RRSP distribution

[michaelthef]

Hello - please help me think through this. I have been struggling for several months with this.

Facts:
C$80k RRSP balance at time of moving to the US (all cash)
C$80k RRSP current balance - all cash (so no activity since moving)

Distribution of the C$80k taken while a US resident.
Canada withholds 25% or $20k

So for the US side, does the the whole C$80k distribution get included on line 16b of Form 1040? Or does it all go on line 16a on non-taxable?

Being told by my accountant that because the cost-basis of the RRSP is 0 (all pre-tax contribtutions), it all goes into 16b (and all the discussion around stepping up the basis of an RRSP when moving to the US so that the distribution is non-taxable in the US for everything pre-US is not right).

Please help. I apologize as I know we've tried to cover this topic in the past but I have tried to research this and ask others, and I get conflicting answers. [/u]

[michaelthef]

Based on everything else I have read in this forum, it sounds like no additional US tax payable and the C$80k goes on line 16a because there was not growth since arriving. And since not reporting the RRSP distribution I suppose I wouldn't take the foreign tax credit right?

If this is al correct, how can I convince my accountant to change the way the return is prepared? Is there language in an IRS publication I can cite? Please help. I'm sorry to supplicate like this but I just want to get my 2014 filed and it's been weighing on me for months.

[nelsona]

The non-taxability of Pre-arrival basis in ones RRSP is long-standing, since Rev Prov 89-45, and nothing in any future rev proc, notr in Section 72 of the IRC has changed this.
That battles been fought and won, no need to try to educate the unfamilar

The cost basis of cash in one's RRSP is exactly that value, in USD on tha day you arrived of course.

So, if you arrived in US with an RRSP with a cost basis of $80K US, and, for arguments sake it had a value of $80 on the day you took out US$20,
Then 16a would be $20K and 16b would be 0.
Going forward your cost basis would now be $60K.

At this point you would be strongly urged to use the Cdn tax you paid as a deduction on schedule A rather than carrying it forwrd on 1116.

[nelsona]

US accountants (unfamilair with the history of RRSP taxation) often point to 72(w) as the reason why it is al;l taxable.

Personal RRSP are NOT employer-sponsoered pensions (which are fully taxable in US). The treaty even diferentiates between the two. So 72(w) does not apply.

Your accountant is in over his head on this. Don't sign an incorrect return.
Take what he has prepared, pay for his services, and file yourself.

[nelsona]

Quiite frankly, once a pro does your taxes once, you should be able to do them yourself.

[nelsona]

So, you need to come up with the USD value when you left, and the USD value when you sold. If it is loss, then 16b is zero, and as well as getting the 25% Cdn tax on schedule A, you also get terminal loss on schedule A for the investment loss.

[michaelthef]

Thank you for your advice and thoughts. I just revived an old thread where there was a significant debate ongoing.

Thanks yes this is exactly what I was thinking - because currency has dropped 25% since I left and "crystallized" (at par) there should be a capital loss.

Thank you very much for your confirmations.

[nelsona]

It is NOT a capital loss, since it is a pension. the income is considered pension income or loss. pension loss can only be claimed on schedule A when the pension has been completely collapsed, like yours.

Forget the debate, I can (and you can search) dozens of CPA newsletters which refer to the book value on entry as being non-taxable. This has been the case since 1989. Simply read the 89-45 rev proc. 72(w) didsn't chnage this.

mark's argument was based on 72(w), and is not correct, and more recent developements in the trwarty have clarified that employer-sponsored RRSPs are treated differenly that employer-RRSPs (and LIRAS).