Mutual Fund transfer considered taxable?

NorthJersey · Post by **NorthJersey** » Sat Jul 28, 2012 1:25 am

Hi all,
I am a dual citizen now permanently living in the US after having lived for 40+ years in Canada. I hold two registered retirement accounts, one an RRSP and one a LIRA, both held by AGF. Everything was fine until 2010, when several funds within each account were performing horribly. My AGF repreentative sold those off and used the proceeds to get into better-performing funds. She has done this again this calendar year.

This week I received a notice from the IRS that the had received 1099 Ds from AGF and that the sale of the underperforming funds was subject to tax in the U.S., since I am a U.S. resident/citizen filing with the IRS. I made the election on my 8891s many years ago and there have been no disbursements from the fund outside the scope of my RRSP and LIRA accounts. I was under the impression from my rep that one [i]could[/i] re-allocate funds within a plan as long as there were no disbursements outside of the locked-in or registered accounts.

AGF's corporate rep said that I'm out of luck and that as a non-resident of Canada (although still a citizen) I cannot legally move funds or do anything. I'm facing a massive tax penalty in the U.S. if this is correct and before hiring legal help I'd like to get an idea if any part of this is incorrect or addressable, and on either side of the border.

Any guidance would be appreciated as the potential tax liability is quite substantial.

Thanks in advance.

newbie12345 · Post by **newbie12345** » Sat Jul 28, 2012 8:58 am

I am facing same issue: i am going to redeem my underperform rrsp mutual fund and transfer the cash to td water house rrsp account which would allow me to do trade. But do I need to report tax to IRS for the money transfer from one rrsp to the other rrsp?

ikeaidea · Post by **ikeaidea** » Mon Jul 30, 2012 12:43 pm

My 2 cents:

If you cannot let AGF amend 1099B, amend your 1040, and report all the sales with the cost at the same so that you will not have capital gain/loss.

At the mean time, report your 8891 as before, nothing distribute no income.

I believe the IRS who send you notice has no idea about 8891. It was automatically sent because they got 1099 but you didn't report. It was easy to fix such problem because a lot of person forgot to report the sales, but you still need to consult tax prefessional.

nelsona · Post by **nelsona** » Tue Jul 31, 2012 7:18 am

I agree with ikea's second point. All activity in your RRSP is sheltered. Period.

NorthJersey · Post by **NorthJersey** » Tue Jul 31, 2012 10:44 am

[quote="nelsona"]I agree with ikea's second point. All activity in your RRSP is sheltered. Period.[/quote]

In this care, they are [i]fully [/i]aware of the 8891s. There is a stalemate between the IRS and AGF Canada. AGF is claiming that because I am a U.S. citizen and resident, have zero ties left to Canada, and file my income taxes with the IRS that when I move money around it is fully taxable and they issued the 1099 on that bases. They are refusing to budge. Their claim is that as a US resident I cannot even legally move money from one fund to another; that I am only permitted to receive statements or take taxable disbursements as a US resident and nothing else since they are not licensed to transact internationally.

Meanwhile I'm caught in the middle and the clock is ticking closer to the IRS' deadline.

newbie12345 · Post by **newbie12345** » Tue Jul 31, 2012 11:06 am

I am not expert. Nelsona might be a better person to answer.

Just my two cents:
1. Not legally moving money from one fund to the other is by security trading law instead of tax law. If you already update your address to the U.S. address, or notified them about your move before the fund switching transaction, It is their problem, not yours.

2. For the 1099 D form, this is the new requirement from IRS. The AFG has no clue that you already file 8891 to IRS and defered tax. It is their responsiblity to report it to IRS. IRS has no clue that this transaction is done within RRSP account you claimed for tax defer or it is just generated by computor as a routine.

3. On the IRS notice, there must be a contact number. I would suggest you call the IRS agent, explain the transaction is done within the RRSP account and you already choose to defer the income tax for that account. Prepare the evidence (like RRSP statement clearly showing the RRSP account number, institute, transactions) and previous tax return which indicates you've claim tax defer for the RRSP account) and send them if necessary.

nelsona · Post by **nelsona** » Tue Jul 31, 2012 11:27 am

Jersey. They may be aware of the 8891's, but they are obviously not aware that the 1099 that AGF reported is covered under your treaty election, so the problem is not with IRS nor AGF.

You simply need to inform IRS that the 1099's were issued for an RRSP account. That is all you have to worry about.

As to the issue about manaing your account, AGF is correct. You need to (a) move your account to a US-compliant broker (like TD waterhouse) and leave AGF. They are coprrect on this issue.

But for the tax matter, you are covered by the treaty.

newbie has been learning a lot from my missives, good job, he is pretty much bang on.

NorthJersey · Post by **NorthJersey** » Tue Jul 31, 2012 11:33 am

[quote="nelsona"]

You simply need to inform IRS that the 1099's were issued for an RRSP account. That is all you have to worry about.[/quote]

Good. That's what I'll do.

[quote="nelsona"]As to the issue about managing your account, AGF is correct. You need to (a) move your account to a US-compliant broker (like TD waterhouse) and leave AGF. They are correct on this issue.[/quote]

How can I go about doing this? Since I have no ties to Canada whatsoever, I can't just walk in to a TD Waterhouse brokerage firm in Toronto and move things around, can I? Is this something I could do from within the United States? One of the accounts was my union pension (a locked-in account). Can I do anything with that from across the border?

nelsona · Post by **nelsona** » Tue Jul 31, 2012 11:38 am

Sure, You can do it by mail, for any type of sheltered pension account. You should have done this as you were moving.

Just to clrify about what you will tell IRS: you will infomr them that the 1099's are for accounts which are RRSPs, for which (very important) you have made the election to defer taxation. You would then show your earliest 8891 that has that account and with the year of election already indicated on it.

newbie12345 · Post by **newbie12345** » Tue Jul 31, 2012 1:37 pm

Hi Nelsona,

I did not get my answer yet. Please confirm:

- if I sell the mutual fund in one tax defered RRSP and transfer the money into an other RRSP I claimed tax defered, do I need to report any thing other than the two 8891 forms and FBAR form?

- On the 8891 forms, no need to fill in contribution or distribution, just the year end value change?

Do I need to add a notes to the 8891 form indicates I transfer the money from one RRSP to the other RRSP?

nelsona · Post by **nelsona** » Tue Jul 31, 2012 2:21 pm

It would be best to indicate distribution from the old one. And indicate that on the bottom of the form.

There is no provison to indicate contributing on the new RRSP. It is simply a new RRSP with the election date the same as the old one. Rememebr, when you elect to defer you never indicate contribution amounts (don't know why but that is how the instructions are writtent). You track these your self.

newbie12345 · Post by **newbie12345** » Tue Jul 31, 2012 2:24 pm

If I report the "distribution" for the old one, do I need to pay any tax for the "distribution"?

nelsona · Post by **nelsona** » Tue Jul 31, 2012 3:14 pm

No. taxable amount zero (that's why you note at the bottom that this is a transfer.

This would also be the time to close the old account.