Canadian Retirement Account Reporting
There are new IRS reporting rules today concerning Caanadian retirement plans. The IRS advises that it has finally eliminated a special annual reporting requirement that long applied to taxpayers with an interest in two popular Canadian retirement plans. The two types of plans are known as registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs). A RRSP is a type of Canadian account for holding savings and investment assets. RRSPs have various tax advantages compared to investing outside of tax-preferred accounts. A RRIF is a tax-deferred retirement plan under Canadian tax law. Individuals use an RRIF to generate income from the savings accumulated under their Registered Retirement Savings Plan. As with an RRSP, an RRIF account is registered with the Canada Revenue Agency.
The modified IRS reporting rules make it easier for taxpayers with these plans to get favorable U.S. tax treatment and, as a result, many Americans and Canadians with the Canadian retirement plans, RRSPs and RRIFs, no longer need to annually file IRS Form 8891 reporting details on these plans.
The change relates to a longstanding provision in the U.S.-Canada tax treaty that enables U.S. citizens and resident aliens to defer tax on income accruing in their RRSP or RRIF until it is distributed. Otherwise, U.S. tax is due each year on this income, even if it is not distributed.
In the past, however, taxpayers generally would get tax deferral by attaching Form 8891, U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plan, to their return and choosing this tax treaty benefit, something many eligible taxpayers failed to do. Before today’s change, a primary way to correct this omission and retroactively obtain the treaty benefit was to request a private letter ruling from the IRS, a costly and often time-consuming process.
If you have tax questions or IRS reporting concerns, contact an experienced New York tax attorney at Mackay, Caswell & Callahan, P.C. today. With over 30 years’ of tax experience and offices throughout New York State, we can offer experienced tax help.