Thanks to Phil Hodgen for his meeting with the IRS about #RRSP issues – also comments on #FBAR hodgen.com/irs-meetings-t… – One more step forward!
— U.S. Citizen Abroad (@USCitizenAbroad) May 8, 2012
Phil’s blog post is a “must read” (The Isaac Brock Society is mentioned). Full of all kinds of great ideas – including teaching how people how to get at “Private Letter Ruling”. Also, some interesting “non legal advice” thoughts on the FBAR problem. You will find the actual paper that was submitted to the IRS here. The paper was supported by the New York Society of CPAs.
Phil, thanks again for your help and support!
@renouncecitizenship- you know all of this is rather pathetic when seen in the light of the fact that not only does the Canadian RRSP actually predates the U.S. IRA but it also formed the template for the IRA.
http://www.canada.com/montrealgazette/story.html?id=11930dd7-830f-4109-bb76-7fcf5c21883e&p=1
http://www.ehow.com/about_5108303_history-ira-accounts.html
@recalcitrant
Of course its pathetic. But, it’s about forms, forms and more forms.
The U.S. has pioneered the development of “Form Crime”.
Welcome to the United States of America – The World’s Leader in “From Crime”
As the rest of the world thinks about production and innovation, the U.S. thinks about forms.
@renounceuscitizenship- I like that term- “form crime”.
[Editor’s note: Roy Berg has kindly offered a correction of this comment, which as can be seen, has created a certain level of panic; this correction includes the following line: “The appreciation in an RRSP IS tax deferred for US purposes until it is withdrawn provided the 8891 is filed on a timely basis”. Please read the following comments with this correction in mind. Petros]
Those US citizens who reside in Canada should be mindful that, for US purposes, ONLY employer-sponsored RRSPs qualify for a) deduction; and b) tax-deferred growth. Individual RRSPs don’t qualify.
The treaty analysis goes like this: for US citizens the 2007 Protocol allows: a) a deduction for contributions to an RRSP; and b) deferral of income generated by an RRSP ONLY IF the RRSP is a Qualifying Retirement Plan (Article XVIII(13)). An RRSP is not a Qualifying Retirement Plan if it is an individual plan (Article XVIII(15)(b)).
Just my $0.02… Query, would the $0.02 be rounded down to $0.00 now that Canada has gotten rid of the penny?
@royaberg- well that is a major blow to many of us.
@royaberg- just one more reason why it doesn’t pay to be a U.S. citizen living abroad.
@ Roy Berg: I will avoid killing the messanger this time. Thanks very much for your comment. I have reported my individual RRSP for years, with not a single word from the IRS: 8833 Treaty-Based Return Position disclosure / 8891 (Canadian Registered Retirement Plans). I suggested that others do the same. This is the first time I’ve seen that it is only a employer sponsored plan that is eligible for tax deferment. You may be the only one who knows this. The IRS either doesn’t know that my accounts are not eligible, or they don’t know the rule.
The more I learn about this crap, the more I hate and detest dual citizenship and am glad that I’ve renounced. It seems impossible to be a US person in Canada unless you are poor.
@RoyBerg
Have never heard of what you are describing in your comment.
http://isaacbrocksociety.com/2012/05/08/phil-hodgen-meets-with-irs-to-solve-rrsp-problems-thank-you-phil/#comment-17371
It is hard to believe that this could be the intent of the treaty. I can’t even invent a public policy reason that could justify this. Perhaps you can help.
In any case, I agree with Petros – get rid of your U.S. citizenship! There isn’t even enough time to learn about it.
So, let me ask you this question:
If Moodys does a U.S. tax return for a dual citizen client who has an RRSP, are you saying that, assuming it is an individual RRSP, that the annual growth of the RRSP is taxable income in the U.S.? Is that the position your firm is taking?
I would my last dollar (of course I don’t have any – I am one of the “Petros poor”), that the Canadian government would not interpret the treaty in this way.
@Recalcitrant
It’s not “form crime” – give it the respect it deserves:
“Form Crime”
@RoyBerg, @renounce, @All,
How can we determine the Canadian Government’s interpretation?
Will more letter writing do any good? Will this wake up our government representatives from the deafening silence we now have?
Another kick in the gut for all of us who have filed 8891’s or had them filed on our behalf?
@calgary411
My sense is this could be an area subject to binding arbitration under the tax treaty between Canada and the US. We’ll have to wait and see how this turns out over the long haul.
@All
Relax, I believe I am right that the treaty is to be interpreted in the way that it was intended. The suggestion that Canada would enter into a treaty that would protect only Employer sponsered RRSPs undermines the very purpose of having the RRSP at all. Therefore, I am quite confident that individual RRSPs (notwithstanding any language in the treaty will be included). There is already enough stuff to worry about. We don’t need to add this.
I have an idea. I think that the Isaac Brock Society should list all of the problems that U.S. citizens abroad worry about. We will then designate one individual to be the “Official Worrier For That Problem”.
Who would like to the official worrier about Individual RRSPs? All of this is just gotten to be too much.
OK, I guess I can be the designated worrier for individual RRSPs. That means I can’t worry about any other aspect anymore? Relaxing is something I’ve not been good at through all this. Thanks renounce and Tim.
@All
I could be wrong here but I believe that ‘royaberg’ could be referring to the fact that individual plan RRSPs would need what is called a “private letter” ruling. Also, employee sponsored RRSPs qualify for a deduction (as RRSPs do on a Canadian return). Individual plans do not qualify for the deduction on U.S. returns.
@Calgary411
You gotta live a little, love a little.. ignore this insanity:
http://youtu.be/Q2ShkYcemgU
@Tiger
The Hodgen post refers to private letter rulings. If all of this is true, then it is one massive class action lawsuit against the HR Blocks of the world, who have been simply filing the 8891 with any kind of RRSP. As the Hodgen post indicates, you need to pay $2000 fee (plus legal costs) to get the private letter ruling.
An interpreation of the treaty that excludes individual RRSPs is contrary to the whole purpose of having an RRSP at all.
@tiger- doesn’t a “private letter” ruling require the payment of a fee of 2000.00? To pay the fee would be like paying a cop to write the ticket that he is going to give you.
It is just regulatory opportunism. An RRSP is the same beast no matter what. Most Canadian workers are covered by employer sponsored retirement plans and certainly the self employed aren’t covered. When you considered that RRSP’s were introduced at a time when there was no Canada Pension Plan it wouldn’t make sense that Canada would allow the Tax Treaty to exclude this retirement plan based solely on who makes the contributions.
It is all IRS foolishness.
@renounce. Thanks. I love Bette Midler (and her outrageousness — she would definitely be fighting this nonsense) and I love and believe in the power of music! That’s one reason I married a musician late in this life and he does keep me somewhat grounded. I do want the complete joy of music back.
@renounceuscitizenship- all of this just goes to show how archaic the tax treaty structure itself is. The IRS does not have the manpower or the intellectual depth to remain abreast of all the tax changes that occur in the other 195 countries of the world and the other independent tax jurisdictions.
Territorial taxation is the only just method of taxation.
@renounceuscitizenship and @ recalcitrantexpat
I agree with the comments above. It is ridiculous. But isn’t all that the IRS requires and is doing, ridiculous. I wasn’t saying ‘this is the way it is and that we should just all meekly obey’ – my comments just reflect what I believe they, THE IRS, in all their stupidity expects and hopes will happen.
On the weekend, I was speaking to a dual American/Canadian citizen. She came to Canada in 1974 and immediately started to file U.S. returns. She became Canadian in 2000, continues to file both Canadian and American tax returns. Her plans are to continue – says she has never owed anything nor has there ever been any costs involved as she does the returns herself. She is completely unaware about “Private Letter Rulings”, FBARs, FATCA etc. She files everything online and other than a “Thanks so much for your forms”, she has heard nothing. My point is – she is actually ‘getting away’ with her mistakes by not going to a Professional to do her filings.
BTW. A friend, here in Vancouver, working for a cross border tax attorney said they charge $650 for the Private Letter ruling.
Well, surprise surprise. Just another way to wipe out the middle class and protect the top 1%.
I for one am sick of this sh*t!
I have complied, apologized, used up way too many LCUs (life credit units), and have emptied my bank account time and time again to pay for accountants and tax lawyers to get me through this mess.
Every time i turn around there is another ‘professional’ telling me there ‘take’ of the US tax law and how i will have to ‘belly up’ to the trough to give another pint of blood.
This RRSP interpretation may seem like a fly in the ointment right now…but wait until it is enforced by the IRS and you they won’t allow you to relinquish or renounce your US citizenship because all of a sudden you are no longer compliant and owe them a bunch of cash due to unrealized RRSP gains. Gains that you will be taxed on by CRA when you start to withdraw….
This is now my concern as i want to shed this dark cloud as quickly as i possibly can!
can anyone say double taxation!
It was why my financial adviser recommended that I moved my assets in my personal stakeholders plan into my employer-sponsored pension plan. I understand that the IRS places similar restrictions on personal pension plans though my accountant has tried to invoke the treaty….now it’s a case of waiting out the audit lottery…so won’t be able to relax until at least mid-october 2016 (for my 2012 tax return’s statutes of limitations to have run) which is a long time to be biting my nails!! I hate how the US artificially creates all this unnecessary stress to my life through all the blasted technicalities. My accountant believes I’ll be fine but she has had to take an aggressive position when I am by nature a cautious person…I still fear an aggressive audit, even though I have lived in the UK for almost 24 years. I resent this intrusion in my life.
@ all
Canada and the US’s interpretation of the treaty is found in the Technical Explanation.
Please look at the Technical Explanation [2007 Protocol] at page 37 (link below). While the TE is the US Treasury’s formal interpretation of the treaty provisions, the Minister endorced the Technical Explanation on July 10, 2008 (link below).
Nothing is simple or straightforward when dealing with cross-border issues.
http://www.treasury.gov/resource-center/tax-policy/treaties/Documents/tecanada08.pdf
http://www.fin.gc.ca/n08/08-052-eng.asp
@Mach73 and all
In this case, we have the benefit of the Canada U.S. tax treaty which is intended to allow for the non-taxation of RRSPs. (The treaty also protects us from IRS “FBAR Fundraising Activites.) Because it is a treaty issue, the IRS (assuming they have even thought about this, which they obviously haven’t), could (as Tim points out) find this issue subject to arbitration. Trust me, they are not going to want this.
At the moment it appears that it only the Isaac Brock Society that is making this an issue. Even if there were a reason to worry about this, I don’t know how to worry. The cross border professionals don’t know how to worry about this.
Furthermore, Calgary411 has agreed to worry about this issue on behalf of all U.S. persons abroad. Mach73, what issue would you like to worry about?
This whole think has gotten so preposterous that I am just starting to find it funny.
Mach73 – a song to brighten up your day:
http://youtu.be/3kzeCjluvxU
@Monalisa,
I am assuming you live in the UK?
Having said this…and correct me if i am wrong…..but your accountant probably made that decision based on the UK/US tax treaty (or lack there of).
I think there is more language in the Canada/US treaty based relationship than anywhere else in the world. (?)