Phil Hodgen has some good news for the Canadians in the audience:
Up to now the way to fix an unreported RRSP problem was by incurring brain damage, spending lots of money, or suffering through terminal uncertainty and fear. Or all of the above … Guess what. Things have changed for the better. I’m serious. We confirmed today in a phone call with Chief Counsel’s office that amended tax returns will be allowed with Form 8891 attached.
In other words, a seemingly pointless waste of paper the IRS issued to one taxpayer early this year may have unforeseen historical significance: it is quite possibly the last “late RRSP election” Private Letter Ruling that will ever be made.
While this is certainly good news for many people, I find myself rather underwhelmed. Treasury has enormous power under existing laws to issue regulations exempting pretty much any class of persons it wants from pointless international paperwork that is otherwise demanded by law. Canada introduced its Registered Retirement Savings Plans in 1957. It only took fifty-six years for the IRS to ensure there are reasonable procedures for dealing with late filings on this one type of financial product. (Got RDSP or RESP problems? Too bad for you!) And that was in the best case scenario: a country right next door with English as one of its official languages, the most common type of account in that country, and over a million migrants going in either direction who were hit by the whole mess.
You do the math: 190-odd other countries & territories, each with their own unique kinds of purpose savings accounts, most speaking languages other than English, and fewer than a million affected filers in each to lobby for change. How long will it be before U.S. Persons finally have the freedom to move to any country on Earth without incurring unreasonable paperwork requirements, and the folks in the District of Columbia can start figuring out what to do with all those non-filers who moved to Mars in the intervening centuries?
Thanks for the update on this subject, KalC. It will be welcome news if we hear it that TFSAs and RDSPs will be exempt. Finance Minister Flaherty told me the problem was these registered accounts COULD BE used for other than retirement, although probably for most it will be part of their retirement planning.
northernstar
I missed the part of your earlier post where you said you were awaiting a CLN and that you became Canadian in 1993
“I am waiting for a CLN which I am hoping will be backdated to 1993 when I became a Canadian citizen.”
It is quite clear that you do not need to concern yourself with any of this nonsense. Please stop worrying.
You are not American and haven’t been since 1993. None of this applies to you. Forget about it. You are quite immune.
Now as to whether or not the bank is correct in advising you to buy GICs or mutual funds instead of having a RRSP just in a savings account……..You need independent advice. The bank may well be right.
Hi,
I’m a US Citizen living in Canada for the past 12 years. I have very recently heard of form 8891 (came to know of it shortly after also first hearing about FBAR & filing my 1st FBAR this past year – I was quite surprised about form 8891 as I had been under the impression that per the Canada-US tax treaty the IRS automatically recognized Canadian RRSP contributions ).
I’m wondering if I should:
a) do nothing?
b) file form 8891 for just the current tax year for my RRSPs & not select the ‘irrevocable election’ in form 8891 question 6c?
c) file form 8891 for just the current tax year for my RRSPs & select the ‘irrevocable election’ in form 8891 question 6c?
d) back-file form 8891 for my RRSPs along with amended 1040 returns & select the ‘irrevocable election’ in form 8891 question 6c for the oldest back-filed form 8891?
e) If back-filing forms 8891/1040 in (c), how many years should I go back (e.g. 6 years )?
From my recent online reading about IRS RRSP handling, if I understand how the IRS treats RRSPs:
a) until form 8891 question 6c ‘irrevocable election’ has been selected, any interest made by the RRSP is subject to being taxed by the IRS regardless of there being any disbursement from the RRSP/RRIF.
b) if I do not file form 8891 & if the IRS in the future notifies me that I should have been reporting RRSP gains on my 1040, would I not be able to at that point in time back-file forms 8891 & amended 1040 returns for as many years as needed, or would this passive approach put me in a greater risk position re penalties or worse?
c) apart from lowering the risk of penalties on non-disbursed RRSP gains, is there any advantage in selecting the ‘irrevocable election’ in form 8891 question 6c against an as-early-as-possible tax year? I don’t see any yet, as from what I’ve read so far, the IRS taxes RRSP gains vs. the full RRSP disbursement amount as Canada does & I don’t see how the year that the ‘irrevocable election’ is made changes the RRSP’s cost basis.
Also I’m curious, in the future when I start withdrawing my RRSPs directly or via an annual RRIF disbursement, will I be able to claim a Foreign Tax Credit for the Canadian Tax paid on the RRSP/RRIF disbursements to help offset the RRSP gains being reported to the IRS?
This is probably an area where professional help might be a good idea. I think it depends on the amount in your RRSP.
If you read 8891 carefully, you will see that the purpose is to defer any US tax until such time as distributions are received from a RRSP or RRIF. To do that you elect to do it via question 6c.
You tell them the plan balance on line 8 and you stop there.
If it is a small balance, I might file going forward. If it’s large, I might try to find a knowledgeable accountant.
It is my understanding that a foreign tax credit would apply for any Canadian tax paid on withdrawals
@M: just to add to what Duke of Devon said, if you haven’t seen it already here’s Private Letter Ruling 2012-25002, in which the IRS told a filer with a similar problem to yours to follow option (d) (8891s with every return and an “irrevocable election” in order to defer taxation on the gains), though they didn’t say how many years back to go.
Phil Hodgen did a blog post on this. I can’t find it on his site. Basically it confirmed what is quoted in block quotes at the top of this thread. You can e mail him. He is normally expensive but my understanding is that this is a simple problem for him.