Irrrevocable election to defer

[nelsona]

Its slightly more than rule of thumb, since its based on the IRS rules of who far they can go back, plus how far they can go back if they find a pattern of underreporting (which failure to include RRSP income is an example) but you get the idea

[Leslie]

Thanks for the reply. We'll defer based on the first of the past 6 years and feel comfortable that the previous years before that will also be deferred.

Question about the following comment in this thread:

"If you are US citizen, you became taxable on your RRSP the day you created it. Only the contributions are to be withdrawn tax-free. any growth is taxable.

If you are not US citizen, then the book value the day you moved to US (or january 1 of that year depending on how you filed) is what you will be able to withdraw tax-free. You do not need to go back to the beginning, all you need to do is determine the book value of what you held on that day. "

My husband was a Canadian citizen (lived and worked in Canada) when he first opened his RRSP acct. Moved to the US the following year and contributed all but the initial $1K while in the US and filing US taxes and Canadian taxes the first partial year. He became a US citizen AFTER he made all but the initial $1K of his contributions to the RRSP while living and working in the US. So he was never a US citizen when any of the contributions were made even though he lived and worked here in the US.

Which of the two above statements from the previous posts apply to him? He's already paid US taxes on the contributions he made while down here since they were taxable contributions as far as the US is concerned. By the way, I noticed that that has been recently changed in Fifth Protocol treaty change - the US and CA will recognize each others savings plans.

[nelsona]

Statement 1 applies to him. His contributions can be withdrawn tax-free. if knows the book value on the RRSP at the beginning of the year he became taxable in US, he can add that miniscule ammount to his basis. Otherwise only his contributions are tax-free in US, when he withdraws them.

The protocol made EMPLOYER-SPONSORED PLAN CONTRIBUTIONS tax deductible. Not personal RRSPs or IRAs. And had no impact on withdrawals.

[nelsona]

The use of the term US citizen in this sense means 1040 tax-filer.

[Leslie]

Thanks Nelsona! You've clarified a lot for us. Your time and knowledge is much appreciated.

[Leslie]

One more thing to run by you. We've read in a couple of places about tax payers filing 8891 for all six years and in one case, the IRS even requested it for the beginning years for one filer who'd filed Rev Proc 02-23. It makes sense because it easily captures the required data in a form. We are strongly considering doing this for all 6 years. Any thoughts on this?

I think I've also read that a mention at the very top of form 8891 should say something about the US/Canadian Tax Treaty. Any more wording than that necessary?

Also, I think I've read where it was suggested to send in the same 8891 form for more than one year. How can you do that if the end of the year plan balance is different? Maybe this was a different situation than ours.

Thanks once again.

[nelsona]

You have to do it each year, so whatever year you start with, you must file one for each account thereafter.

New form every year.

[Leslie]

I should clarify my question. We will definitely file for the past 6 years. I've read that some filers have used 8891 for years 2002 and 2003, the first two years for us, instead of Rev-Proc 02-23. And in one case, the IRS requested a filer to refile using 8891 after filing Rev-Proc 02-23. What is your feeling about using 8891 in the initial years? Thanks once again.

[nelsona]

The RP 02-23 statement is the only one that is valid for 2002 and 2003.

And 2003 needs the year-end value added to it in accord with Notice 2003-75.

[one_day_at_a_time]

For the sake of argument, let's say the book value of my RRSP was $5000 when I moved in to the U.S. (in 2007) and I withdrew $500 prior to year-end.
Line 7a - $500
Line 7b - 0 (because the withdrawal is tax-free?)
Line 8 - $4500
And any future withdrawals up to the $5000 are tax free.

Or am I wrong

[nelsona]

That is one way to do it.

Personally, I would blend the withdrawl as some taxable some non-taxable, based on its current value.


Or, you could treat it all as taxable, and save the $5000 non-taxable to the end.

It all depends on how much Cdn tax you are paying, so that you can get the credit for it.

All 3 ways are legit, But once you choose a method, stick with it.

[one_day_at_a_time]

If I was treating myself, for tax purposes, as a U.S. resident for the entire year, then would this mean that the "book" value would be that as of Jan 1st or the date I entered the U.S.
AND
are there any links to which you could direct me that re-iterate this topic (or is it a well-kept secret)
Thanks

[nelsona]

The book value would be jan 01, the day you first treated yourself as US taxpayer.

Quite frankly, I'm pretty much the expert on RRSP/8891 issues. gary gauvin is a pro at this

[JohnSt]

Nelson wrote:
The RP 02-23 statement is the only one that is valid for 2002 and 2003.


Last year, I filed 8891 for 2002 and 2003, though I did so as amended returns. I simply hand-wrote the dates on the top of the forms. I received "received and accepted, no change to your tax" letters from the IRS on those particular amended returns. While I suppose it's possible the IRS could still come back to me on this, it's been more than a year since I refiled.

[nelsona]

I doubt that they would, since they don't understand the form either.

You're fine.