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New Solution for Reporting Previously Unreported Canadian RRSP’s

New Solution for Reporting Previously Unreported Canadian RRSP’s
Ines Zemelman, EA
30 August 2013

Are you still concerned about one or more Canadian RRSPs that you failed to report to the IRS in previous years?

For the first time, the IRS is allowing taxpayers to report previously unreported RRSPs by filling out Form 1040X and attaching a Form 8891 for each RRSP that wasn’t reported in recent years.

If you are like many American Expats or US Citizens living in the Continental United States with a Canadian RRSP, you may have been confused about your requirement to report your RRSP on your US expat tax return. If so, you may have realized just how stressful it is to go back and try to ‘make things right’ with the IRS. Until recently, once you missed your window of opportunity of reporting your RRSP for the appropriate tax year it’s been extremely difficult to submit the required information to the IRS without punitive fees or an additional tax burden on income (contributions) which would have otherwise been tax deductible.

If you’ve been trying to figure out how to report old RRSPs to the IRS without having to pay extra for your mistake, your solution is finally here. The IRS has decided to allow US Taxpayers to report old RRSPs simply by filing an amended return (Form 1040X). We at Taxes for Expats have taken it upon ourselves to verify this information is correct, and you can take the same step we did: Contact the office of the IRS Chief Counsel at 202-622-3880.

Unfortunately, the ability to report previous years’ RRSPs is only available to those who have not already been identified and penalized by the IRS for failing to meet this obligation. If you have been lucky enough to ‘remain under the radar’ there is no time like the present to file a Form 1040X for each year in which you have one or more unreported RRSPS. To report an RRSP you need to use Form 8891, and if you have more than one RRSP you will be required to use a separate Form 8891 for each one.

On page 2 of Form 1040X, Section 3 asks for an explanation of changes. In this section, simply write that you are filing an amended return to report one or more RRSPs from the corresponding tax year. Once you’ve filled out every section to Form 1040X and you’ve filled out each required Form 8891 simply mail the entire packet to the IRS address indicated in the Form 1040 Instructions.

You may still be facing a problem with your FBAR (Form TD F 90-22.1) unless you happened to have already reported it as a foreign financial account in previous years to the US Department of Treasury.

It is currently more difficult than it ever has been to submit a required FBAR from a previous year. That’s because Form TD F 90-22.1 can now only be filed online and there is no section for explaining why you are submitting your FBAR late (you can learn more about this catch-22 by reading our article about new FBAR guidelines confusing US Expats). With that being the case, it’s even more difficult to submit just one required account (yes, an RRSP is a foreign financial account which should be included on an FBAR) if you had already filed Form TD F 90-22.1 for the year in question.

If you’re in this specific situation, you are encouraged to contact an international tax attorney to get legal advice about how to proceed. You have a few options and your risk for each can best be assessed by a seasoned attorney who is knowledgeable on the latest updates with the IRS, the US Treasury Department, and FinCEN (Financial Crimes Enforcement Network). The good news is: You only have to discuss your options with correcting your FBAR mistake since you were able to become current on your reporting liabilities with the IRS by filing Form 1040X.

Ines Zemelman, EA
founder of Taxes for Expats