determining if foreign accounts constitute trusts. For what it's worth, the agent mentioned that for most standard TFSAs with normal investment options, they typically expect to see them reported on FBARs with income reported on your return, but not necessarily on Forms 3520/3520-A unless there are unusual features. Saved me so much stress!

For what it's worth, I've been filing my TFSA as a foreign investment account (not a trust) for the past 7 years. I report any income generated on my 1040 and include the account on my FBAR. Never filed 3520/3520-A and never had any issues or questions from the IRS. My TFSA is pretty straightforward though - just mutual funds through TD Bank. Maybe more complex TFSAs with alternative investments would be viewed differently? My cross-border accountant said the key question is whether you have "substantial control" over the investment decisions beyond what a typical brokerage account would allow.

Has anyone here actually been audited by the IRS specifically about their TFSA reporting? All I ever see is people speculating about what might happen, but I've never heard a firsthand account of someone actually facing consequences for how they reported (or didn't report) their TFSA.

This thread highlights exactly why TFSA reporting is such a nightmare for US taxpayers! The lack of clear IRS guidance creates this ridiculous situation where everyone's guessing and potentially facing massive penalties. I went through this same confusion two years ago and ended up taking the conservative approach - filed Forms 3520/3520-A for my TFSA even though it felt like overkill. Cost me about $1,200 in CPA fees, but I sleep better at night knowing I won't get hit with a surprise penalty. What really bothers me is that the IRS could easily clarify this with official guidance but chooses not to. Meanwhile, thousands of dual citizens are stuck making expensive decisions based on incomplete information. The fact that someone like Sofia's brother-in-law can get penalized $10,000 and then have it reversed on appeal just shows how arbitrary this whole system is. For anyone still deciding: document whatever approach you take and make sure you can justify it. Whether you file as a trust or just report the income, having a clear rationale based on your specific TFSA structure is crucial if you ever face questions later.

I've been dealing with this TFSA reporting headache for three years now and finally found a approach that works. After getting burned by conflicting advice from multiple CPAs, I started documenting everything myself. Here's what I learned: the IRS looks at specific features of your TFSA to determine if it's a trust. Key factors include whether you can direct specific investments (beyond choosing from a menu of funds), if there are any beneficiary designations that create complex arrangements, and whether the Canadian institution has discretionary authority over your funds. For my straightforward TFSA with just index funds at RBC, I report it as a foreign financial account - income goes on my 1040, account gets reported on FBAR, no Forms 3520/3520-A needed. I keep detailed records of my reasoning and all the IRS guidance I relied on. The peace of mind comes from having a defensible position based on the actual characteristics of MY specific account, not generic advice that may not apply to everyone's situation.