What Are the IRS Tax Reporting Requirements for Canadian RRSPs?

 Posted on August 25, 2023 in Taxation Law

There are multiple types of financial assets that U.S. taxpayers may own, and certain requirements must be met when reporting assets and income to the Internal Revenue Service (IRS). Many taxpayers may need to address issues related to retirement accounts or pensions, but when these assets are held in foreign accounts or retirement plans, they will also need to ensure they follow the correct procedures for reporting foreign accounts and assets.

Some of the most common foreign retirement accounts held by U.S. taxpayers include Canadian registered retirement savings plans (RRSPs). The IRS has provided guidance on what forms need to be submitted to report RRSP ownership. Taxpayers may want to consider working with an attorney to address these requirements and determine their options for disclosing RRSPs that had not previously been reported.

Forms Used to Report Canadian RRSPs

Until 2012, taxpayers with RRSPs were required to file Form 8891 each year, and in some cases, they were required to pay taxes on the income that accrued in these plans. However, Form 8891 has been discontinued. Currently, RRSPs must be reported using the following forms:

• Report of Foreign Bank and Financial Accounts (FBAR) - FinCEN Form 114 is used to report any accounts that taxpayers own in foreign countries. Canadian RRSPs are considered to be foreign financial accounts that are reportable on the FBAR, which must be submitted annually.

• Form 8938, Statement of Specified Foreign Financial Assets - Under the Foreign Account Tax Compliance Act (FATCA), foreign pension plans such as RRSPs must be reported annually on this form.

Notably, RRSPs are not required to be reported on Form 3520, which is used to report transactions with foreign trusts. Beneficiaries and annuitants will not be required to use Form 3520 to report ownership of these plans, contributions they have made, or distributions they have received. Plan owners or custodians will not be required to use Form 3520-A to report RRSPs. However, this does not exempt taxpayers from other reporting requirements.

Addressing Non-Compliance With RRSP Reporting Requirements

If a taxpayer has failed to report RRSPs as required, they may take steps to come into compliance with their requirements. In cases where the failure to report foreign assets was non-willful, the IRS’s streamlined compliance procedures may be used. Depending on whether the taxpayer is residing in the United States or is a non-resident, they may be able to use either the streamlined foreign offshore procedures or the streamlined domestic offshore procedures. If a violation was willful, a taxpayer may need to address these issues with the IRS Criminal Investigation Voluntary Disclosure Practice. When addressing issues related to foreign tax compliance, taxpayers may want to consider working with an attorney to ensure they meet all of the IRS’s requirements and minimize the penalties that may apply.

Contact Our San Jose, CA Foreign Tax Compliance Lawyer

At John D. Teter Law Offices, we regularly work with taxpayers to address issues related to foreign assets and compliance with U.S. tax laws. Our San Jose tax law attorney understands the reporting requirements related to RRSPs, and we have extensive experience helping clients use the streamlined procedures to mitigate penalties for failure to file required forms. To learn how we can help you address issues related to offshore tax compliance, contact us at 408-866-1810 and set up an appointment with our attorney.

Sources:

https://www.irs.gov/pub/irs-drop/rp-14-55.pdf

https://www.irs.gov/pub/irs-news/IR-14-097.pdf

https://www.irs.gov/individuals/international-taxpayers/streamlined-filing-compliance-procedures