1099's for RRSPs!!

imajoh · Post by **imajoh** » Tue Oct 30, 2007 7:47 pm

I live and work in the U.S. only. Over the past 2 years, I received 1099-DIV and 1099-INT from the bank in Canada where my RSSP/LIRA accounts are held. According to the bank, this is a new IRS requirement. The 1099-DIV had ordinary dividends reported on lines 1a and 1b (same figures), and the 1099-INT had interest reported on line 1. I am not sure why I received these forms since I did not add, withdraw or transfer funds to/from my RRSP accounts. Not knowing what to do with the 1099's, my accountant advised me to include them in my 1040's for 2005 and 2006. So I did, and I ended up paying taxes on interest/devidends from my Canadian retirement accoutns that I did not receive.

Is this happening to other clients too?

How should I deal with this?

PS. Mark: I will contact your office in Chicago soon to set up an appoint for a consultantion on other U.S./Canada tax treaty topics.

Thanks...

nelsona · Post by **nelsona** » Wed Oct 31, 2007 6:42 am

Did you file w8-ben with your rrsp manager?

Was IRS tax withheld from your RRSP?

You are NOT taxable in US on your RRSP. Period.

Those who have, have usualy been as a result of not filing a w-8 of some sort with the broker.

How could your accountant have advised you to file tese, and not told you about 8891 etc?

nelsona · Post by **nelsona** » Wed Oct 31, 2007 6:43 am

When i say you are not taxble in US, I mean no tax is to be withheld from your RRSP by the broker.

imajoh · Post by **imajoh** » Wed Oct 31, 2007 9:59 pm

Thanks for the feedback.

1. I will check with the broker re w8-ben. Are you saying that a w8-ben should, or should not, have been filed?

2. No taxes withheld in Canada.

3. I gather from your repsonse that this should not have happened. Any suggestions on how to move forward? 1040X? Do I need 1099s from Canada that show $0 dividends/interest?

I am confused...

nelsona · Post by **nelsona** » Wed Oct 31, 2007 10:31 pm

1. a w-8 or w-8ben should be on file.
2. Its not Cdn tax you are worried about, It's IRS tax. If none was witheld, good. the 1099 should noy have been issued, and certainly not reported on 1040.
3. Youe should correct your 1040. Of course, since you neglected to file the treaty election, you should theoretically be reporting not only interst and dividends, but cap gains too. But since your goal was to defer taxation, you should indicate this on your 1040-X at the same time as you submit 8891 for the yesrs in question.

You should not be trying to get a 1099 with '0' interst. No 1099 should have been issued at all. That should be the result of filing the w-8.

imajoh · Post by **imajoh** » Wed Oct 31, 2007 11:10 pm

Thanks, Nelson. This is great, and itâ€™s clear to me now. I am sure that no taxes (Canadian and/or IRS) were withheld in Canada. I will follow up with the broker in Canada. I will also file 1040X (with 8891) to differ taxes on dividends/interest and also claim back taxes paid earlier to the IRS in 2005 and 2006 for such dividends and interest. I hope that this will not cause issues with the IRS since the 1099s have already been issued for the past 2 years.

nelsona · Post by **nelsona** » Thu Nov 01, 2007 9:34 am

The only issue is they could decide to deny your election to defer RRSP taxation. since you did report income. Problem is you didn't report ALL RRSP income, so they could say that not only do you need to report the int/div for those years, but also the cap gains.

The election is supposed to be made in a 'timely' fashion. You have not made these elections in a timely fashion, so are at their mercy.

The issuing or not of a 1099 (especially since it is a foreign account) has absolutely no bearing on whether or not something is taxable for the IRS.

nelsona · Post by **nelsona** » Thu Nov 01, 2007 9:35 am

And timely, in this case, means by the yearly filing deadline.

imajoh · Post by **imajoh** » Fri Nov 02, 2007 7:07 am

Thanks Nelson.

I think I am ready to make the elections by submitting the 8891s and the rev proc 02-23 statements. I am also thinking about not claiming back the taxes I paid on the 1099s.

1. In order to make sure that this goes through without any glitches, I just want to make sure the following is correct. On the 8891s, since no funds were received, withdrawn, transferred, etc, from the RRSPs, I should answer 7a and 7b with â€œ$0â€, add the plan balance to #8, and skip #9 & #10. Please advise..

2. Since it seems that any glitches with filing the amendment could cause the IRS to say that these were not filed in a timely manner, I am thinking about NOT claiming back the taxes I paid on the 1099s div/int (at least not for now). Instead, I would make the 1040X state no changes to income, taxes, etcâ€¦

nelsona · Post by **nelsona** » Fri Nov 02, 2007 8:12 am

My threads on 8891 have all the mechanics.

jkhanna · Post by **jkhanna** » Thu Nov 22, 2007 4:39 am

How do u check the threads for 8891? May sound like a basic question.

cantousa · Post by **cantousa** » Wed Dec 19, 2007 6:13 pm

You probably figured this out by now, but in case you are interested:
Along the lines in which Nelsona pointed out, you probably do not have a W-9 form filed with your broker. Even if your money is in an RRSP, if the fund is somehow managed (back office perhaps) by a U.S bank, any distributions your account receives are taxed at 28% as per IRS regulations.