Form 8891 questions here please!!!!

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nelsona
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Post by nelsona »

1997 was the first year you made an RP 02-23 election.

<i>nelsona non grata... and non pro</i>
fergusontm
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Post by fergusontm »

Does a person who worked and lived in Canada but was born a US Citizen, have to file a US Tax Return when they begin to receive distributions from a RRSP or RRIF. It seems to create double taxation on those distributions.
nelsona
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Post by nelsona »

A US citizen ALWAYS has to file a US tax return, reporting ALL income EVERY year.

Surely you knew this

[;)]

<i>nelsona non grata... and non pro</i>
Patrick
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Post by Patrick »

I moved to the USA in 1982 from Vancouver. I got a Green Card in 1992 and received US Citizenship in 2004.
I left my RRSP in Vancouver with CIBC/Wood Gundy. I have always done my own US Taxes. I never reported my RRSP account because I thought it was treated like an IRA down here.
How do I go about getting into compliance for all those years?
I really need your help.
Thanks.
nelsona
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Post by nelsona »

Read Rev. Proc 2002-23 on IRS website.

It has everything you need.

<i>nelsona non grata... and non pro</i>
Patrick
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Post by Patrick »

Thank you, Nelsona. I have read the Rev. Proc. 2002-23, but I am still confused. I have never declared any income from my RRSP, nor filled in Form TD F 90-22.1. Can I go back 6 years and make 6 deferment declarations and file 6 Forms TD F 90-22.1? If I put the income from RRSP on Schedules B and D, don't I have to pay Federal Income Tax on those amounts ? I thought the income was being deferred. (I realize I have to pay back taxes to California on the RRSP income going back 3 or 6 years). Thanks. Patrick
nelsona
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Post by nelsona »

The fact that you have never declared any income, and have not made RP 02-23 statements, makes your 1040 returns wrong.

You must go back to your first 1040 and make the election, and amend each 1040 since then. I have expalined this elsewhere. The same statement you make in 1998 can be used for each subsequent year, except that in 2003 you need to add the year-end value for each account. If you made transfers between RRSP accounts during your time in US you have to follow the transfer reporting rules outlined in RP 02-23.

If you make the election, you obviously don't report anything on Sched B or D for your RRSPs. ThAT is what the election is for.

Your Cali returns need to be amended to add the RRSP income for 2002 forward.

There is no provision for back-filing the TD form, so your only choice is to file TD for 2004 by June 30, and forget about previous years.

<i>nelsona non grata... and non pro</i>
Jaspal
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Post by Jaspal »

Tax for 2004 is already e-filed. Should we now just print/fill 8891, attach it to a blank (with only name, SSN, address etc.)1040-X form, and mail it? Is it the correct procedure? There is no change on any line of the tax form; only form has to reach the IRS. Kindly advise. Thanks.

Jaspal
nelsona
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Post by nelsona »

Since you e-filed, your tax software can print out a 1040-x for your return.

Simply use this and write in the xplanatory section that you are only amending to include 8891.

<i>nelsona non grata... and non pro</i>
marge
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Post by marge »

Hi, Nelsona, your site is wonderful. I'm an American with Canadian citizenship and a permanent resident of Canada since 1966. In 1995 I learned I should be filing US returns, and did so for 7 years back, plus the form for Detroit. I did the returns myself, with help from the IRS consultants who gave seminars for US citizens here. I've been contributing to RRSPs since about 1977, but only have the history from 1988. I called the IRS in Pa. for a small question on form 8891--and and learned I've probably been filing wrong all this time. I erroneously assumed I'd be better off NOT to defer my income, since they were always below the personal exemption amounts for myself and my Canadian spouse, who has an ITIN but doesn't file. The first year I had to use the deferral under “my rules” was 2003. I used a statement and attached it to the 1040, per Notice 2003-75. I've read this whole forum, and it's wonderful, but I still have some questions. 1) Should I file amended returns for all the years I didn't defer (1988 to 2002)? 2) What about the years before 1988 for which I didn't file? 3) What year should I put as the first year I elected to defer? 4) If I have additional interest and dividend income, do I have to file a form 1116? 5) Do I have to file 1116 for previous years too? I will probably never return to the US to live, but I may inherit. The last thing I want to do is run afoul of the IRS! Any help you can give will be extremely appreciated.
nelsona
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Post by nelsona »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote"> Hi, Nelsona, your site is wonderful<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

This is not <b>my</b> site

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">I erroneously assumed I'd be better off NOT to defer my income, since they were always below the personal exemption amounts for myself and my Canadian spouse, who has an ITIN but doesn't file.<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Why do you say 'erroneously'. In fact, if you did not have to pay tax on this 'undeferred' RRSP income, and you had never used Rev. proc 2002-23, you were completely within your rights to do this, and it probably made perfect tax sense.

Since you say you have only begun deferring in 2003, there is nothing that needs to be done for any year previous, as you filed correctly, and owe no tax.

Keep track of the income that you did report before 2003, as this adds to your 'investment' in your RRSP, which will not be subject to IRS tax when fianlly withdrawn (since you will already have reported it).

I would need to know why you decided to defer in 2003, because your situation really didn't change. You could have REPORTED the existence of your RRSP without using the deferral election, and this could still be the case.

I'd also like to know what the IRS phone-line (notoriously wrong on this and many other issues) said that made you think that you were doing things wrong.

Form 1116 doesn't really enter into the equation when discussing RRSP deferral, since this would presume some Cdn tax paid on this phantom RRSP income which is not the case.


<i>nelsona non grata... and non pro</i>
marge
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Post by marge »

Hi, nelsona, what I've always done is to exclude all earned income, per my T4, and then put the amount by which the RRSP increased on Sched.B and line 8a. One of the IRS reps, when they came here, said the contribution isn't taxed in Canada and so must be declared as taxable income in the US, so I that's why I included the entire amount by which the plan had increased on line 8a. They said that was fine. For a couple of years there, even though my contribution was higher than the total personal exemptions, the value of the plan as a whole was down. That's how I still figured I didn't need to defer. Then last year, the plan increased a lot in value and the total increase, including the contribution, was above the personal exemptions. The IRS person I spoke to last week said there's no line on the tax form for the contribution and so it can't be declared. She also said I would be required to fill out form 1116 because I had interest and dividends outside the RRSP. I needed to determine the proportion of Canadian tax paid on that income, i.e., excluding the proportion of my taxes paid on excluded income. She said that because my excluded income included a large RRSP contribution, and no tax was paid on that contribution, I was unlikely to have paid enough in Canadian taxes to cover the US liability. Is it possible that all of the above is true regarding form 1116, but if the total amount is below the personal exemptions, my 1040s are still OK?
nelsona
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Post by nelsona »

I'm getting confused by your statements (and hitting the return key every once and a while wouldn't hurt either).

The way in which you had been calculating what to put on Schedule B was incorrect, as you were looking at the change in value rather thatn the actual income generated.

Brief example: You buy a fund at $10, it goes up to $15. During the year it paid $1 in distibutions. Your income is only $1, not $5. The next year you sell it at $20. Now the income is $9 for the year ($10 minus the $1 you already declared).

Your way was an oversimplification, but since you owe no tax, it really doesn't matter.

Now, to what is reportable every year. As you sid you reported all your wages, every year, and then excluded them (presumably by Form 2555). This included the RRSP contribution, which would otherwise be taxable, but for your earning less than $80K.

When you use the 2555 exemption there is no need to separate out the RRSP contributions. If you made, say $50K and had $8K of RRSP contributions, you simply exclude the $50K, and that is it. The $8K merely falls under the exemption.

So what you will eventually need, when it comes time to cash out your RRSPs, will be the EXACT ammount that you contributed each year, plus the exact ammounts of income you declared each year up until 2002.

This will form the basis for wqhich you will calcuyalte the taxabl;e portion of any withdrawl you make in the future.


So for 2004 and beyond (so long as you do not extract any RRSP funds), you should simply be using 8891, for each RRSP you own, to (a) repeatedly make the deferral election, which you made for the first time in 2002, (b) declare any contributions you made and (c) report the year-end value.

There is no longer anything to report on the 1040, or Sched. b, as you are now, and forever, electing to defer.

As I said, had you been doing the calcualtions of your yearly income corrctly, you probably could hgave gone on several more years making no election to defer, declaring your income, and building up the tax-free portion of your RRSP (in IRS' eyes).

It's not a major <i>faux pas</i>, but it will probaly end up costing you a little bit of tax (1 or 2%) in the future.

As to the use of 1116, this was in reference to the interest you received OUTSIDE your RRSP, not in your RRSP. Since you are now deferring your RRSP income, surely you did not earn so much interest as to exceed your personal exemption!? If you did not, there should be no tax owing in US, so filing an 1116 would merly be allowing you to store up some Cdn tax for use in the future.

Its up to you if you want to carry forward the small amount of Cdn tax you paid on your bank interest.

<i>nelsona non grata... and non pro</i>
marge
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Post by marge »

Hello, nelsona,

Sorry about the paragraphs. I thought there might be a limit to the number of characters this thing would accept. I'm getting the hang of it.

But--Uh-oh. I have no idea what the actual amounts earned inside the plan were, in that case. I just used the same beginning and ending figures as in the RRSP reporting requirements page I attached to the 1040, and subtracted them. It's entirely possible that the "income" was above the personal exemptions, because the losing funds weren't sold until after I elected to defer.

I would have to go back into it year by year to find out. I've only just begun to understand a bit about interest vs dividends, and capital gains and losses. And I have no idea how to report them unless I can simply transpose the amounts from "box x" to "line y." The math in all this is simply beyond me.

I think most of the losing funds were sold in 2003, which was only the first time I elected to defer. If I applied the capital losses to previoius years, I'd probably still be OK for the earnings, but I sure didn't report it right.

You're probably thinking by now I'm the dumbest person on the planet...[:I]

The RRSP now is capable of generating a yearly income large enough for me to get by on. As I say, I've been saving, bit by bit, for 30 years.

Is there any way--that the IRS will accept--that I can fold my tent and defer the whole thing from the start? I don't think I have enough knowledge to report the way you explained.

Thanks about the 1116 form. I had understood from the instructions that I was obliged to use it.
Tania
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Post by Tania »

<u>what to report after distribution on 8891 and line 16b on 1040?</u>

I read the all the treads But I am sorry that I am still not understanding this whole mess I got into. What is cost basis or book value in my case? Here is the scenario what happened to me. My RRSP was in a savings plan with interest paid end of every month. I became a US resident as of June 1st 2002. RRSP with the interest paid on 30th of May 2002 was $8200. So on June 1st 2002 I had in the plan $8200. Is this the book value or cost basis for my plan??

Since then up to the time of complete withdrawal in Feb 2004 I had interest accrued only $320. SO I withdrew total of $8520 and paid 25% tax to CRA of $2130. Therefore the income I should be reporting on line 16b would be $320. Now the dilemma of foreign tax credit. Should I consider as foreign tax paid to Canada 25% of $320 = $80 OR 25% of 8520 = $2130 on 1116 form. It seems like if I am only reporting the gain as income on 16b then I am eligible to get foreign taxes back from IRS only on $320 not on the whole amount!
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