U.S. citizens and resident aliens (for U.S. tax purposes) who have financial interest in Canadian Registered Retirements Savings Plans RRSPs)and/or Registered Retirement Income Funds (RRIFs) must report their RRSP and RRIF income to the IRS by using Form 8891. The taxpayers (even if resident aliens from Canada) must comply with this reporting requirement even if their earnings from these retirement plans are not considered as taxable income in Canada.
Prior to year 2003, the IRS maintained that RRSPs and RRIFs are foreign trusts and the annuitants and beneficiaries of these plans must annually file Form 3520 with the IRS. See IRS Announcement 2003-25. IRS was authorized to impose heavy penalties for failure to file Form 3520. 26 U.S.C. §6677.
In 2003, however, the IRS adopted a new simplified reporting regime which is still the current law. Under the new rules, U.S. citizens and resident aliens who hold interests in RRSPs and RRIFs only need to file the new Form 8891 in lieu of the burdensome Form 3520 required earlier. See IRS Announcement 2003-75. Moreover, in the new form, the filers are able to make the election under Article XVIII(7) of the U.S.-Canada income tax convention to defer U.S. income taxation of income accrued in the RRSP or RRIF. Id. The filers are still required to maintain supporting documentation relating to information required by Form 8891 (such as Canadian Forms T4RSP, T4RIF, or NR4, and periodic or annual statements issued by the custodian of the RRSP or RRIF). Id. Nevertheless, the new simplified reporting regime substantially reduces the reporting burden of taxpayers who hold interests in RRSPs and RRIFs.
If you have any questions with respect to your RRSP and/or RRIF income, or if you failed to disclose this income during the prior years, CALL Sherayzen Law Office to discuss your case NOW!