Upcomung change to 8891 instructions -- URGENT

nelsona · Post by **nelsona** » Wed Oct 03, 2012 11:12 am

There is a new 8891 coming out for the 2012 tax season. The form itself is not changing, however there is a change in instructions that may be of interest:

The IRS is now clearly indicating that it is no longer permissbale to bac-file 8891 with the purpose of making a retroactive election to defer taxation, without first seeking "relief" (ie. permission) to do so.

This is important, as previously acceptable back-filing of 3-6 years of 8891's was athe preferred and acceepatable method of catching up on these reporting mecahisms.

Also, it means that, if permission is not given, it would make previous tax years (all 6) subject to under-reporting penalties (since the deferral would be denied), FBAR penalties would also ensue, based on the fact that unreported account was taxable.

This makes it URGENT for any who have still not caught up with FBAR and 8891 to do so before the end of 2012.

JohnSt · Post by **JohnSt** » Thu Oct 04, 2012 7:58 am

I think nelsona's tag of "urgent" is appropriate. This is no small thing in the IRS tax world. Before, you could just quietly send everything in, now you need relief for the 8891, which moves things from "quiet" to "noisy." The question I have is, will they only enforce this policy with the December 2102 release of the new form, or will they actually start enforcing it now? (Either way, if I was in the position of having to retroactively file 8891s, I wouldn't wait to find out.)

nelsona · Post by **nelsona** » Thu Oct 04, 2012 9:42 am

They are *probably* doing so now. But once the new rev hits the street, there is no wiggle room.

tsanaha · Post by **tsanaha** » Thu Oct 04, 2012 12:39 pm

Seeking relief inside OVDI on RRSP (both back file election tax deferral and offshore FBAR related penalty) are rather painless.

It seems to me that IRS just wants to be consistent on its policy for all with RRSP (either those inside OVDI or those just file quietly).

Even if later next years, some folk still file quietly, IRS may ask a letter on the cause of non-compliance, and redirect taxpayers to the current procedure

Mach7 · Post by **Mach7** » Thu Oct 04, 2012 12:40 pm

What about individuals who have back filed 8891's without a Private Letter Ruling? ...as I and many of us did over a year ago.

I know that the IRS has accepted the 8891 in the past without them...just wondering if these new instructions make reference to previously filed 8891's without a PLR.

tsanaha · Post by **tsanaha** » Thu Oct 04, 2012 12:49 pm

@Mach7

No need to worry. As I have said, IRS treated RRSP non-compliance (deferral election and FBAR) very nice inside OVDI. All need is a letter to explain the reason of not make a timely election.

This new policy seems to send a consistent message so they treat all the same.

Highly unlikely they will deny your back filing -- and small chance they may come back for a letter of request.

Mach7 · Post by **Mach7** » Thu Oct 04, 2012 12:52 pm

Thanks tsanaha,

But my 8891, FBAR submissions were outside of OVDI.

Having said that, i suppose if they wanted more information I would have heard something by now.

tsanaha · Post by **tsanaha** » Thu Oct 04, 2012 1:05 pm

@Mach7,

If you have only RRSP issue, you should not enter OVDI anyway, but you will be treated the same even if you join OVDI. It is better for IRS that you did not join OVDI to back file your RRSP and FBAR as your case might have taken IRS resource to process your case and IRS would not get a penny of it.

Mach7 · Post by **Mach7** » Thu Oct 04, 2012 1:22 pm

tsanaha,

I should have clarified that I had to file the full meal deal....1040s, 8891s, FBAR, the works for that past 6 years in an effort to meat compliance standards....that was completed over a year ago

Maybe you thought i was compliant in my 1040s but not my 8891's or FBARs (?)

Regardless, should be the same road to compliance....

nelsona · Post by **nelsona** » Thu Oct 04, 2012 1:34 pm

As has been pointed out numerous times, there is 2 roads to compinace, based on whether underreporting/underpayment of tax had occured as a result of non-complinace.

Now, with the new 8891 instructions, they are in essence saying: if you want to go back and include your RRSP income (and pay tax and penalties) go ahead, but if you want to retrocatively shield your RRSP, thus avoiding any tax and penalties, you will need to plead to us first.

Mach7 · Post by **Mach7** » Thu Oct 04, 2012 2:46 pm

I would think that by this time anyone in Canada has most definitely filed there 8891's (1040s and FBARs) inside or outside the OVDI process and therefore the 2012 8891 instructions would not apply.

Unless you were in a coma, or did not know you were classified as a US person, I find it hard to believe an individual, who is a US person, would not be aware of this information by now.

tsanaha · Post by **tsanaha** » Thu Oct 04, 2012 3:06 pm

@Mach7,

Not really, just a couple days ago, I just spoke to a Canadian who has been in US for long enough (with green card). He did not know RRSP/f8891, he did not know FBAR at all. He did not have much in RRSP (less than 5K), and he did send a big check to his mother to help her paying mortgage. I told him he should file form 709, and the fact the the money was wired to his account in Canada first and was in the bank for two weeks before transferring to his mother. Even though the interests earning is very little, I told he should file FBAR.

A lot people don't pay much attention on IRS web, or pay much attention on offshore crackdown --- they assume this is for big tax cheats (I mean really big whales) -- however the law is applied to everyone

Mach7 · Post by **Mach7** » Thu Oct 04, 2012 3:18 pm

Wow....all of the people I know have filed (Canadians residing in Canada classified as US persons).

In fact, RBC is starting the practice of inviting individuals who they believe to have US status to attend (free of charge) evening seminars on US tax compliance issues. (at least my branch started this a month ago).

I DO however know one or two individuals who were born on Canadian soil to US parents (accidental americans) that know about this but refuse to dip there toe in the water as they feel (and I have to agree) that there is no way the IRS will be able to find them without any direct ties to the US tax system.

nelsona · Post by **nelsona** » Thu Oct 04, 2012 4:02 pm

These ones are basically taking the position that most US citizen Cdns did: I will get compliant ony if I ever need t omove to US.

We saw what that got them.

triunbad · Post by **triunbad** » Sat Oct 06, 2012 11:22 am

In reviewing the instructions, does this mean that the current year 8891 could be subject to penalties if not filed by April 15th.