From the IRS newsroom – released October 7, 2014:
IRS Simplifies Procedures for Favorable Tax Treatment on Canadian Retirement Plans and Annual Reporting Requirements
IR-2014-97, Oct. 7, 2014
WASHINGTON ― The Internal Revenue Service today made it easier for taxpayers who hold interests in either of two popular Canadian retirement plans to get favorable U.S. tax treatment and took additional steps to simplify procedures for U.S. taxpayers with these plans.
As part of this, the IRS provided retroactive relief to eligible taxpayers who failed to properly choose this benefit in the past. In addition, the IRS is eliminating a special annual reporting requirement that has long applied to taxpayers with these retirement plans.
Under this change, many Americans and Canadians with registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) now automatically qualify for tax deferral similar to that available to participants in U.S. individual retirement accounts (IRAs) and 401(k) plans. In general, U.S. citizens and resident aliens qualify for this special treatment as long as they filed and continue to file U.S. returns for any year they held an interest in an RRSP or RRIF and include any distributions as income on their U.S. returns.
The change relates to a longstanding provision in the U.S.-Canada tax treaty that enables U.S. citizens and resident aliens to defer tax on income accruing in their RRSP or RRIF until it is distributed. Otherwise, U.S. tax is due each year on this income, even if it is not distributed.
In the past, however, taxpayers generally would get tax deferral by attaching Form 8891 to their return and choosing this tax treaty benefit, something many eligible taxpayers failed to do. Before today’s change, a primary way to correct this omission and retroactively obtain the treaty benefit was to request a private letter ruling from the IRS, a costly and often time-consuming process.
Many taxpayers also failed to comply with another requirement; namely that they file Form 8891 each year reporting details about each RRSP and RRIF, including contributions made, income earned and distributions made. This requirement applied regardless of whether they chose the special tax treatment. The IRS is eliminating Form 8891, and taxpayers are no longer required to file this form for any year, past or present.
The revenue procedure does not modify any other U.S. reporting requirements that may apply under the Bank Secrecy Act (BSA) and section 6038D. See FinCEN Form 114 due by June 30 of each year, and Form 8938 attached to a U.S. income tax return for more information about the reporting requirements under the BSA and section 6038D. Different reporting thresholds and special rules apply to each of these forms.
Further details on today’s change can be found in Revenue Procedure 2014-55, posted on IRS.gov.
Follow the IRS on New Media
Subscribe to IRS Newswire
Page Last Reviewed or Updated: 07-Oct-2014
Filing 8891 along with one’s tax return previously meant one didn’t have to bother with declaring RRSPs on Form 8938 as they had already been dealt with on the 8891. So now what? Skip 8891 and instead put ’em on 8938? 8891s also solved the “foreign trust” problem. So now do you have to fill out a stack of 3520s to fix that? Too little, too late for those who have already bolted for the exits.
Besides, ditching 8891s works only for Canadians; what about the government tax advantaged retirement savings schemes for a gazillion other countries? What this tells me is that the IRS is getting a little nervous about all the pissed off Canadians, the bad press about their stupid rules, and the ever longer renunciation line-ups. When you have a six month long wait to pay $2350 to get rid of US citizenship anyone can see there is a major problem. This doesn’t fix it.
Wow, the chains feel so much softer now.
“In the past, however, taxpayers generally would get tax deferral by attaching Form 8891 to their return and choosing this tax treaty benefit, something many eligible taxpayers failed to do. *****Before today’s change, a primary way to correct this omission and retroactively obtain the treaty benefit was to request a private letter ruling from the IRS, *****a costly and often time-consuming process.”
So my take is it’s becoming too much work for the IRS. They don’t give a crap about Canadians.
So I tried reading this bulletin. Honestly, I’m not sure I understand, but then did they really need 13 pages? If I’m getting this right, contributions are still not tax deductible. Income inside the RRSP is exactly the same as before, if you were filing 8891. So no change. Am I missing something here, or did they just do essentially nothing, except say if you didn’t file 8891 before, then we’ll tax you on your income in the RRSP later?
Watered down CBT, you still have to file to take benefit. The point is nobody wants to file and be under the IRS’ thumb. The IRS is treating this concession in similar fashion to the FEIE.
That’s great but the FEIE doesn’t apply when you start collecting your Canadian pension and have to rely upon foreign tax credits solely. It’s a red herring.
What’s going to happen? Any concessions the IRS makes today may not apply tomorrow. The only certain course of action is to scrap CBT and make it US law.
Also, what if you do not want to take the treaty position – “pay” tax now (FTC/personal exemption – or standard deduction in some cases) and not pay in retirement?
Before, you reported on 8891 and made clear on 8891 that you did not take the treaty position…
Is it not ridiculous that despite both the US and Canada knowing about this serious problem for years:
“The change relates to a longstanding provision in the U.S.-Canada tax treaty that enables U.S. citizens and resident aliens to defer tax on income accruing in their RRSP or RRIF until it is distributed. Otherwise, U.S. tax is due each year on this income, even if it is not distributed.”
“LONGSTANDING”. So WTF took the IRS so long? And WTF was Harper and his merry Conservatives doing signing up to FATCA without even getting Canadian RRSPs and RRIFs protected AUTOMATICALLY – in accordance with the ALREADY agreed treaty terms – long before now?
The IRS didn’t give a crap about the harmful and needlessly/carelessly complex, punitive and confiscatory effect on the actual people they lay claim to as US ‘citizens’, much less other ‘taxable persons’. And the useless compliance costs and jeopardy created by their reporting and penalty regime as applied to RRSPs and RRIFS. And obviously the Harper government didn’t give a crap either.
The Canadian government whose job is supposed to be representing the best interests of Canada and ALL Canadian citizens and residents – even those who are claimed by the US – a foreign government – allowed this to stand under their watch – from February 6, 2006 to today the Canada US tax treaty has been the responsibility of the Conservative government of Stephen Harper. Since 2006 they were in charge of negotiating the terms of the Canada US tax treaty – and they chose to sign up for FATCA – binding and burdening Canadians and implementing that foreign law to confiscate private and financial information inside Canada and remit it to a foreign power – via the enabling legislation they crafted and passed as hidden inside omnibus bill C-31.
Harper signed the FATCA IGA WITHOUT even safeguarding Canadian RRSPs and RRIFs (and other registered accounts like the RDSP, RESP and TFSA) from US extraterritorial taxation and pre-existing layers of penalty regimes (FBAR/Form114, 3520, 3520A).
How offensive is this:
“Otherwise, U.S. tax is due each year on this income, even if it is not distributed.””
EVEN IF IT IS NOT DISTRIBUTED. On Canadian RETIREMENT savings.
An EXTRATERRITORIALLY ASSESSED and ENFORCED US TAX on Canadian made, Canadian saved, Canadian held retirement assets EVEN IF NOT DISTRIBUTED.
AND the Harper government signed the FATCA IGA without even this obviously logical and just concession to the preexisting treaty terms?
Does that not make you ferociously angry enough to fund the Canadian legal challenge http://www.adcs-adsc.ca/DonateADCS.html to the FATCA IGA and legislation enabled by the Harper government?
Remember that the IRS wasn’t even going to clarify RRSP and RRIF exempt status in the OVD programs. And what about for FBAR/Form 114 reporting and penalty purposes?
Stop and spare some empathy for those living outside Canada – whose home countries don’t even have a tax treaty with the US that is this ‘good’. Some other retirement plans don’t even get this much recognition from the US.
Surgically removing my US citizenship and thus expelling the IRS/US Treasury parasite was still the right decision for me and mine.
Great news!!!! NOT! “The change relates to a longstanding provision in the U.S.-Canada tax treaty that enables U.S. citizens and resident aliens to defer tax on income accruing in their RRSP or RRIF until it is distributed.” Yeah…they’re just going to wait and hit you when you redeem it…when your tax burden is higher.
I remember how much ij suffered because for such a long time, the IRS refused to make clear whether his RRSP would be included in the OVDI penalty base http://maplesandbox.ca/2012/ijs-opt-out-resolution/ .
For example, see this past (now historic?) examples of the uncertainty and fear and punishment the IRS generated by its treatment of our RRSPs – despite the ‘LONGSTANDING’ treaty terms:
How many times and how much longer do we have to repeat it?: U.S. government, you have no business extending your tax laws into other countries and poaching revenue from them. Fiddling with your extra-territorial tax rules doesn’t change that. I’m a Canadian citizen and I live, work(ed) and pay taxes here. Get your IRS with its complicated rules, crazy forms and greedy fingers out of here!
So, I’m supposed to believe that I’m being done some sort of favour here??? USA…..as politely as I can say this…..GET THE HELL OUT OF MY LIFE AND PISS OFF!!!!! I have NO intention of playing your mugging games. I hope some day you’ll grow up realize what a total JERK you’re being. At that point in time, I might even forgive you. RBT or bust!
Just an aside…..I’m up to 4 vacations taken elsewhere now to the exclusion of the USA, that under normal circumstances might have actually been there.
And in another aside, I’ve started asking my homelander relatives that what I want for Christmas is for them to contribute to a fund for my minor children’s renunciation of US taint as soon as they turn 18. Hopefully that’ll get their attention.
Here is a post that I did in February 2012 titled:
Canadian RRSPs and the OVDI Penalty Base
You will note that it includes a comment from Ij
In any case, it is clear that that the “Shulman Reign of Terror” has caused irreparable damage to the relationship between the IRS and Americans abroad. As the Hodgen post demonstrates it is quite obvious that the IRS was using OVDI as nothing more than an “FBAR Fundraiser” and was in fact – once it became clear who was entering the OVDI program – quite deliberately and willfully extracting penalty revenue from its victims.
Although the original intent of OVDP/OVDI may have have been to allow “criminals” to legalize their illegal gains, it soon became clear that an entirely different group of people (law abiding Americans abroad) were entering the program. By entering OVDI, Americans abroad were allowing the IRS to confiscate a large portion of their legally earned and after tax gains! In other words, OVDI was designed to give a fantastic deal to criminals and to confiscate the lawfully earned assets of Americans abroad!
The IRS did NOTHING to discourage this! In fact, by NOT contradicting the claims of lawyers/accountants that a failure to enter OVDI was a “forbidden quiet disclosure“, the IRS encouraged Americans abroad to enter OVDI. This immoral and unethical treatment of American’s abroad sealed the deal. Shulman proudly proclaimed OVDI a success (notwithstanding the OVDI concerns raised by Taxpayer Advocate).
As Phil Hodgen commented (see the reference in the Badger comment above):
Yes, this is exactly what was going on in 2011 and 2012. So incredible that NOBODY believed this when it was explained to them. Think about it. Your whole retirement savings subject to confiscation because you didn’t file a piece of paper that NOBODY would even imagine needed to be filed!
From that moment on, Americans abroad understood that they needed protection FROM the U.S. Government. There were are are only two ways to get that protection:
1. Stay underground and hide your “U.S.Ness”; or
2. Renounce/relinquish (at an increased cost, more people will take the first option).
(Don’t forget that that these problems were enabled and exacerbated by our friends “The Cross Border Professionals”. They regarded their “professional obligation” NOT as protecting the client but to enter people into OVDI. Instances have been reported of people entering OVDI who ceased to be U.S. citizens in the 70s. Think about it.)
The hatred and distrust of the IRS and the Obama administration is so extreme that anything the IRS does will remind everybody of the “FBAR Fundraiser” and OVDI. For example, I personally believe that the new 2014 Streamlined Compliance Program IS an IRS attempt to allow Americans abroad to come into the system “penalty free”. But the complexity of U.S. tax laws and PAST experience with the “Shulman Reign of Terror” means every proposal is interpreted in an atmosphere of distrust.
The fastest growing source of hatred of the United States of American is (and understandably so) Americans abroad.
It’s obvious that the only thing that makes sense is to:
Renounce and rejoice!
The Rev. Proc. is a problematic for a multitude of reasons, including:
1. it substitutes a form for which there is no failure to file penalty (8891) for a form that contains a $10,000 failure to file penalty (8938).
Further, the $10,000 penalty is enhanced if the individual does not respond to requests for further information within 90 days per 6038D(d)(2). If the individual does not respond within 90 days there are additional penalties of $10,000 per 30 days (not to exceed $50,000).
2. It addresses only income accrual in RRSPs/RRIF/etc. and NOT deductibility of contributions to such plans.
3. Most catch-up Canadians will NOT be eligible for the simplified procedure and therefore must seek a private letter ruling to defer the tax on income generated by the account.
SECTION 4.01 defines “Eligible Individual” to include only an individual who:
(B) Has satisfied any requirement for filing a U.S. Federal income tax return for each taxable year during which the individual was a U.S. citizen or resident.
Most Canadian residents who are U.S. citizens have missed several years of filing obligations and therefore seek to come current under Streamlined Filing, which requires filing of only 3 years of returns. If an individual has been resident in Canada , say, 30 years, he would have to file 30 years of returns in order to be deemed an “Eligible Individual.”
4. Conflicting direction regarding taxability of distributions from RRSPs/etc.
SECTION 6 and SECTION 4.02 provide that accrued income on RRSPs must be reported by the individual for US tax purposes. Further, SECTION 6 provides that the accrued income must be reported consistent with §72 of the Code. In other words, only the income from RRSPs is taxable in the U.S. when it is distributed.
This result is directly contrary to SECTION 7, which provides that the entire amount of the distribution is subject to taxation in the U.S. This result makes sense IF the contribution to the RRSP is deductible for U.S. purposes but makes no sense if the contribution is not deductible.
As an expat yourself, I’m REALLY thrilled that you to are starting to realize what a twisted malicious whack-job the IRS really is….although your comment will in no way endear me to you.
In fact, I think Canada should prohibit any further immigration from the USA as we really don’t need any more Trojan Horses stealing from our Canadian treasury.
IRS, what about other countries?
The problems identified above with this new announcement re the RRSP, RRIF and form 8891 only underscore that anything that comes to us ‘abroad’ from the US IRS and US Treasury is deeply suspect, deeply flawed, and usually destined to harm those living outside the US – whether by design or default.
What can you expect but more of the same from the US – who seeks to legitimize and rationalize the imposition of extraterritorial taxation and confiscatory extraction of assets generated and held entirely outside its borders – and without any possible economic connection – but based merely on geographical birthplace and the national origin of an individual’s parents – a policy it has chosen to enforce via the economic extortion of my fellow citizens and my home country?
Of course, if this is how the IRS and US ‘favourably’ treats Canadian RRSPs and RRIFS – which theoretically have “longstanding” treaty recognition, protection, and US agreement, then how will we and all our legal local Canadian earned, saved and sited non-registered non-RRSP and RRIF accounts fare under the intricacies of the unilateral FATCA regime forced via US extortion on Canada – when the terms of FATCA are those of a US law – subject to change without notice or consent, applied outside of US jurisdictional boundaries, and as always, subject to the last-in-time rule, the ‘savings clause’ – and obedient to the whims and caprices of the likes of Senator Levin, Mythster Stack and other American FATCAnatics? And who could forget that it is intended to surpass the FBAR/Form 114?
When I read this thread, I vividly recalled a presentation on FATCA in transcripts and on Parliamentary video record, from a US citizen homelander, temporarily resident in Canada, member of Democrats Abroad, and beneficiary of extraterritorial CBT ( the gift that keeps on giving to the US crossborder compliance industrial complex); appearing before our Canadian parliament, to lecture Canadian CITIZENS like myself ( living in our permanent and longstanding home of Canada) to just stop with the “hyperbole” because as a blog author admonished us;
“… Fortunately the IGA mitigates the worst of the effects of FATCA and all right minded people would agree that life under the IGA is much better than would have been without it….”.
Given that the US IRS and Treasury can’t even bring themselves to offer true workable relief on the legal local registered retirement savings that ‘longstanding’ provisions of the existing Canada US treaty have already established, then really, who would take seriously advice that we should just sit back, relax and enjoy the fruits of a US FATCA IGA?
Luckily, I am not the right kind of ‘right-minded’.
And I say;
Donate to the ADCS legal challenge http://www.adcs-adsc.ca/DonateADCS.html
Gosh, I can see that everyone here is just as thrilled as I am! I’ll bet that even at the extortionate new price of $2350 renunciation is still way cheaper than one of those “private letter rulings”. Up yours, Uncle Sam.
I think it was Phil Hodgen who said:
“the IRS will continue to do what it has always done,….come up with ever more new rules and regulations…..all of which are invariably bad for carbon-based life forms. Get out now, while the getting out is semi-good!”
Very much appreciate the comment – excellent points.
One is left with the impression that the IRS didn’t understand the existing rules.
…and that one needs a US tax lawyer to make any sense of their regulations or changes in regulations as their 13 pages required to say this.
Trap upon trap.
Yes, it’s clear from the comments that it is very unclear what the new proclamation from the IRS even means.
Thank you for the insight into what this “olive branch” Robert wood refers to really does – pokes right in the eye of Canadians.
Beware of IRS bulletins bearing gifts.
@Roy Berg “The Rev. Proc. is … problematic for a multitude of reasons, including:
“1. it substitutes a form for which there is no failure to file penalty (8891) for a form that contains a $10,000 failure to file penalty (8938).
“Further, the $10,000 penalty is enhanced if the individual does not respond to requests for further information within 90 days per 6038D(d)(2). If the individual does not respond within 90 days there are additional penalties of $10,000 per 30 days (not to exceed $50,000). ”
Roy, I thought you were a U.S tax specialist. What could possibly make you think the IRS would agree with you that this is a problem?
Sigh… I was hoping my cynicism was misplaced for a change.
@Badger @ Roy Berg – I just quoted you in comment on the Forbes article.
Pingback: The Isaac Brock Society | $24,313 more needed to make November 1 payment for Ginny and Gwen’s FATCA IGA lawsuit/ Il nous reste 24 313 $ à ramasser pour notre poursuite judiciaire