I just found this forum, and have found it extremely helpful - thank you!
Now, my first question...
We are Canadian citizens residing and working in the US. We moved to the US on Jan 1, 2007. We have filed US taxes since our arrival (i.e., 2007, 2008, 2009) and not filed in Canada.
We are interested in withdrawing our RRSP funds. But until I found this forum, we had no clue that an 8891 form existed, or was required to be filed. So from another post I see that we can backfile. Now my question is about timing. From what I understand, when we collapse our RRSPs, our bank/broker will issue an NR4 form, which will be sent to the IRS. Does that mean that the IRS needs to receive our backfiled 8891 forms BEFORE they receive the NR4 form? Or is it simply sufficient that they receive our 8891 forms before we file our 2010 taxes, which will include the RRSP income? (We have just started inquiring about withdrawing our RRSPs and want to do so fairly quickly (i.e., before year-end for sure). Should we wait a few weeks and make sure that the IRS has received our 8891's, or is the timing not an issue?)
Thanks!
Backfiling Form 8891
Moderator: Mark T Serbinski CA CPA
I would be filing 8891 now for the years you missed. They are late and subject to penalty, regardless of what you do with your RRSP.
Collapsing the RRSP merely makes it MORE urgent to file missed 8891.
8891 takes about 20 minutes to fill, especially if you make the election to defer taxation.
Since we are on the subject, if one of you is not working, there is a good chace to reduce Cdn tax by splitting the collpse of that persons RRSP over 2 or more years, using the 217 election.
Collapsing the RRSP merely makes it MORE urgent to file missed 8891.
8891 takes about 20 minutes to fill, especially if you make the election to defer taxation.
Since we are on the subject, if one of you is not working, there is a good chace to reduce Cdn tax by splitting the collpse of that persons RRSP over 2 or more years, using the 217 election.
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 quick reply.
Now, when you say they are subject to penalty -- does that mean we may be penalized, or we will be penalized? And how is the penalty amount determined?
We are both employed, so the 25% flat tax withholding on the Canadian end is attractive.
Is there any benefit on the US tax side to splitting our RRSP tax collapse into two separate withdrawals (2010 and 2011)?
Now, when you say they are subject to penalty -- does that mean we may be penalized, or we will be penalized? And how is the penalty amount determined?
We are both employed, so the 25% flat tax withholding on the Canadian end is attractive.
Is there any benefit on the US tax side to splitting our RRSP tax collapse into two separate withdrawals (2010 and 2011)?
By failing to file 8891, you have both (a) failed to report any income generated in the RRSP, and (b) more importantly, failed to satisfy the forein trust reporting rules which are outlined in Form 3520. (a) carries normal underreporting interst and penalties, (b) however carried stiffer percentage of account value fines.
You are subject to those ever since you did not timely file your 8891 in April 2008.
IRS however takes the position that if you voluntarily and wthout prompting from IRS submit these forms they will foget fines for 3520, and if you elect to fefer taxation, not be subject to interst and penalty for under reporting your income in past years.
Of course, if they get wiind on their own of the existence of these trusts, all bets are off.
Get the picture? In the time you've taken to ask these questions, you could have sent in these forms.
You are subject to those ever since you did not timely file your 8891 in April 2008.
IRS however takes the position that if you voluntarily and wthout prompting from IRS submit these forms they will foget fines for 3520, and if you elect to fefer taxation, not be subject to interst and penalty for under reporting your income in past years.
Of course, if they get wiind on their own of the existence of these trusts, all bets are off.
Get the picture? In the time you've taken to ask these questions, you could have sent in these forms.
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
There is benefit to splitting, if you already have big deductions on your 1040.
Since you will likely be using the Cdbn tax as a deduction, you may not want to have a huge deduction for foreign tax, as this would get you into AMT.
It is unlikely, unless your RRSP has grown significantly since 2007, that you will be using the Cdn tax as a credit. If you were then it wouldn't matter if you split the collapse or not.
Since you will likely be using the Cdbn tax as a deduction, you may not want to have a huge deduction for foreign tax, as this would get you into AMT.
It is unlikely, unless your RRSP has grown significantly since 2007, that you will be using the Cdn tax as a credit. If you were then it wouldn't matter if you split the collapse or not.
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
[quote="nelsona"]I assume you have read up my explanations on how to determine the US taxable portion of your RRSP collapse.[/quote]
Are you able to point me to this? Is this in a specific post/sticky? Like I said, I just discovered this forum last night, so I'm still finding my way around here.
Much appreciated - thank you.
Are you able to point me to this? Is this in a specific post/sticky? Like I said, I just discovered this forum last night, so I'm still finding my way around here.
Much appreciated - thank you.
http://forums.serbinski.com/viewtopic.p ... book+value
is one.
Don't forget your FBAR filing as well, I assume you have nort filed those every year either. If you used turbo tax you would have had these auto-generated.
is one.
Don't forget your FBAR filing as well, I assume you have nort filed those every year either. If you used turbo tax you would have had these auto-generated.
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
Have not heard of FBAR either. Quick google search reveals that I think (by luck, and clearly not knowledgable decision) we're ok on this front. We closed down all of our accounts when we moved to the US, with the exception of one. The one open bank account has never had a balanace of more than a few thousand (i.e., less than $10K). So unless you can point to something I missed, I assume we're OK here?
I think I'll start another topic regarding the RRSP splitting, since I'm getting off the subject topic here of backfiling 8891.
And yes, we'll be backfiling those 8891's asap. Thank you!
I think I'll start another topic regarding the RRSP splitting, since I'm getting off the subject topic here of backfiling 8891.
And yes, we'll be backfiling those 8891's asap. Thank you!
Just a side note.... we actually did meet with a tax accountant about a month ago about a couple of issues, including the question about withdrawing our RRSPs. He did not mention anything about 8891. You'd think he would have brought it up. (He's a former Canadian tax guy, who has been in the US for the past 20 years, and who apparently does quite a bit of business with Canadian expats. I'm surprised/annoyed that this wasn't brought to our attention.)
OK, not good.
So I've searched the forum here, and did some googling (including IRS website), and now I'm all nervous. But I guess that's irrelevant.
I see that on other posts, you have advised to those who missed the FBAR requirement to just file now. Is that right? Should I be terribly concerned about penalties? I see a bunch of articles advising that those who are about to attempt voluntary disclosure should seek legal advice first. Is it really that dire/risky/complex?
Also, according to IRS website:
"If you learn you were required to file FBARs for earlier years, you should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. No penalty will be asserted if the IRS determines that the late filings were due to reasonable cause."
What would constitute a reasonable cause for the late filing? That we were unaware of the requirement? That we were under the impression that retirement funds were exempt? That the accounting firm who did our taxes in the first year of our arrival in the US did not make us aware of these requirements? (All true, but would any of these be considered "reasonable"?)
So I've searched the forum here, and did some googling (including IRS website), and now I'm all nervous. But I guess that's irrelevant.
I see that on other posts, you have advised to those who missed the FBAR requirement to just file now. Is that right? Should I be terribly concerned about penalties? I see a bunch of articles advising that those who are about to attempt voluntary disclosure should seek legal advice first. Is it really that dire/risky/complex?
Also, according to IRS website:
"If you learn you were required to file FBARs for earlier years, you should file the delinquent FBAR reports and attach a statement explaining why the reports are filed late. No penalty will be asserted if the IRS determines that the late filings were due to reasonable cause."
What would constitute a reasonable cause for the late filing? That we were unaware of the requirement? That we were under the impression that retirement funds were exempt? That the accounting firm who did our taxes in the first year of our arrival in the US did not make us aware of these requirements? (All true, but would any of these be considered "reasonable"?)