The United States treats its own citizens living outside the US disgracefully.
An illustration of this can be found in a civil rights organisation’s participation in a consultation by the US Internal Revenue Service (IRS). SEAT, ‘Stop Extraterritorial American Taxation’, on 26 June announced it filed comments in a IRS consultation:

SEAT Submission to IRS: Reporting of Non-U.S. Pensions, Investments and Gifts
The IRS is currently seeking public comment with respect to “information reporting of transactions with foreign trusts and receipt of large foreign gifts and regarding loans from, and uses of property of, foreign trusts.”
This encompasses the non-U.S. pensions, investments, and gifts received by Americans living in other countries.
Today SEAT filed its comment with the IRS. SEAT’s submission, in two parts, is available here and here.

The second submission refers to a youtube video.

The first submission is a text (Foreign-Trust-Regulations-SEAT-Comments.pdf) that explains the incorrect treatment of US taxpayers living outside the US. The summary is as follows:

General Approach: The U.S. extra-territorial citizenship-based tax regime applies globally. There are many countries in the world with different ideas about pensions, retirement planning and financial planning. The differences among countries will result in differences in the laws. Yet, most countries have specific retirement/financial vehicles, available to their tax residents, which are designed to facilitate pensions, retirement and financial planning. U.S. citizens who reside in these countries should benefit from these laws in the same way that all other residents may benefit from these laws. Therefore, Treasury’s approach should be guided by identifying laws that are designed to facilitate participation in pensions and retirement planning vehicles. The fact that these laws are not identical to U.S. laws should be immaterial. A Canadian RRSP is functionally equivalent to a U.S. Conventional IRA. A Canadian TFSA is functionally equivalent to a U.S. Roth IRA. A University of Toronto pension is largely equivalent to a University of California pension. Although not technically identical, non-U.S. pension and retirement planning vehicles are functionally equivalent and have an identical purpose to comparable U.S. pension and retirement planning vehicles. Hence, they should NOT be treated by Treasury as though they are “foreign trusts” intended to hide assets from the U.S. Treasury.

It is the equivalence in purpose that should guide Treasury’s thinking.

As a result, SEAT proposes that the IRC 6048 and 6039F regulations be developed as follows:

6048/Form 3520/Form 3520A: SEAT proposes that Treasury clarify in the regulations that the reporting requirements mandated by Internal Revenue Code section 6048 (Forms 3520 and 35320A) should NOT apply to:

Category A: Tax-advantaged Investment/retirement products without regard to whether they meet the definition of “trust”

– Any non-U.S. financial asset exempt from FATCA reporting by Foreign Financial institutions under Annex II of a FATCA IGA;
– Any non-U.S. tax favored foreign financial asset created under the laws of a foreign country and available to all “tax residents” of that country;
– Any entity generating income which is exempt from U.S. taxation under an income tax treaty (the United States has no “tax interest”).

This would create “safe harbors” that would (with the exception of Treausry Regulations) require little technical analysis or understanding by taxpayers, their advisors or their tax preparers.

Category B: Investment/retirement products not in Category A that do meet the definition of foreign “trust”

– Any “foreign trust” which meets the exemptions proposed by Treasury under proposed Treasury Regulations 1.6048-5 (page 39480 of the May 9, 2024 Federal Register)

(This would allow for further “safe harbor” exemption in the event that the Category A “safe harbor” exemption was not met.)

Generally, the combination of “safe harbor” rules found in Categories A and B should result in U.S. citizens NOT being required to file Form 3520, reporting investments associated with retirement accounts and financial planning accounts regardless of where the accounts are located.

We emphasize that exempting these assets from 6048/Form 35320 reporting has no bearing on whether these assets are required to reported under 6038D (Form 8938). We anticipate that in most cases they will be required to be reported under 6038D on Form 8938 as “Foreign Financial Assets” (as foreign pensions already are). In addition, Form 8938 does require that income received from foreign financial assets be identified (meeting part of the intended purpose of Form 3520).

Should this proposal be adopted, Treasury would still receive notice of “foreign financial assets”. Taxpayers would be relieved of the stress, cost (and most importantly) uncertainty surrounding Form 3520.