Changes coming to RRSP reporting

This is our main tax information forum which deals with topics concerning Canadians living and working in the U.S., U.S. citizens contemplating working in Canada, and all aspects of Canadian and U.S. income tax and related adminstrative issues.

Moderator: Mark T Serbinski CA CPA

victoriaguy
Posts: 54
Joined: Sun Oct 26, 2014 12:03 am
Location: Victoria, BC, Canada

Post by victoriaguy »

I wouldn't think you need to report your RSPs to the IRS if you are not deferring income, other than on 8938. I think the FBAR would be the only place. Form 3520 and 3520A are for grantor trusts, which Cdn RSP's are, but I believe Cdn RSPs are exempt from filing the 3520's and 3520A's.

Rev Proc 14-55 is about how to DERER INCOME after the abolishment of form 8891, so there probably won't be any information there.

Having declared the income accurately, at least there should be no accuracy or lateness penalties if we are wrong, and if there is a reporting penalty for a missed form, you can argue reasonable cause, not having known about the form. I'm quite sure there isn't one though.
MIKE2000Z28
Posts: 62
Joined: Wed Jan 16, 2008 11:49 am
Location: Quebec, Canada

Post by MIKE2000Z28 »

I have been racking my brain over this but i really read the irs document and if you read the reporting it says for eligible individuals or not you don't need to report anything until you take a distribution, but once your rrsp gets big enough they will know about it through form 114. Form 8938 seems to exempt your rrsps. From the irs briefing they are going to err on the side of less reporting than more. It seems many accountants don't even interpret the same thing and there has been no backlash. Is it still true the IRS hasn't given an official clarification on filing requirements of a tfsa or resp? You read about people not using form 3520 for years with no problems. Frankly i think the IRS is so big they don't even know how to interpret it. If they can't produce official documents on the subject matter when asked then how can they enforce certain rules when they are all shades of gray.
victoriaguy
Posts: 54
Joined: Sun Oct 26, 2014 12:03 am
Location: Victoria, BC, Canada

Post by victoriaguy »

I had an accountant confide share a document with me wherein an IRS official admitted it would likely be difficult for an IRS agent to issue penalties for not filing 3520's for a TFSA as the IRS has not issued any guidance on that. I don't have it handy just now as I'm travelling, or I'd refresh my mind on the logic, but I think it was that it would be pretty easy to claim reasonable cause.

The same accountant recommended reporting RESP's and RDSPs on the 3520 and 3520A however, and we have been doing that.

About RSPs, I know that during the existence of form 8891, RSPs did not need to be reported on 8938 (other than how many 8891's were filed), but I'm unsure that is still the case. I thought you had to start reporting them on the 8938's after the 8891 was abolished (this year), assuming you have to file the 8938.
MIKE2000Z28
Posts: 62
Joined: Wed Jan 16, 2008 11:49 am
Location: Quebec, Canada

Post by MIKE2000Z28 »

[quote="victoriaguy"]I had an accountant confide share a document with me wherein an IRS official admitted it would likely be difficult for an IRS agent to issue penalties for not filing 3520's for a TFSA as the IRS has not issued any guidance on that. I don't have it handy just now as I'm travelling, or I'd refresh my mind on the logic, but I think it was that it would be pretty easy to claim reasonable cause.

The same accountant recommended reporting RESP's and RDSPs on the 3520 and 3520A however, and we have been doing that.

About RSPs, I know that during the existence of form 8891, RSPs did not need to be reported on 8938 (other than how many 8891's were filed), but I'm unsure that is still the case. I thought you had to start reporting them on the 8938's after the 8891 was abolished (this year), assuming you have to file the 8938.[/quote]

I think you don't have to report unless your over the 200k or 400k threshold on 8938. I think next years 8938 will be revised because they didnt have time to do it this year, but i think they are still exempt from reporting in general until you start withdrawing and then its income. I wouldnt even know how to fill out part vi for an rrsp as the questions are much more difficult than a simole 8891. I mean once the rrsp got big enough fbar would be the defacto reporting of those accounts no? Either way the irs wss aiming to make it easier for us and one less reporting procedure.
RiverRock
Posts: 5
Joined: Mon Sep 11, 2017 4:34 pm

Post by RiverRock »

[quote='victoriaguy']Until now the procedures were designed to allow late elections to defer taxation on undistributed income in RRSP's. Without those procedures, late electors are left with an anything but certain application process for late deferral that currently costs US$6900 (last year it cost US$10,000). [/quote]


What are the current options for those who are not eligible (as a non-filer)?
victoriaguy
Posts: 54
Joined: Sun Oct 26, 2014 12:03 am
Location: Victoria, BC, Canada

Post by victoriaguy »

By non-filier, do you mean you have never filed US income tax returns or FBAR's?

You can file through the Streamlined Foreign Offshore Procedures and include a request to late defer RSP income in the certification you have to prepare.

For good measure, I included the old 8891 with my three required years of tax returns required by the Streamlined Procedure, to disclose numbers. I know some accountants don't do that.
RiverRock
Posts: 5
Joined: Mon Sep 11, 2017 4:34 pm

Post by RiverRock »

I am a 'delinquent, non-filer'. USC, Canadian permanent resident for many years. I have not filed US returns since I left the US (and had US income) 20+ years ago; no FBARs back then.

Due to the frequency of visits to the US, I am not eligible for Streamlined.

I'm trying to find a reasonable way to become compliant and was told that I should go with OVDP because of the RRSP issue. Seems a bit extreme. Surely, I am not the only person in this situation.
victoriaguy
Posts: 54
Joined: Sun Oct 26, 2014 12:03 am
Location: Victoria, BC, Canada

Post by victoriaguy »

What, OVDP allows for retroactively deferring RSP income?

Oh god, extreme indeed. The "reduced" FBAR penalties alone could clean you out. And I have a friend who was in a similar situation. I spoke to the streamlined people at length and no, there's not another option.

Are you travelling to the US on business? I would take a year and back off travelling toute suite. Then you'd be eligible to include 2017 in a streamlined package after Jun 15, 2019.

I spoke to a Streamlined office person, and he said that the Streamlined program is so successful that there's no intention to stop the program any time soon. There IS talk of possibly shutting down OVDP.

Here's an interesting article (note the date is a little stale).

http://isaacbrocksociety.ca/2012/01/12/ ... alty-base/

Maybe something to see a tax lawyer about, depending on the size of your assets.
RiverRock
Posts: 5
Joined: Mon Sep 11, 2017 4:34 pm

Post by RiverRock »

Unless I am misinterpreting this, I think it might 'solve' the RRSP issue (but at a pretty high price)

OVDP 2014 FAQ 54.3:

[i]If you submit tax returns through the OVDP and resolve your OVDP case with a closing agreement, you will be afforded relief consistent with Rev. Proc. 2014-55. Further, your Canadian retirement plan will not be included in the offshore penalty base. [/i]

Guess I was worried about leaving it for 2 more years... in case they find me first.

As for a lawyer... this (OVDP) advice was given BY a lawyer. I know that I will need a second opinion... I was hoping to collect as much information ahead of time so that I can ask better questions.
RiverRock
Posts: 5
Joined: Mon Sep 11, 2017 4:34 pm

Post by RiverRock »

and... if one waited for 2 years to file in order to become eligible for Streamined... would they still be considered 'non-willful'?
victoriaguy
Posts: 54
Joined: Sun Oct 26, 2014 12:03 am
Location: Victoria, BC, Canada

Post by victoriaguy »

You likely would be seen as willful if you disclosed you had waited two more years in your certification. I don't know for sure. I don't think the US is organized to cross-check immigration records vs tax records, etc., except possibly for people who renounce. My sister got interrogated 3 hours at an airport after she renounced. Mind you, that probably came form the state department, not the IRS. I used to be pretty paranoid about being found, but not so much now. But it might be a bigger risk if you have past ties to the US.

Well, I have no looking glass. I'm just a guy on the forum, not a chartered accountant or tax lawyer.

That's really hopeful and helpful that they will not include the RSP's in the offshore asset base. If that's the most of your assets, that will make a big difference. Any accounts that do not produce interest would also be excluded. You could probably estimate your total penalty from the Q&A's, and make up your mind.

Btw, is there any information in the OVDP Q&A about whether there would even be FBAR penalties at all if there had been no tax owing for the delinquent 6 years you'd submit? I HAVE seen a notice on the IRS website that indicated that no FBAR penalties would be assessed if no tax was owed. If this is the case, and you owed no taxes for the past 6 years, I wonder if you would be better off simply submitting the back returns and FBARs, then bringing that to their attention if there is any question. Then again, I just saw a site that said quiet disclosures will ensure you have no protection from penalties if audited. (But if that only means you would have no protection from penalties that WOULD be assessed, you might still be home free).

You should contact the author of this good article. He's in Van, and had given several webinars to Democrats Abroad members, all of which have been good. He's put out a number of really useful tax-legal articles too. If you are going to get a second opinion, I think he'd be awesome.

http://business.financialpost.com/perso ... your-house

Let me know how it goes!
Post Reply