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!
@ All –
The interpretation of the treaty can be found in the Technical Explanation [2007 Protocol] (see first link below). You can find the issue addressed on page 37 (it’s a 67 page document).
Admittedly, the TE is the US Treasury’s handiwork, however the Minister endorsed the TE on July 10, 2008 (see second link below).
Nothing is easy or straightforward in the cross-border world.
http://www.irs.gov/pub/irs-trty/canatech.pdf
http://www.fin.gc.ca/n08/08-052-eng.asp
The ‘private letter’ would only be required if the return had not been filed in a timely manner. Unfortunately, that is too often the case, as many ‘U.S. persons’ are only now realizing they should have been filing U.S. tax returns.
@Tim
You did a post in the last week or so, describing a mechanism to get help with double taxation/treaty based issues.
http://isaacbrocksociety.com/2012/04/29/canada-revenue-agency-competant-authority-services/
You point out in relation to the 2007 tax treaty that:
“The other key thing to note since 2007 is the US and Canada have a binding arbitration mechanism in their tax treaty. (Historically the US hasn’t liked binding arbitration and Canada is the only country the US has such a mechanism with).”
You note in the following comment that:
http://isaacbrocksociety.com/2012/04/29/canada-revenue-agency-competant-authority-services/#comment-16007
“From CRA PDF
One of the significant benefits to taxpayers in the Fifth Protocol is the introduction of mandatory arbitration for residents of Canada or the United States who face potential double taxation that is not resolved by negotiation between the Canadian and United States competent authorities. For certain issues that the two competent authorities cannot resolve, taxpayers can compel them to refer their dispute to binding arbitration. This procedure is entirely elective for the taxpayer: the new rule is described as “mandatory arbitration” because it is mandatory for the competent authorities. The competent authorities for Canada and United States developed procedures and administrative practices for the implementation of mandatory arbitration.”
Is this a way to address this problem?
@Mach, yes, I’m in the UK. Our stakeholders and group stakeholders pension plans are similar to RRSPs. From what I understand, the treaty only officially recognizes employer-sponsored pension plans, though it’s a grey area.
@renounceuscitizenship
I don’t want to be left out of the ‘worry’ group. My kids and friends tell me if I don’t have something to worry about then I will make up something to worry about. So to all, just pass them along, I will worry for you.
In actual fact, Isaac Brock Society has done so much to alleviate so many of the worries I have had since first learning about this whole situation. I am so grateful that I found all of you. And my kids and friends also thank you.
Which brings another question — how would the IRS view moving assets from a personal stakeholders plan into an employer-sponsored pension plan. And, how would one even do that?
It’s like a bloody maze — and someday many of us will get to the end of it. The reward, for me at the end of the maze, is renunciation.
According to Phil Hodgen this site has already turned up on some radar screens down in DC. I have had that feeling for a long time because I have access to the site logs and the US always comes up second in terms of hits after Canada.
http://hodgen.com/phils-blog/
@royaberg, that used-to-be copper coin has always been called a “one cent piece” in Canada (at least officially), never a penny (that’s way too American).
Phil: “My feeling is that there is an informal, unspoken policy at the IRS to not pursue ordinary people filing late FBARs. They dare not say this out loud. And even if this is not the case at IRS World HQ, I sense that most of the Revenue Agents have no stomach for amputating huge chunks of a regular person’s retirement savings.”
Yes it’s called the Internal Revenue Manual and if you read Nina Olsen’s 2011 report to congress you will see that she condemned the IRS for implying in OVDI’s Q & A that it was no longer available as a way of resolving penalty issues. That is exactly how my husband and I got duped!
@monalisa
The problem in a nutshell is that the US/UK tax treaty was last revised in 2001, but UK pension legislation was massively overhauled in 2006. And like so much else that they don’t do, the IRS has never offered any form of clarification on the changes.
As a result, much of what folk have as pension savings now in the UK was never envisaged by the tax treaty. That leaves professionals of all calibre simply fumbling around in the dark, trying to hammer the square peg of current pensions into the round hole of US tax treaties. If any do luck into the right formula, it’ll be mostly serendipity.
Clearly the IRS has absolutely no clue whatsoever about how to treat UK stakeholder and SIPP plans, and on its track record is completely unlikely to ever develop one. So… it’s entirely reasonable to take the liberal interpretation of the treaty (and one that obviously follows the intent, no matter the actual language) and see if they challenge it. Dollars to doughnuts they won’t. Can’t.
This entire “compliance” jihad from the IRS is a massive waste of manpower across the board. Even if they do get the “compliance” they’re after, it will be compliance defined as receiving a massive bunch of paperwork each and every year, all with a big fat zero stuck at the bottom of it. Lot’s of work, no gain whatsoever. The only people to gain from this are accountants and lawyers. It must be like all their christmases and birthdays came at once for some of them.
@all- I remain convinced that the Tax Treaty structure was not designed to apply to people who have taken up permanent residence in another country.
In my reading of the treaty the focus is on itinerant workers who have maintained ties with the U.S.
The misapplication of the Treaty to others is a grave error and may be purely a historical accident arising from false assumptions.
@ bublebustin – thanks for the clarification… i guess my ‘merican was showing
@royaberg, if my accountant had strictly followed the rules, she would have had to file both a 3520 and 3520a which would have cost me around $5,000 in professional fees on top of her already expensive accounting fees… and as I was at most paying in around $4,000 per year into the plan, this would have been exorbitant. The UK encourages these sorts of personal pension plans for part-time and even unemployed workers as a means of building up a safe income for old age…my spouse had actually been the one who had so kindly been paying into it for me because I have Asperger’s so have never found it easy to work full-time. He was simply trying to protect me and from his fully UK-sourced earnings.
I have been most fortunate to be able to transfer the modest holdings into my employer’s pension scheme which only became available to me late last year. And because I only work part-time, the most I will be able to pay into it is 10% of my gross wages which would be about $2,500 tops (5% from me, 5% from employer)…
I simply cannot afford to be paying what the accountant would be charging for the ‘foreign Grantley trust’ forms. I just hope things will go smoothley and that I won’t have to go through all the hassle and expence of a private ruling.
@Tiger
What problem would you like to become “Official Worrier For?”
@all
I think its pretty obvious that U.S. persons are owned “lock, stock and barrel by the IRS”. You have no chance of every being truly tax compliant, because there is always one more form or provision. As I have slowly come to this conclusion, I have also come to the conclusion that all U.S. persons (because they can’t know all the laws) are criminals. That is the inevitable and necessary consequence of being a U.S. citizen. It explains why the U.S. has such a high rate of incarceration. The U.S. is a nation of so many laws that one is always in violation of something.
I used to say have to choose between being a U.S. citizen and having a life.
Now, I will add that you have to choose between being a U.S. citizen and not being a criminal.
Hell, even the U.S. Treasury Secretary is a tax cheat.
If you don’t want to be a criminal, then renounce.
@renounceuscitizenship
I am more than willing to take on any and all problems associated with the stupidity of citizenship based taxation. My only request is that I get a ‘free pass’ to not worry for one month each year.
@ renounce
I renounced; I am still a criminal.
That’s why I invoke the Fifth Amendment in my filings, because I’ve committed crimes.
[Editor’s note: this comment has been edited to remove defamatory content, and besides the commenter has written a retraction]
Royaaberg [edited] specifically stated today on this thread
” 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.”
Part b) [edited] The earnings and growth of a Canadian RSP, individual or not, can be deferred until they are withdrawn. An election has to be made ‘in a timely manner’
From http://www.serbinski.com/working-in-usa/rrsp.shtml
United States – Canada Income Tax Convention, provides that a beneficiary of a Canadian Registered Retirement Savings Plan (RRSP) may elect, under rules established by the competent authority of the United States, to defer U.S. income taxation with respect to income accrued in the plan but not distributed, until such time as a distribution is made from such plan, or any plan substituted therefor. Deferral is only available for income that is reasonably attributable to contributions made to the plan by the beneficiary while the beneficiary was a resident of Canada. The technical explanation to the Convention states that the purpose of this provision is to avoid a mismatch of U.S. taxable income and foreign tax credits attributable to the Canadian tax on such distributions.
and from the IRS instructions
“Form 8891 also can be used to make an election pursuant
to Article XVIII(7) of the U.S.-Canada income tax treaty to
defer U.S. income tax on income earned by an RRSP or an
RRIF that has been accrued, but not distributed. Taxpayers
who have not previously made the election can make it on
this form by checking the box on line 6c. “
He’s probably just taking a cautious interpretation.
I apologize for the post I made . It was made in the heat of the moment. I would have edited out any criticism of Mr. Berg if I could. I do not wish to impugn or malign him in any way. I’m sure these things are open to various interpretations. I’m going to take a holiday from all of this.
@Chester12, Don’t worry about it, everybody gets caught up in the moment. I think all of us are very sensitive these days.. It is a very hard time to cope..I would love to just enjoy the summer and forget about all this aggravation..
@ Chester12 – this isn’t your first pesonal rant directed at me. If you’re a CA, i’m sure you are familiar with Rule 201 of the Rules of Professional Conduct.
The way I see it, I won’t feel truly safe till I get through my statutes of limitations which could be as late as 2016-19, depending on the issue.
I have considered renouncing in order to simplify my life but fear it might make me more of a target. Seems only safe to consider in either a completely straightforward situation or if said person never planned to cross US border again.
And as I still have my parents to visit plus could be looking at a significant inheritance, felt it would be foolhardy not to have become fully compliant with IRS. Hopefully my amended returns and delinquent FBARS will be treated mercifully but it’s still only just over six months since the SOLs will have started running for 2010, for instance. returns will pass through
SORRY, WAS HARD TO EDIT… I’VE SAID THIS BEFORE BUT FEAR THAT RENOUNCING COULD BE REGARDED BY THE US govt as a treasonable act and could thus result in a higher risk of IRS harrassment. I would feel safer waiting out my SOL’s and hopefully by then there will have been major tax reform, perhaps even to residence-based taxation.
@monalisa1776- both you and Markpinetree are brave souls to put any faith in Washington to do the right thing. I hope that your trust bears fruit.
If there’s one thing I’ve learned about the US it’s that they love to take sharp turns. If the Republicans win this November, we could be in for a completely different and greatly improved set of circumstances with regard to US taxation.
Before everybody starts talking about how nuts that is, let me remind you that what is currently happening is also nuts and nobody could have foreseen that either.