The Internal Revenue Service (“IRS”) has eliminated the requirement to file Form 8891 and is utilizing the Canada US Tax Treaty to provide automatic tax deferral for income earned on two popular Canadian Retirement Plans namely, the registered retirement savings plan (RRSP) and the registered retirement income fund (RRIF).
The experienced international tax lawyer at Columbus, Ohio-based law firm Porter Law Office, LLC represents U.S. taxpayers residing in the U.S. and abroad with international taxation compliance under the U.S. tax rules, regulations and treaties.
As an experienced international taxation attorney, Mr. Porter understands the unique international tax challenges facing U.S. citizens and foreign nationals who work and live in the U.S.
Automatic Tax Deferral Under Revenue Procedure
The IRS has just released Revenue Procedure 2014-55 entitled, “Election Procedures and Information Reporting with Respect to Interests in Certain Canadian Retirement Plans” Rev. Proc. 2014-55 provides that eligible U.S. citizens and residents with certain Canadian retirement plans will be treated as making an election under Article XVIII(7) of the Canada US Tax Treaty to defer U.S. income tax on income accruing in their retirement plans until a distribution is made. Such individuals will be treated as having made the election in the first year in which they would have been entitled to make the election under the treaty.
This revenue procedure eliminates the Form 8891 reporting requirement associated with such Canadian retirement plans. Until this change, any U.S. citizen or resident who was a beneficiary of an RRSP or RRIF was required to prepare and file Form 8891 with Form 1040, which many taxpayers did not do. Under this change, taxpayers now automatically qualify to defer the tax on the income accruing in their RRSPs or RRIFs. Generally, they must have filed and continue to file U.S. income tax returns for any year that they had an interest in an RRSP or RRIF, and they must include in income any distributions they received.
Making the Election Under Article XVIII(7) of the Canada US Tax Treaty
There are two methods to make the election per Rev. Proc. 2014-55. Under the first method, a taxpayer elects to apply Article XVIII(7) of the Canada US Tax Treaty by reporting on a U.S. income tax return income earned with respect to a Canadian retirement plan on a distribution basis. This means that the taxpayer must recognize and report income with respect to the Canadian retirement plan only when they receive a distribution. Review section 4.01 of the revenue procedure for more information.
Under the second method, if you are not an individual described in Section 4.01 of the Rev. Proc. 2014-55, you must request consent of the Commissioner to make an election to apply Article XVIII(7) of the Canada US Tax Treaty . Generally speaking, these are taxpayers that have reported on a U.S. income tax return the undistributed income earned with respect to a Canadian retirement plan. An election to apply Article XVIII(7) may not be revoked except with the consent of the Commissioner.
International Information Returns (FBAR and 8938)
If you have an interest in an RRSP or RRIF, you may be required to file FinCEN Report 114, Report of Foreign Bank and Financial Accounts (FBAR) (formerly the Form TD F 90-22.1). You may also be required to file Form 8938, Statement of Specified Foreign Financial Assets, for other Canadian assets not reported on this Form 8891.
For additional details of this change, see Revenue Procedure 2014-55 posted to IRS.gov.
Contact an Experienced Ohio International Taxation Lawyer
International Taxation Compliance Representation
Porter Law Office, LLC has in depth experience with assisting U.S. citizens and foreign nationals residing in the United States with international tax compliance under the U.S. tax rules and regulations. The experienced international taxation attorney is committed to resolving international tax compliance issues through reporting delinquent FBARs, Forms 8938, 3520, etc. under the IRS’s Offshore Voluntary Disclosure Program (OVDP), Streamlined Filing Compliance Procedures (SFCP), and delinquent international information return procedures. Contact the experienced international taxation lawyer at the Columbus, Ohio based law firm Porter Law Office, LLC to schedule a free case evaluation.