Another RSP Question

[FranD]

My husband moved to the US from Canada in 2001. He was on a work visa and then got a green card in 2006.
He used an accounting firm to prepare his taxes for all the years he has been here. No one ever asked him if he had an RRSP and he never thought to declare it.
We are using a new accountant this year and he asked us about accounts abroad. We told him about the RRSPs, which have had no contributions since he left Canada, but did earn interest and dividends which were reinvested.
New guy in making a HUGE deal out of this and wants my husband to give him 10 years of information about these accounts, broken down to the penny (how much interst, how much dividends for each of the past 10 years). He does not seem to be an expert in this area and now is starting to make us a little crazy.
What is the best way to recify this? We know now that he has to file the 8891 for this year. We want to fix the past years. Do we just file 2011 with the 8891 and sit back and wait for the IRS to come for their due, or do we have to file something else to fix the past years omissions.
Thanks so much for any insight!
Fran

[nelsona]

You need to first determine the value of the RRSP when he arrived in US.

You then need to prepare an 8891 for each of the past 6 years, electing to defer tax on the first one, and repeating that election for the next 5. You will need the yeasr-end value of the RRSP each year, for the 8891.

I would send in the 5 past ones together, and AFTER that, send in the 8891 for 2011 with this years return.

You also need to send FBAR reports for the past three years as well. Hopefully you have been reporting any income from all non-RRSP accounts you hold in canada or elsewhere.

[nelsona]

you DO NOT need to be figuring out every penny of income in your RRSP for the pat. That is what 8891 avoids.

Looks like you went from a clueless acct to an almost clueless one.

[FranD]

Thank you so much! This is what we thought but this guy is just making us nuts. I think I will be getting the forms back from him and going elsewhere. I appreciate your super fast reply!!!

[FranD]

If I understand correctly, my husband can retroactively elect to defer the US tax on his 8891 from 2005 on, and the IRS will be ok with that? There is no place to put the year on that form. I guess he'd have to attached a letter explaining why he's am sending all these forms.

Unless they have to be re-filed with the corresponding 1040 of the same year?

[nelsona]

You will be using an 1040-X for each year, so attach the 8891 to the 1040-X.

[FranD]

Thank you again! We feel way less stressed out now... Have a great night.

[magicaldeck]

I am in a similar situation (came to the US in 2001, and just found out I need to disclose my RRSP). So thank you very much for this information! The only difference in my case is that I live in California. Is there anything additional I'd need to do beyond what has been discussed?

[nelsona]

Yes. In california, you are required to pay tax on your internal RRSP income, so for cali puprposes, you have underreported.

[Joker1969]

In regards to this, I have an interesting scenario. Some years my Can. retirement accounts have had huge increases (dividends/interests and so on). Some other years they've had huge losses.

Should it make more sense to [u]not select to defer taxes[/u], file 1040x and declare the increases as gains and decreases as actual capital losses? Does the Can/US tax treaty allow for this?

And one last point, is that why form 8891 asks to itemize the types of earnings/losses in those account and if you want to defer taxes? In the long run it could be beneficial to not defer taxes so that for years when my accounts lose value I actually can declare a capital loss.

What do you all think?

[nelsona]

8891 only asks for the individual income types if DO NOT elect to defer.

If you elect to defer you only report withdrawals and year-end value, and stop at that line.

You are under no obligation to defer. As you say, if you don't defer, you report the internal gains and losses, first on 8891 and then transfer them to your 1040.

In california, that is what needs to be done anyways.

The problem with not electing to defer is that you can't pick and choose your years, and therefore you will end up paying US tax now on the RRSP gains, and Cdn tax later (upon withdrawal) and no melding of the 2 txes. That is the very reason the treaty was amended to defer taxation.

Also, if you do have a gain in past years that you did not report, and are now choosing to, you will have interest and penalties to pay for those years.

[Joker1969]

thanks for the clarification. how far back could i go in reporting my 8891 earnings or losses, 5 years? My accounts had a huge loss in 2008 and a small one in 2011...that makes me think the IRS may owe me at the end.

[nelsona]

The year-end value is not important to IRS. filing the 8891 is the key, and taking the election.

You still need to determine your cost basis, based on when you entered US. That number will never change until you take a withdrawal.

[magicaldeck]

Hi Nelsona,

Given I have underreported in California, what should I do? Is there a form I need to fill out for the CA government? Or should I just file the federal forms and wait?

Here's what I think I need to do (please let me know if I am missing anything):

- Determine the value of the RRSP when I arrived in US in 2001.

- Prepare an 8891 for each of the past 6 years (I got my green card in Feb 2007, and had an H1B before that), electing to defer tax on the first one, and repeating that election for the next 5.

- Prepare FBAR reports for the past three years.

- Send in the 5 past year's 8891 and last 3 years FBAR forms together

- Wait 1 week before sending in the 8891 and FBAR for 2011 with this years return.

Best regards,
Vince

[nelsona]

You must amend your cali return. I;ll let you figure that out.