Canadian RRSP


A

Avrum Lapin

A Canadian migrated to the US in 1975. They left an RRSP (the Canadian
equivalent of an IRA) in Canada which is currently worth $60,000. That
person has worked in the US ever since and has IRA's, 401ks etc and is
getting ready to retire.

A few questions

Does that RRSP have to be declared to the IRS before any withdrawals are
made

How do they show those withdrawals on on the 1040 form (same as an IRA?)

Can this RRSP be somehow rolled over in to the US IRA

Are most US tax professionals (CPAs and EAs) familiar with this
situation or should one use a specialist. If so where would one find
such a specialist?

Thanks
 
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M

Mark Bole

A Canadian migrated to the US in 1975. They left an RRSP (the Canadian
equivalent of an IRA) in Canada which is currently worth $60,000. That
person has worked in the US ever since and has IRA's, 401ks etc and is
getting ready to retire.

A few questions

Does that RRSP have to be declared to the IRS before any withdrawals are
made

How do they show those withdrawals on on the 1040 form (same as an IRA?)

Can this RRSP be somehow rolled over in to the US IRA

Are most US tax professionals (CPAs and EAs) familiar with this
situation or should one use a specialist. If so where would one find
such a specialist?

Here are some references I found in my notes, but I don't remember
details from the one and only time I have ever had a client with a
Canadian RRSP.

Notice 2003-75, Form 3520 Instructions, Form 8891.

I suspect you could become familiar enough with this situation to handle
it yourself, if you have access to decent professional tax research
services and don't mind using them. And, of course, if the client
doesn't mind paying for your time...
 
A

Alan

A Canadian migrated to the US in 1975. They left an RRSP (the Canadian
equivalent of an IRA) in Canada which is currently worth $60,000. That
person has worked in the US ever since and has IRA's, 401ks etc and is
getting ready to retire.

A few questions

Does that RRSP have to be declared to the IRS before any withdrawals are
made

How do they show those withdrawals on on the 1040 form (same as an IRA?)

Can this RRSP be somehow rolled over in to the US IRA

Are most US tax professionals (CPAs and EAs) familiar with this
situation or should one use a specialist. If so where would one find
such a specialist?

Thanks
The RRSP is Canada's equivalent to the US IRA. (Just to get it out of
the way... No, you can't roll it over into a US plan.) Under the tax
treaty, distributions are treated as pension income. Canada will tax the
distribution 15%. The US will tax it as pension income. The amount
subject to US tax can not be greater than the amount subject to tax by
Canada. Assuming there is no cost basis in the account, that means the
gross distribution is taxable by both countries. You can complete Form
1116 to calculate a foreign tax credit Canada and the US both tax it.

Here comes the however.... Under US tax law, the annual undistributed
earnings of the RRSP are subject to US income tax unless the taxpayer
has/had made an irrevocable election under the treaty to not have the US
tax them. This would have been accomplished by using Form 8891. So,
assuming that no election has been made, and assuming that there have
been earnings in the past, the taxpayer owes tax and any interest and
penalties for understating US income tax. Assuming that the amount of
earnings has never reached 25% of annual gross income, the IRS is barred
from going back more than 3 years. If someone had been declaring the
undistributed earnings, that amount would have created a US cost basis
in the plan. I do not know how the IRS has reacted to taxpayers who
never made the election, never declared the undistributed earnings and
then takea a distribution from an RRSP and declares it as a taxable
pension. I don't know if they attempt to obtain back taxes, interest and
penalties. Clearly, a taxpayer in this situation has two choices: 1. Pay
tax on the distribution and do nothing about past years' earnings and
hope the IRS does nothing about 2008 (this year closes 4/15/12), 2009
and 2010. 2. File an amended return for 2008 with the 8891 making the
election. This covers tax years 2008, 2009 and 2010 and 2011.

Someone more familiar with how the IRS has been reacting to taxpayers
who never made the election is best suited to answer that. From my
perspective, assuming that only 3 years are open (earnings never reached
25% of gross income and extended the statute of limitations to 6 years)
I see no reason why you shouldn't amend 2008 to make the election. Any
earnings in 2008 and subsequent years would not be subject to tax. Any
prior years would be closed.
 
J

John Levine

Does that RRSP have to be declared to the IRS before any withdrawals are
It should have been declared on Form 8891 a long time ago. As I
understand it (which you shouldn't depend on), he must specifically
elect to defer income from his RRSP on Form 8891. Until he does that,
he should have been paying tax on the income all along.
How do they show those withdrawals on on the 1040 form (same as an IRA?)
See Form 8891, and IRS Bulletin 2003-50.

http://www.irs.gov/irb/2003-50_IRB/ar10.html
Can this RRSP be somehow rolled over in to the US IRA
As far as I can tell, only by withdrawing all the money. paying the
tax, and making a taxable contribution to an IRA, but that makes
little sense. So, no.
Are most US tax professionals (CPAs and EAs) familiar with this
situation or should one use a specialist.
In my experience the international expertise of most US tax pros is
exhausted once they fill out form 1116. (It's not because they're
inept, it's because most Americans have no foreign accounts. My quite
competnent CPA was surprised when I told her that an extension for
form 1040 doesn't give you an extension for your FBAR.) As to where
to look, I suppose you might look in places like Buffalo and Detroit
where there's a lot of people moving back and forth across the border,
or look in Montreal, Toronto, or Vancouver for someone who specializes
in US expats.

R's,
John
 
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M

Mark Bole

[...] As to where
to look, I suppose you might look in places like Buffalo and Detroit
where there's a lot of people moving back and forth across the border,
or look in Montreal, Toronto, or Vancouver for someone who specializes
in US expats.
The taxpayer in the OP is not a US expat, but a Canadian. But
presumably the same rules apply in this case, if he is subject to US tax
law as a resident.
 
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