15 thoughts on “More US Hypocrisy re Canadian RDSP (cont.) / Comments requested to be received September 15, 2015”

1. Related at Brock:

   https://isaacbrocksociety.ca/2014/12/03/more-u-s-hypocrisy/

   https://isaacbrocksociety.ca/media-and-blog-articles-open-for-comments/comment-page-40/#comment-2504128

   Neill says
   August 7, 2014 at 2:13 pm
   I wonder how he would feel about his 529 for the disabled being taxed by a foreign country because it isn’t protected by the tax treaty. Same deal as the Canadian accounts.

   http://www.autismspeaks.org/advocacy/advocacy-news/schumer-urges-congress-move-quickly-tax-free-savings-plans

   Neill says
   August 7, 2014 at 5:45 pm
   @calgary411,

   Your response to the Schumer article I mention is exceptional. I just took a bit of a swipe. You laid it out like a pro.

   My comment was:

   calgary411 • a year ago
   Congratulations to the disabilities community of the US on the ABLE Act which will give your disabled the same type of disability account as we have in Canada – our Registered Disability Savings Plan (RDSP).

   How odd that Senator Chuck Schumer announces this. He is one of the biggest supporters of FATCA, the very thing that makes my Canadian-born son’s Registered Disability Savings Plan of no worth to my son, as he is deemed a “US Citizen” though born in Canada, never registered with the US, never lived in the US, never had any benefit from the US.

   Likely your ABLE Act is modeled somewhat on what the Canadian government has offered to its disabled population since 2008.

   The RDSP is a disability account in which Canadians are encouraged to
   save for themselves or their family member(s) with a disability – to
   assist in paying for future expenses that generally exceed those for
   Canadians without such disabilities. It is an investment savings, for
   which the Government of Canada matches bonds and grants to what the
   Holder of the Plan contributes – so is partially Canadian-taxpayer
   funded. US tax has been paid by me on this particular account for which I am the Holder (for my son’s benefit) as follows:

   1. IF THE SPONSOR O AN RDSP IS A US PERSON, then (US person analysis of the beneficiary is irrelevant):

   a. THE INCOME GENERATED BY THE RDSP IS TAXED TO THE US PERSON SPONSOR currently as it is earned;

   b. The grant is taxed to the US person sponsor when it is distributed to the beneficiary;

   c. US person sponsor must file 3520A annually;

   d. US person sponsor must file 3520 annually.

   2. If the sponsor of a RDSP (or RESP – Registered Education Savings Plan) is NOT a US person, AND the beneficiary is a US person then:

   a. The income generated by the RDSP (RESP) is taxed to the US beneficiary currently as it is earned

   b. The grant is taxed to the US person beneficiary when it is distributed

   c. US person beneficiary must file 3520 annually (no 3520A)

   Neither RDSPs nor RESPs are covered by the US/Canada Tax Treaty.

   Funds that came from the Canadian taxpayer meant for benefit to
   Canadians with disability, thus, end up in the hands of the US IRS. In
   the same manner, the RESP (Registered Education Savings Plan) also has a
   Canada Education Savings Grant component that is contributed by the
   Canadian taxpayer and which is taxed by the US government even though
   the US has absolutely no involvement in this: http://www.cra-arc.gc.ca/E/pub….

   Any US claims to tax these accounts is baseless. Nor should or does
   the US have any right to be the one to decide what tax advantageous
   arrangements a nonresident can participate in under another government’s
   tax regimen.

   Another comment there was:

   Shovel • a year ago
   Support by the U.S. for its own disabled is to be applauded.
   Theft by the U.S. from the disabled of other countries (led by Schumer) is shameful.
   The U.S. policy of citizenship-based taxation is what allows Schumer to work this international evil. Adoption by the U.S. of residence-based taxation (as practiced by every other civilized country in the world) would curb Schumer’s zeal to steal from the disabled of other countries.

   Neill
   Submitted on 2014/12/20 at 10:42 am
   News is coming in about Obama signing the tax extenders bill. This bill creates ABLE accounts. Based on 529 plans for people with severe impediments.

   https://news.yahoo.com/obama-renews-tax-breaks-creates-able-accounts-223031049–politics.html
   http://www.forbes.com/sites/ashleaebeling/2014/12/19/obama-signs-2014-tax-extenders-money-in-your-pocket/

   Obviously we can go on about the US treatment of accounts overseas.

   qm
   Submitted on 2014/12/03 at 3:52 am
   Calgary411—How about this development in the US, reported today? Will there be a thought to extending the idea to Americans abroad? (Rhetorical question, of course.)

   Dec. 2 — A bill that would make tax-free savings accounts available to people with disabilities is set to move to the House floor Dec. 3.

   Although the Achieving a Better Life Experience (ABLE) Act (H.R. 647, S. 313) enjoys bipartisan support, lawmakers Dec. 2 said they were concerned about the bill’s use of Medicare offsets.

   The ABLE Act was introduced in 2013 by Rep. Ander Crenshaw (R-Fla.) and has 380 co-sponsors in the House and 74 in the Senate. It would make tax-free savings accounts available for people with disabilities and their caretakers to cover qualified expenses such as education, housing and transportation.

2. Thank you Calgary 411 for keeping us apprised of the progress that this copycat bit of legislation is making in the U.S. It might be of interest if people also knew that the U.S. created its IRA accounts after Canada made the RRSP. The IRA’s are in fact based upon Canada’s RRSP’s and yet Canadian residents have to get a special dispensation each year for their RRSP’s from the IRS.

3. I was just going to email you with the link, recalcitrantexpat!

   Thanks for the extra information in your comment that I didn’t realize:

   It might be of interest if people also knew that the U.S. created its IRA accounts after Canada made the RRSP. The IRA’s are in fact based upon Canada’s RRSP’s and yet Canadian residents have had to get a special dispensation each year for their RRSP’s from the IRS.

4. Canadians no longer have to get an annual dispensation. The RRSP form 8891 has been abolished. Now you report withdrawals as income when taken and a credit for Canadian taxes paid.

5. Right — would that go backwards for those who did not know this and did not do this, Duke?

6. It’s about time.

7. Calgary411 Yes AFAIK.

8. Chuck Schumer is wilfully blind to the plight of Americans abroad.

9. Thanks.

10. P.s. Hodgen law has extensive coverage of this. Go to Hodgen.com and under RRSP is “The Ultimate “RRSP and the IRS” Essay”
    Of course it isn’t simple .they are still FUBAR and 8938 reportable. Hodgen covers this as well.

11. http://hodgen.com/the-ultimate-rrsp-and-the-irs-essay/ says:

    Form 8891. You no longer need to file Form 8891, which was previously required. It is not required for 2014 tax returns. It is not required for future years. If you screwed up and did not file Form 8891 in previous years, you are not required to file Form 8891 to fix that screw-up.

    … and if you did pay to be able to properly file Form 8891 in previous years, too bad – so sad.

12. If the US goes down that route, they’re make it complicated, a form filling in exercise, and of course the FFIs need to earn a profit as well. The US Congress can keep it. Why would someone living abroad want their savings in US Dollars? You’d want local currency at the least to avoid exchange risk.

13. In my inbox this morning.

    Tax tips for disabled taxpayers:

    http://www.taxconnections.com/taxblog/tax-tips-for-disabled-taxpayers/#.VcoIm4hHarV

14. My submitted comment:

    Your comment was submitted successfully!

    Comment Tracking Number: 1jz-8khd-xr70

    Your comment may be viewable on Regulations.gov once the agency has reviewed it. This process is dependent on agency public submission policies/procedures and processing times. Use your tracking number to find out the status of your comment.

    Agency: Internal Revenue Service (IRS)
    Document Type: Rulemaking
    Title: Qualified ABLE Programs
    Document ID: IRS-2015-0030-0001

    Comment:

    Congratulations to the disabilities community of the U.S. in bringing forward legislation for the ABLE Act which will give your disabled the same type of disability account as we have in Canada – our Registered Disability Savings Plan (RDSP). Your ABLE Act was announced by Senator Chuck Schumer who is also one of the biggest supporters of FATCA, the very thing that makes a Canadian Registered Disability Savings Plan of no worth to a Canadian person the U.S. deems a “U.S. Citizen” though born in Canada, never registered with the US, never lived in the US, never had any benefit from the U.S. – or born in the U.S. to parents from another country but who returned to their own country with their parents as infants or young children.

    Likely your ABLE Act is modeled somewhat on what the Canadian government has offered to its disabled population since 2008. The RDSP is a disability account in which Canadians are encouraged to save for themselves or their family member(s) with a disability – to assist in paying for future expenses that generally exceed those for Canadians without such disabilities. It is an investment savings, for which the Government of Canada matches bonds and grants to what the Holder of the Plan contributes – so is partially Canadian-taxpayer funded.

    Wonderful for most Canadians who happen to have some disability; not so for others who are deemed *residents of the U.S. for tax purposes* and who because of lack of requisite mental capacity cannot renounce a non-meaningful U.S.-deemed U.S. citizenship nor their parent, their guardian or their trustee able to act on their behalf to renounce a non-meaningful U.S.-deemed U.S. citizenship, even with a court order.

    Canadian taxpayers help fund the Canadian RDSP. As it stands now, a portion of funds that come from the Canadian taxpayer meant for benefit to Canadians with disability, thus, end up in the hands of the U.S. IRS. On top of that is the excessive cost of administration for ongoing compliance — hiring U.S. tax professionals to assist in filing each year U.S. tax returns and U.S. FBARs or FINCEN114 (electronically, to the Financial Crimes Enforcement Network no less). There is no benefit to that Canadian for an RDSP investment their country has put in place for them as that person is *U.S. resident for tax purposes* under U.S. citizenship-based taxation law and implementation of the FATCA IGA to override Canadian laws, Charter of Rights and Freedoms and Canadian benefits.

    1. If the sponsor of an RDSP is a U.S. Person, then (U.S. person analysis of the beneficiary is irrelevant):
    a. The income generated by the RDSP is taxed to the U.S. person sponsor currently as it is earned;
    b. The grant is taxed to the U.S. person sponsor when it is distributed to the beneficiary;
    c. U.S. person sponsor must file 3520A annually;
    d. U.S. person sponsor must file 3520 annually.

    2. If the sponsor of a RDSP (or also the Canadian RESP – Registered Education Savings Plan) is NOT a U.S. person, AND the beneficiary is a U.S. person then:
    a. The income generated by the RDSP (RESP) is taxed to the US beneficiary currently as it is earned;
    b. The grant is taxed to the US person beneficiary when it is distributed;
    c. US person beneficiary must file 3520 annually (no 3520A).
    Neither Canadian RDSPs (nor RESPs) are covered by the US/Canada Tax Treaty.

    Please consider defining your ABLE Act for those who are resident in the U.S.

    Please, somehow, find a way to modify legislation so those disabled persons who are not resident in the U.S. but resident in Canada (or any other country) can benefit fully from the Canadian RDSP (or similar other-country investment) meant to benefit all Canadians with some disability.

    Any U.S. claims to tax these accounts is baseless. Nor should or the U.S. have any right to be the one to decide what tax advantageous arrangements a non-resident can participate in under another government’s tax regimen.

    None of this would be a problem if the U.S. would tax on residence (as the rest of the world) rather than citizenship.

    Thank you for listening / considering.

    Uploaded File(s):
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    First Name: Anonymous
    Last Name: Anonymous
    Country: Canada
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    Email Address: *mine*@****.ca

15. On the Bloomberg BNA site and sent to me by email by the author, Laura Davison:

    Daily Report for Executives:

    Tax Incentives: ABLE Accounts Highlight Issue of Foreign Account Taxation

    Tax Incentives

    BNA Snapshot

    Development: U.S. citizens living abroad shouldn’t have to pay tax on saving previous accounts for expenses tied to disabilities.

    Takeaway: Those same taxpayers would get tax-favored accounts were they to live in the U.S.

    By Laura Davison

    Aug. 14 — Disabled U.S. taxpayers living abroad should be previous able to keep savings accounts for living and health expenses that aren’t subject to foreign trust taxation, a practitioner said.

    U.S. accounts created under the Achieving a Better Life Experience (ABLE) Act, signed in December 2014, allow disabled U.S. taxpayers to open tax-favored savings account for living and health expenses. Taxpayers living abroad should be able to take advantage of the savings programs offered by the government of their resident country, such as Canada’s registered disability savings plan (RDSP), without having to pay U.S. tax on the account, John Richardson, a U.S. citizenship lawyer, told Bloomberg BNA Aug. 14.

    “RDSP is exactly the same concept as ABLE accounts,” Richardson, who is based in Toronto, said. “Why should they not be able to take advantage of something that is analogous to the ABLE in their country of residence?”

    The tax treatment of previous accounts outside the U.S. has been under increased scrutiny since the implementation of the Foreign Account Tax Compliance Act in 2010. The disparity in treatment of disability savings accounts highlights one issue with the law, taxpayers told the Internal Revenue Service in comment letters.

    Disabled people who live outside the U.S. don’t have access to ABLE accounts and shouldn’t have to pay tax to the U.S. government on the savings accounts established and partially funded by their local country, Stephen Kish, a professor at the University of Toronto, said in a comment letter.

    “The disabled persons derive no benefit whatsoever from the United States that would warrant such payment,” Kish said in the comment letter released Aug. 13.

    Taxing disability accounts is unfair to countries that contribute public funds to disabled residents, an anonymous commenter said.

    “A portion of the funds that come from the Canadian taxpayer meant for benefit to Canadians with disability thus end up in the hands of the U.S. IRS,” the commenter said.

    Indefinite Cycle

    Taxpayers with some mental disabilities aren’t allowed to renounce their U.S. citizenship because of their conditions; as a result, their families or guardians, who cannot renounce their citizenship for them, must continue to meet reporting requirements and pay U.S. tax indefinitely.

    “U.S. citizens abroad with disabilities are—no pun intended—disabled of taking benefits of programs because they live outside of the U.S.,” Richardson said. “The rules are that we’re all citizens so we all pay tax. Logically, we should all get the same tax benefits.”

    To contact the reporter on this story: Laura Davison in Washington at ldavison@bna.com

    To contact the editor responsible for this story: Cheryl Saenz at csaenz@bna.com

    For More Information

    Texts of the comment letters from Stephen Kish and the anonymous commenter are in TaxCore.