My Situation:
My wife and I moved from Canada to the US during 2000. For year 2000 I filed 1040NR (Non-Resident return), since, at the time, I met neither the "Green Card" nor the "Substantial Presence" test. Have been filing regular 1040 forms for every year since. None of my tax returns reported the existence of our RRSP accounts, (three accounts: two for my wife, one for me). I am now working on amending my past returns to report the RRSP accounts and make the elections to defer US tax.
I asked a US accountant about this and his written advice was to correct the returns for the last three years, 2004 to 2006, (i.e. for each year file a 1040X with a 8891 form for each account).
This advice appears to be different with the recommendations being given in this forum, which if I am correctly applying it to my situation, recommends using form 1040X with 8891 forms, for years 2003 thru 2006, and making written declaration to defer tax by following the Revenue Procedure 2002-23, for years 2002 and 2001.
I am assuming that I would not need to do anything for year 2000, since 1040NR only deals with US sourced income, not world-wide.
I note that Rev. Proc. 2002-23, 4.01(iii), requires the balance of each account at the beginning of the year to be reported. Whereas Form 8891 Line 8 wants the end of year balance to be reported.
I have also seen the recommendation that on the 1040x form in the explanation of changes section, that I should include the wording "that no income, deduction or credit is being amended".
Questions:
a) Did I apply the recommendation correctly?
a) When an applying Rev. Proc. 2002-23, to years 2001 and 2002, should I do this by writing a single letter covering both years, or do I need to include 1040x for 2001 and 2002 and attach individual letters to each form?
b) Do I need to fill in a Form 3520 for 2001? According http://www.irs.gov/irb/2003-34_IRB/ar14.html, the answer for 2002 is no, provided I follow Rev.Proc 2002-23.
c) nelsona talks about the importance of recording "book value" of each RRSP account. In my case, is this value of the RRSP account at the beginning of 2001 (which is when I first had to report my world-wide income to the IRS), or the value of the account when I moved to the US on July 31st, 2000 ?
Thanks in advance, Ben
Reporting RRSP accounts - Amending past IRS returns
Moderator: Mark T Serbinski CA CPA
a. The way you described is more correct than what the accountant told you. Unless your accountant is among the 3 or 4 who understand this topic as well as I do, stick with what you read here. However, you will not be in trouble if you send only last 3 years. since the original RP 02-23 requested that one back-file 6 years, I don't see why that would change.
b. I would send a 1040-X, for each. The RP 02-23 statement can be exactly the same for both years, since only the 'starting value' is needed.
c. 3520 was only required for 2003 and beyond (and 8891 replaces 3520 for 2004 and beyond), so only 2003 was needed. Technically, if you modiified your RP 02-23 statement for 2003 and added the year-end value, you are fine.
d. You need to know the book value at the date you became a tax resident, which in your case was Jan 01, 2001. Had you filed 'dual-status' in 2000 (which was an option), your book valuaution date would have been July 31, 2000. Had you filed full-year 1040 in 2000 (which also was an option) your valuation date would have been Jan 01, 2000.
b. I would send a 1040-X, for each. The RP 02-23 statement can be exactly the same for both years, since only the 'starting value' is needed.
c. 3520 was only required for 2003 and beyond (and 8891 replaces 3520 for 2004 and beyond), so only 2003 was needed. Technically, if you modiified your RP 02-23 statement for 2003 and added the year-end value, you are fine.
d. You need to know the book value at the date you became a tax resident, which in your case was Jan 01, 2001. Had you filed 'dual-status' in 2000 (which was an option), your book valuaution date would have been July 31, 2000. Had you filed full-year 1040 in 2000 (which also was an option) your valuation date would have been Jan 01, 2000.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
... and remeber that book value is NOT the mnarket value on that date. it is the 'cost basis' of each investement on a particular date.
A stock bought at $5 will continue to have a book value of $5 regardless of its market value.
A stock bought at $5 will continue to have a book value of $5 regardless of its market value.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
Thanks for the very quick reply. So correcting what I previously wrote,
For each of the years, 2001, 2002 and 2003, I need to file a 1040x with an attached letter making the election described in Rev.Proc. 2002-23 Section 4.
For each of the years, 2004, 2005 and 2006, I need to file a 1040x attaching 8891 form for each RRSP account.
I am glad you added the additional post, I was assumming market value on Jan 1, 2001 was the the book value. Given that I have never made any withdrawls from any of the accounts, and made no contributions to any of accounts after 2000, then is book value simply the sum of the contributions?
For each of the years, 2001, 2002 and 2003, I need to file a 1040x with an attached letter making the election described in Rev.Proc. 2002-23 Section 4.
For each of the years, 2004, 2005 and 2006, I need to file a 1040x attaching 8891 form for each RRSP account.
I am glad you added the additional post, I was assumming market value on Jan 1, 2001 was the the book value. Given that I have never made any withdrawls from any of the accounts, and made no contributions to any of accounts after 2000, then is book value simply the sum of the contributions?
Book value is the cost basis of the items you had on a particular date. Most RRSP mutual fund statements call this the 'average price' of your holdings.
It has nothing to do with what you contributed to RRSP.
For example, you could have contributed $5000 to your RRSP in 1998 and bought stock ABC. On Dec 20th 1999, you sold ABC and bought XYZ for $8000, and it value was $10,000 on January 1st 2001, your valuation date.
Your book value is $8000: the cost basis, or book value of your holdings on jan 01, 2001.
That is why all those with RRSPs are encouraged to 'crysrtallize' the value of their RRSP in anticipation of a move to US. In this example, had you sold XYZ on Dec 31 2000, and either left it in cash (the book value for cash is the same as its value) or bought something else, your book value would be $10,000, thus saving you, eventually, $2,000 of taxable income in US, when you beging drwing down your RRSP.
So you need to go back to your RRSP statement for dec 31, 2000 and ask: What did I pay for these $35 shares of abc, what did I buy these 350 units of MF-A at. That will be your book value, in Us dollars of that date, taht you will carry forward (in your own records, IRS has never asked for this value on any statement/form) adding any contributions you make, and use this in determining how much of your RRSP withdrawl is taxable.
It has nothing to do with what you contributed to RRSP.
For example, you could have contributed $5000 to your RRSP in 1998 and bought stock ABC. On Dec 20th 1999, you sold ABC and bought XYZ for $8000, and it value was $10,000 on January 1st 2001, your valuation date.
Your book value is $8000: the cost basis, or book value of your holdings on jan 01, 2001.
That is why all those with RRSPs are encouraged to 'crysrtallize' the value of their RRSP in anticipation of a move to US. In this example, had you sold XYZ on Dec 31 2000, and either left it in cash (the book value for cash is the same as its value) or bought something else, your book value would be $10,000, thus saving you, eventually, $2,000 of taxable income in US, when you beging drwing down your RRSP.
So you need to go back to your RRSP statement for dec 31, 2000 and ask: What did I pay for these $35 shares of abc, what did I buy these 350 units of MF-A at. That will be your book value, in Us dollars of that date, taht you will carry forward (in your own records, IRS has never asked for this value on any statement/form) adding any contributions you make, and use this in determining how much of your RRSP withdrawl is taxable.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
The March 31, 2007 statement for my RRSP account does have a book value for each fund.
Below is the details for just one of the funds.
Fund Name: Ethical Growth Fund
Number of Units: 990.752
Current Price: $17.0344
Book Value: $11,408.61
Current Market Value: $16,876.87
Unrealized Gain/Loss: $ 5,468.26
No description of what the statement means by Book Value, but it does explain that "Unrealized Gain/Loss" means "The profit/loss if you were to sell your [fund] as of the statement date (Unrealized Captial Gain/Loss = Current Market Value - Book Value)".
The statement for Dec 31, 2000 does not include Book Value, but if it had, then I assume that is figure, that I would need to convert to US Dollars, (using the exchange rate for CND/USD on Dec 31, 2000).
Is that correct?
Below is the details for just one of the funds.
Fund Name: Ethical Growth Fund
Number of Units: 990.752
Current Price: $17.0344
Book Value: $11,408.61
Current Market Value: $16,876.87
Unrealized Gain/Loss: $ 5,468.26
No description of what the statement means by Book Value, but it does explain that "Unrealized Gain/Loss" means "The profit/loss if you were to sell your [fund] as of the statement date (Unrealized Captial Gain/Loss = Current Market Value - Book Value)".
The statement for Dec 31, 2000 does not include Book Value, but if it had, then I assume that is figure, that I would need to convert to US Dollars, (using the exchange rate for CND/USD on Dec 31, 2000).
Is that correct?
Exactly.
Your book value is your COST of an investment, the cost you would use in determining your cap gains if you sold.
As an exercise, see if you can come up with how your broker calculated the book value of your EGF (Hint, look at the times you bought units, and look at the times units were bought for you with dividends.) This will help you understand the concept.
This concept is very familiar for those who have non-RRSP investments; how else can they calculate their capital gains when they sell? They need to know what the shares cost... the book value.
Your book value is your COST of an investment, the cost you would use in determining your cap gains if you sold.
As an exercise, see if you can come up with how your broker calculated the book value of your EGF (Hint, look at the times you bought units, and look at the times units were bought for you with dividends.) This will help you understand the concept.
This concept is very familiar for those who have non-RRSP investments; how else can they calculate their capital gains when they sell? They need to know what the shares cost... the book value.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best
This illustrates Another reason why crystallization before moving to US is done. If you have been holding mutual funds for 10 years, with all the dividends reinvested it would take a month to figure out the cost basis of your shares (people with funds usually track these with software which keeps track). That's whay fund co's started providing cost or book value figures for their clients, 'cause its a bugger to keep track of if you hold them l;ong term.
Crystallizing before moving, gets rid of all that old history, as well as bumping up your book value, making it easier to determine your book value.
Crystallizing before moving, gets rid of all that old history, as well as bumping up your book value, making it easier to determine your book value.
After 20 years, I am severely cutting back on responses. Do not ask specifically for my help. There are a few others on this board that can answer most questions. All the best