Collapsed my CDN RRSP - now what?

[Russ]

Just about a year ago, I was trying to figure out what to do about my Canadian RRSP. I have worked in the US since arount 1996 on TNs and have never filed the RRSP forms required (ie: 8891, etc).

Essentially, I had a 20K (CDN) RRSP which went down to last year (2005) to under $1K (skillful investing).

Through this forum, Nelson thankfully came up with the following advice (wish I could say the thread number but don't know how to see that).

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In your position I would not bother making any treaty election on your RRSP, simply treat it as an ordinary account (you should probably just collapse it and be done with it too, but that is another story). reprt any incomeand losses just as if it were a brokerage account.

The only problem is that for 2002 and 2003 tax years you are supposed to report the mere existence of your RRSP, by using a 3520 for those years, and for 2004 onwards using 8891. This is not the tax deferral election, it is a reporting requirement.

You wouldn't have to ammend the 2002 and 2003 returns simply to file 3520. These were to be filed separately from your return anyways.
You may have to ammend the returns in order to include any gains/losses on your 1040 for those years.

Remember too, that for capital losses to count, you MUST report them in the year they occur, and THEN claim the losses as you are able to.
So if you sell your current stock for a small loss, that ios all you can report this year, not sum up all your previous unreported losses.

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So, in that time, I sold the RRSP for something like a big $700 CDN - minus costs for selling it of course and the broker holding back the percent they're supposed to.

I have an extension on my 2005 US taxes so I haven't filed them yet. I paid the expected amount so I'm not negligent in money owing, interest, etc. but have yet to get my accountant to do it.

So, I just want to be sure what I have to do now.

1. I follow your instructions Nelson and at this time of filing, also file the form: 3520 for 2002, 2003.

2. I can also file the form 8891 for 2004 and 2005 (even though I sold the investment in 2005?).

3. I believe you also mentioned Nelson, that's there's a way to state that the 2 forms are just for reporting reasons - NOT choosing the election, right?

4. From 2005 onward, I can take advantage of the $3K US write-off of the loss, correct?

5. And finally, how to I get my US accountant to file the withholding tax my Canadian broker paid to Rev Can already paid against my US taxes?

Thanks for any / all help on this.

I know it's probably been said in the thread already, but I'm getting ready to finally do it and really don't want to screw myself up big time at this point.

Thanks again,

Russ

[nelsona]

All of your questions have been answered.

As for 5, not sure what you mean. If you are asking how you should use the NR tax you paid on your US tax returrn, you have 2 choices:

1. Use it as a tax credit: this would not seem to make sense since you have very little Cdn income to report (that is in the same category: gen limit), so you will simply be carrying forward a probably unusable tax credit.

2. Use the ammount on schedule A as a foreign tax. This what I would choose.

Remember that if you do not make an election, you have to report any losses and income in the year(s) they occurred.

[Russ]

Nelson. Thanks for the great info as usual.

I've gone over my investment account (RRSP) again, checking when I bought something, sold it, etc.

However:

1. I was explaining this my accountant today, and she says she well knows the 3520 form as she's had to fill it out, for out of country trusts for clients, etc.
She just doesnt' see what options to mark though on the form for someone like me who is trying to say it's for reporting purposes only (like the 8891 form does so much easier). So, if I received money of some kind in the say, the year 2002, would it be a "US owner of all or any portion of a foreign trust ..." or would it be a "you are a US person who, during the current tax year, received a distribution ...".

2. I actually started on TNs in 1996. There was activity in this account (positive in some years, negative in the others). If I set the basis for the amount in a year such as: 2001 and move forward from there (as the investment didn't change much if at all after that), is that okay. What I mean, is if I fill out the 3520 for 2002 and 2003, does that raise a problem with the IRS for years before 2002? I don't need to fill out the 3520 before 2002? If there's income or losses before that, I'm sure they can investigate and tax me for not declaring the amount (and of course ignoring the losses before that as it's too late to claim), but by just filling out the 3520's, does this cause a problem with them?

3. While I'm trying to get this finished (soon I hope), what if the IRS all of a sudden sends a notice for not filing the 3520 / 8891 in the past. In otherwords, until all filed can that be a problem punatively with fines for not filing?

Thanks again. I know it's messy due to me never filing anything about this account, but just trying to get it corrected as soon as I can now.

[nelsona]

2003 was the only year that IRS said categorically that one had to file 3520 or 3520-A. They then backpedalled by allowing that if one met the requirements of Rev proc 2002-23 (and added the year-end value per Notice 2003-75) one met the requirements for RRSPs.

Years previous to six years ago are of little importance now. You should be filing RP 02-23 statements for 2000-2003 (witha year end figure for 2003), and 8891 for 2004 and 2005. The fact that you didn't report gains before 2000 is past now, but that doesn't mean you can't still take advantage of them.

For your own purposes, you need to be establishing your Book Value on the day you became a US tax resident in '95. This figure will be invaluable in determining your future taxation of your RRSP, if you should begin to take withdrawals while either living in US or having a GC or US citizenship.

That is the value of the election: it delays tax, it satisfies 3520 and it makes calculations MUCH easier.

[nelsona]

I would not be using a figure other than my 1995 staring point in order to detrermine my tax-free starting point, even though, technically, you probably could argue that the unreported income is now tax-free since they didn't catch it.

I don't play those games.

[Russ]

Thanks Nelson.

Does this make any difference in that I'm taking your previous advice and will "simply treat it as an ordinary account ... report any income and losses just as if it were a brokerage account".

So, if I file RP 02-23 for 2000 - 2003 (with a year end figure for 2003), then hopefully to the form 8891, there's a place for saying I'm just doing this for 'reporting purposes'?

What I'm concerned about is where you say in paragraph 1 "one met the requirements for RRSPs". I don't want this to be considered an RRSP, just a brokerage account and therefore just want to file whatever forms are required.

[Russ]

In re-reading this thread, it looks like it's getting muddied on what I'm trying to do.

It's an RRSP account that I closed in 2005. I do not want it to be considered an RRSP account (ie: no treaty election) but want to treat it as an ordinary account.

Previous advice sounds like for 2002 / 2003 I have to fill in form 3520. However, I don't understand how that's filled in for just reporitng the existence of an out-of-the-US account.

It sounds like the form RP 02-23 should only be used if I'm trying to say it's an RRSP with treaty election - which I'm not.

Also, I must fill in form 8891 for 2004 / 2005 - which is much more obvious and make sure I don't choose the treaty election.

However, not filling out any forms before 2002 alludes me on what happens, any liability, etc.

Any advice would be appreciated as with recent posts, I'm just getting further confused on this.

[canuck_girl999]

if you've never declared the existence of the account in the US, and you closed it, and you've never filed anything, why not do nothing if you don't care about the loss

[nelsona]

As Russ points out, and is very important to grasp, merely failing to report the existence of an RRSP puts one in line for the penalties outlined for failure to file 3520.

these can far exceed the unpaid taxes and penalties associated with failure to report, say, $200 of interest income.

RRSPs are foreign trusts. Foreign trust are not ordinary accounts in the eyes of IRS, and have come under increased scrutiny over the years.

"doing nothing" is not really an option for US filers with RRSPs, regardless if the RRSP is a loser a winner or whether or not the holder is cashing in or not.

[nelsona]

Just in response to Russ' desire to treat the account as 'ordinary':

You can, except for 2003 onward, in which you either have to fill our form 3520, or elect by RP 02-23, or fill out 8891.

Whether or not you defer income, whether or not you even had any income, you need either a RP 02-23 statement, or a 3520 for 2003, and either an 8891 or a 3520 for 2004 and 2005.

and even if you do treat it as an ordinary account, you still have to report the gross withdrawal on line 16a of 1040, and come up with a figure for 16b. (it would be '0' in the case where the person never elected to defer).

[Russ]

I was just looking over the year end statements for this account and here are the values at the end of each year (brilliant investing on my part).

I know it's not the real value of what I paid for it, but I'm wondering if because the value in the account < $10K US by 2000 onwards, would this have any bearing on not having to file any 3520, etc. forms due to an account with < $10K US in it?

1996 - $25,129.02 CDN - became US resident about 10/1996
1997 - $25,559.35 CDN
1998 - $25,420.66 CDN
1999 - $28,243.41 CDN
2000 - $12,882.66 CDN
2001 - $ 3,547.69 CDN
2002 - $ 1,045.30 CDN (book: $28,261.53)
2003 - $ 1,496.00 CDN (book: $28,194.65)
2004 - $ 974.84 CDN (book: $28,127.77)
2005 - sold out: May 2005 - $698.93 CDN

So again, besides a brilliant show of investing, treating this account as a normal account would allow the loss.

But for reporting purposes - my main concern right now - as the amount in the account was less than $10K US in 2000 onwards, would this mean I wouldn't have to file anything due the regulations saying only acocunts with > $10K US have to file the paperwork?

Thx.

Russ

[Russ]

Or is the $10K US threshold simply not the case and just wishful thinking on my part?

[nelsona]

The 10K threshhold is only for TD 90.22-1 form, and applies to the sum of all your foreign accounts.

While the value of your account every year is intersesing, it means nothing in terms of income and reporting.

And as to claiming losses, you can also clim losses with a failed rrsp too, when it is finally collapsed, on schdule a.

by the, your investment losses would have to be declared in the year they were triggered.

...and you still had reporting requirements, and you still have line 16a income in the year you collapse.

[Russ]

As suggested, I've been trying to fill in the 8891 forms for 2004 and 2005 as well as the 3520 form for 2003.

I've been looking through the forum for filling in the forms, but cannot see what I'm looking for - that of reporting only on the forms - not taking advantage of the treaty.

Remember, for all forms, I only need to report the account - ie: I don't want to take advantage of the RRSP treaty.


8891 form - 2005
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Closed the RRSP and total value was: $585.55 - withdrawal fee ($25) - gst ($1.75) - NRT Withholding on dereg ($139.70) for a big cheque of: $419.10.


1. Name of plan custodian, account #, address of plan custodian - I take it all are the Canadian broker info (ie: CIBC Wood Gundy in my case) - correct?
2. Line 4 is RRSP.
3. Line 5 is beneficiary.
4. Line 6a - NO.
5. Line 7a - $585.55 - as closed the RRSP.
6. Line 7b - $585.55 - as it's not an RRSP, but a 'normal' account.
7. Lines 8,9,10a/b/c/d/e - $0.00 - as account had no dividends or interest.

Have I done this correctly?

8891 form - 2004
--------------------
Same as 2005 form but line 7a/b - $0.00 as there was no dividends, interest or distribution.

8. Is this correct?


3520 form - 2003
--------------------
9. A - initial return. B - individual.
US owner of all or portion of a foreign trust ...

10. Section 1 - info on me.
11. Section 2 - Name of the Canadian broken (ie: CIBC Wood Gundy, address, etc.).
12. Line 3 - NO.

And that's all I can see I fill out on the 3520. This is where I get confused as I don't see anywhere else that I have to fill in when I'm reporting just the existence of the trust.
13. Is this correct?

Also where to adivse that I'm NOT using the treaty like on the 8891 form.
14. Is this correct?

Also, as I'm just telling about the trust (but it was an RRSP from back in 1996), and there was no action in the account (no interest, dividends, etc.), I don't see where to put in the balance of the RRSP account on this form.
15. Is this correct?

As the 3520 is pages long, can someone tell me which parts I have to fill in for just reporting the existence of the account where there was no 'reportable event' for the 2003 year.

Thanks again.


Russ

[nelsona]

What about your capital losses? You need to show these on 8891 to get them onto your Sched D and ultimately on your 1040.

7b would be zero, not be cause it is a 'normal' account (it's not), but because one of your withdrawal is taxable.