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IRS Simplifies Reporting of Canadian Retirement Plans; Eliminates Form 8891.
(Parker Tax Publishing October 23, 2014)

A new revenue procedure makes it easier for taxpayers who hold interests in certain Canadian retirement plans to get favorable U.S. tax treatment. Rev. Proc. 2014-55 (10/7/14).

On October 7, 2014, the IRS made it easier for taxpayers who hold interests in certain popular Canadian retirement plans to get favorable U.S. tax treatment. As a result of the change, many Americans and Canadians with either registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs) now automatically qualify for tax deferral similar to that available to participants in U.S. individual retirement accounts (IRAs) and 401(k) plans. In addition, the IRS is eliminating a special annual reporting requirement that has long applied to taxpayers with these retirement plans.

Practice Tip: In general, U.S. citizens and resident aliens will qualify for this special treatment as long as they have filed and continue to file U.S. income tax returns for any year they held an interest in an RRSP or RRIF and include any distributions as income on their U.S. returns.

Under a longstanding provision in the U.S.-Canada Tax Treaty, U.S. citizens and resident aliens can 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 were required to elect-in to get tax deferral by attaching Form 8891 to their return and choosing this tax treaty benefit, something many eligible taxpayers failed to do. Before Tuesday'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.

Many taxpayers with an interest in a RRSP or RRIF also failed to comply with a reporting requirement; taxpayers must yearly file Form 8891, U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans, reporting details about each RRSP and RRIF, including contributions made, income earned and distributions made. This requirement applied regardless of whether the taxpayer chose the special tax treatment. In Rev. Proc. 2014-55, the IRS said it is eliminating Form 8891, and taxpayers are no longer required to file this form for any year, past or present.

Rev. Proc. 2014-55 does not modify any other U.S. reporting requirements that may apply under the Bank Secrecy Act (BSA) and Code Sec. 6038D.

For a discussion of the tax treatment of Canadian retirement plans and the Form 8891 requirement, see Parker Tax ¶131,515. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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