Is my FHSA a foreign trust I have to report to the IRS?

It depends on which of the three FHSA types you hold, and two of them aren’t trusts at all. ITA 146.6(1) lets the arrangement behind an FHSA be an arrangement in trust, an annuity contract, or a deposit, and only the first is a trust. If yours is the trusteed kind, the question is live, and Rev. Proc. 2020-17 doesn’t close it. That relief misses on the opening purpose sentence of each of its two categories rather than on the contribution ceilings, which your FHSA clears comfortably.

Is my FHSA a foreign trust?

Only if you hold the trusteed kind, and you can’t tell from the name on the statement. ITA 146.6(1) defines the qualifying arrangement behind every FHSA as one of three things: an arrangement in trust with a licensed trustee corporation, an annuity contract with a licensed annuities provider, or a deposit with a Canadian Payments Association member or a credit union central. The CRA names the same three as a trusteed, insured or depositary FHSA. Two of them aren’t trusts, so ask your issuer which one it opened.

ITA 146.6(1) puts all three inside one definition, at paragraph (b) of qualifying arrangement: the arrangement has to be “(i) an arrangement in trust with an issuer that is a corporation licensed or otherwise authorized under the laws of Canada or a province to carry on in Canada the business of offering to the public its services as trustee, (ii) an annuity contract with an issuer that is a licensed annuities provider, or (iii) a deposit with an issuer that is (A) a person that is, or is eligible to become, a member of the Canadian Payments Association, or (B) a credit union that is a shareholder or member of a body corporate referred to as a ‘central’ for the purposes of the Canadian Payments Act”.

Paragraph (b) is one limb of five. A qualifying arrangement also has to be entered into after March 2023 with a qualifying individual, provide for contributions, carry the registration agreement, and comply with subsection 146.6(2) throughout. The CRA’s plain-language version is the one you can act on: a depositary FHSA is “an account (with a financial institution) that holds money, term deposits, or guaranteed investment certificates (GICs)”, a trusteed FHSA is “a trust (with a trust company as trustee)”, and an insured FHSA is “an annuity contract (with a licensed annuity provider)”.

There’s a limit on how far that gets you. Canadian law making something a trust doesn’t decide whether it’s a foreign trust for US purposes. Rev. Proc. 2020-17 opens its own definitions with “a foreign trust for U.S. tax purposes”, which assumes that answer rather than supplying it, and nobody has published one for the FHSA. The same question worked through for a different account is at whether a TFSA is a foreign trust, and the three-forms reasoning is set out there rather than repeated here.

Does Rev. Proc. 2020-17 cover an FHSA?

No, and it misses for a reason almost nobody expects. Rev. Proc. 2020-17 defines two categories and each opens on what the trust is for. Section 5.03 wants a trust operating exclusively or almost exclusively to provide pension or retirement benefits; section 5.04 wants medical, disability or educational benefits. A first home is neither. Both purpose sentences sit ahead of the numbered conditions, so a trust that misses them never reaches the tests underneath. That’s a reading of the text and not an IRS position, since the procedure predates the FHSA.

Section 5.03: “For purposes of this revenue procedure, a tax-favored foreign retirement trust means a foreign trust for U.S. tax purposes that is created, organized, or otherwise established under the laws of a foreign jurisdiction (the trust’s jurisdiction) as a trust, plan, fund, scheme, or other arrangement (collectively, a trust) to operate exclusively or almost exclusively to provide, or to earn income for the provision of, pension or retirement benefits and ancillary or incidental benefits, and that meets the following requirements established by the laws of the trust’s jurisdiction.”

Section 5.04 runs word for word with section 5.03 from “For purposes of this revenue procedure” down to “(collectively, a trust)”, swapping only the name of the category, and then diverges: a tax-favored foreign non-retirement savings trust is one established “to operate exclusively or almost exclusively to provide, or to earn income for the provision of, medical, disability, or educational benefits, and that meets the following requirements established by the laws of the trust’s jurisdiction.”

Section 5.03(5) is where people expect the FHSA to squeeze in, because it says a trust “that otherwise meets the requirements of this section 5.03(5), but that allows withdrawals, distributions, or payments for in-service loans or for reasons such as hardship, educational purposes, or the purchase of a primary residence, will be treated as meeting the requirements of this section 5.03(5).” Read where that sentence points. It names section 5.03(5) twice, so it rescues a trust that fails the early-withdrawal condition. It doesn’t reach back up to the purpose sentence, and it was written years before the FHSA existed, so nothing about it was aimed at this account.

The other thing to hold on to is what the procedure actually grants when it does apply. Section 3 exempts “an eligible individual’s transactions with, or ownership of, an applicable tax-favored foreign trust” from section 6048 reporting, and both of those terms are gates. Section 5.01 defines an applicable tax-favored foreign trust as one that fits section 5.03 or section 5.04 and nothing else. Section 5.02 defines an eligible individual as someone compliant with their US return filing for any period an amount of tax may still be assessed under section 6501, who has reported the trust’s contributions, earnings and distributions as income where US law required it. That period runs on the assessment window rather than on the year you opened the account.

Is it the contribution limits that knock the FHSA out?

No, and this is the correction the page exists to make. Rev. Proc. 2020-17 section 5.03(4) allows an annual limit of $50,000 or less, or a lifetime limit of $1,000,000 or less. Section 5.04(3) allows $10,000 annually or $200,000 on a lifetime basis. Both are US dollar figures converted at the Treasury Bureau of Fiscal Service rate on the last day of the tax year. The CRA puts first-year FHSA participation room at $8,000 and runs the lifetime side off $40,000, in Canadian dollars. The FHSA sits inside all four ceilings.

What you hold	What ITA 146.6(1) and the CRA call it	Does the section 6048 trust question engage
Depositary FHSA	ITA 146.6(1)(b)(iii), a deposit with a Canadian Payments Association member or a credit union central; the CRA calls it an account holding money, term deposits or GICs	No. A deposit isn’t a trust, and every limb of IRC 6048 runs on a foreign trust, the transfer limb at 6048(a), the owner limb at 6048(b)(1) and the distribution limb at 6048(c) included. None of them has anything to attach to
Insured FHSA	ITA 146.6(1)(b)(ii), an annuity contract with a licensed annuities provider; the CRA calls it an annuity contract with a licensed annuity provider	No, on the same ground. An annuity contract isn’t a trust, and every limb of IRC 6048 runs on a foreign trust, so none of them engages
Trusteed FHSA	ITA 146.6(1)(b)(i), an arrangement in trust with a licensed trustee corporation; the CRA calls it a trust with a trust company as trustee	This is where the question lives, and it stops short of an answer. Every limb of IRC 6048 runs on a foreign trust, and whether a trusteed FHSA is one for US purposes has never been addressed. If it is, the owner limb at 6048(b)(1) turns on being treated as its owner, and the transfer limb at 6048(a) and the distribution limb at 6048(c) are live alongside it wherever money went into or came out of the account
Any of the three	Not an account type. FinCEN Form 114 and Form 8938	Separately, and regardless of which type you hold. Rev. Proc. 2020-17 section 3 says it “does not affect any reporting obligations under section 6038D or under any other provision of U.S. law, including the requirement to file FinCEN Form 114”, so those run on their own thresholds, which this page doesn’t set out

So what do I actually have to file?

It splits by which FHSA you hold. IRC 6048(b)(1) asks something of you only if you’re treated as the owner of part of a foreign trust under the grantor-trust rules at subpart E of part I of subchapter J, so a depositary or insured FHSA is outside section 6048 entirely, since 6048(a) and 6048(c) run on a foreign trust too. For a trusteed FHSA that question is open. Either way, an FHSA is still a foreign financial account, and Rev. Proc. 2020-17 section 3 says it doesn’t affect FinCEN Form 114 or section 6038D, so those run on their own thresholds.

IRC 6048(b)(1)‘s condition sits at the front of its own sentence, and it is the whole gate for the owner limb: “If, at any time during any taxable year of a United States person, such person is treated as the owner of any portion of a foreign trust under the rules of subpart E of part I of subchapter J of chapter 1, such person shall submit such information as the Secretary may prescribe with respect to such trust for such year”.

Two things this page deliberately doesn’t decide. Which forms answer IRC 6048, whose returns they go on, and what dates they’re due are not settled here, and the owner-return side of that is set out at who files Form 3520-A and when. And the FBAR and Form 8938 thresholds, including how joint accounts count, aren’t stated here at all, because half an answer on a threshold is worse than none.

• The same revenue procedure applied to a different Canadian account, with a different result, is at how Rev. Proc. 2020-17 applies to an RESP.
• An RRSP runs on a separate revenue procedure entirely, which is why Form 8891 stopped being a thing. This page doesn’t extend that one to an FHSA.

What’s the penalty if I haven’t been filing?

IRC 6677(a) sets it at the greater of $10,000 or a percentage of the gross reportable amount. That percentage is 5 for the owner’s return under IRC 6048(b), and 35 for a transfer or a distribution reported under IRC 6048(a) or 6048(c). Section 6677(d) imposes no penalty on a failure shown to be due to reasonable cause and not willful neglect. And once the Secretary can determine the gross reportable amount, penalties for that failure are capped at it. None of this engages at all unless your FHSA is the trusteed kind and it’s a foreign trust for US purposes.

The ceiling carries its own condition, and it is scoped to one failure rather than to a run of years: “At such time as the gross reportable amount with respect to any failure can be determined by the Secretary, any subsequent penalty imposed under this subsection with respect to such failure shall be reduced as necessary to assure that the aggregate amount of such penalties do not exceed the gross reportable amount (and to the extent that such aggregate amount already exceeds the gross reportable amount the Secretary shall refund such excess to the taxpayer).”

IRC 6677(a) doesn’t need a missed filing to engage. It reaches a notice or return not filed on time, and equally one that was filed but left out information section 6048 required or carried incorrect information. The percentage matters more than it looks, and so does which limb of section 6048 it attaches to. IRC 6677(b)(2) says that for a return required under IRC 6048(b), the owner’s return, subsection (a) is applied “by substituting ‘5 percent’ for ‘35 percent’”. That substitution reaches the 6048(b) limb and no other. IRC 6048(a) asks a responsible party for notice of a reportable event, which includes a transfer of money or property to a foreign trust by a US person, and IRC 6048(c) asks a US person who receives a distribution from a foreign trust for a return. A failure on either of those stays at 35 percent. The gross reportable amount for the owner-return failure, and for that failure only, is defined at IRC 6677(c)(2) as the gross value of the portion of the trust’s assets at the close of the year treated as owned by you. There’s also a continuation charge of $10,000 for each 30-day period once a failure runs more than 90 days past the Secretary’s notice, and the same ceiling caps that too.

Reasonable cause is a defence you establish rather than one that applies by default, and IRC 6677(d) adds that a foreign jurisdiction’s own penalty for disclosing the information is not reasonable cause. If a penalty has already been assessed, the routes back are a different question and they’re worked through at what to do if a penalty has already been assessed.

What should I do next?

Ask your FHSA issuer, in writing, which of the three types they opened for you. On two of the three that settles it, because a deposit and an annuity contract aren’t trusts under ITA 146.6(1) and the IRC 6048 question never starts. If the answer is trusteed, the next thing to establish is whether it’s a foreign trust for US purposes, which is open rather than settled, and after that whether the account’s income has been landing on your US return, because that’s what the eligible-individual condition at Rev. Proc. 2020-17 section 5.02 turns on.

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.