taxation law services

Reporting Canadian RRSPs and RRIFs in the United States: Form 8891

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It comes as a surprise to most taxpayers the Canadian Registered Retirements Savings Plans (RRSPs) and Registered Retirement Income Funds (RRIFs) must be reported in the United States.  Yet, any U.S. citizen or resident who is a beneficiary of an RRSP or RRIF must complete Form 8891 and attach it to Form 1040. A U.S. citizen or resident who is an annuitant of an RRSP or RRIF must file the form for any year in which he receives a distribution from the RRSP or RRIF.

A separate Form 8891 should be completed and filed for each RRSP or RRIF. This requirement includes spouses who have RRSPs or RRIFs.

There are three types of financial information that U.S. citizens and residents must report to the IRS using Form 8891: (i) contributions to RRSPs and RRIFs; (ii) undistributed earnings in RRSPs and RRIFs; and (iii) distributions received from RRSPs and RRIFs. The taxpayers must comply with this reporting requirement even if their earnings from these retirement plans are not considered as taxable income in Canada. Remember, income accrued in the RRSP and RRIF is subject to U.S. taxation unless a treaty choice is made to the contrary (see below).

The chief reason for the existence of Form 8891 is the fact that, 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 where 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. Furthermore, Form 8891 allows the filers 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.

A word of caution: taxpayers who need to file Form 8891 are likely to be subject to FBAR (Report on Foreign Bank and Financial Accounts) reporting requirements. Generally, the FBAR is required to be filed by any U.S. person who has a financial interest in or signature authority or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year. Since RRSPs are considered to be financial accounts, it is important to verify whether a taxpayer needs to file an FBAR.

Contact Sherayzen Law Office NOW For International Tax Help

Note: This requirement may no longer be required; if you believe that you may be subject to Form 8891 requirements, contact Sherayzen Law Office for confirmation on this tax form. Our experienced international tax firm will guide you through the complex maze of international tax reporting requirements, including any voluntary disclosure issues.

Remember, it does not matter whether you are located in another state or outside of the United States – we can help!

Reporting Foreign Gifts and Inheritance to the IRS: Form 3520

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While gifts and bequests from nonresident aliens are usually not taxable, they must be reported to the IRS if they are above a certain threshold.  Generally, U.S. persons who receive the aggregate amount of $100,000 or more in gifts and/or bequests from nonresident aliens or a foreign estate (including foreign persons related to that nonresident alien individual or foreign estate) during a tax year must report those amounts on Form 3520.  The same reporting requirement applies to U.S. persons who receive a gift of more than $14,165 from foreign corporations (or foreign persons related to such foreign corporations or foreign partnerships).

Failure to file Form 3520 (and even late filing of the form) may result in substantial penalties, unless the taxpayer may demonstrate that failure to comply was due to a reasonable cause and not willful neglect.

It should be noted that U.S. person must also use Form 3520 to report distributions from a foreign trust during the relevant tax year.  Remember, while gifts and bequests are not taxable, the distributions from a foreign trust are generally taxed as income by the U.S. government.

Furthermore, one should remember that receiving a foreign inheritance or a gift may trigger other U.S. tax reporting requirements.  The most prominent of these requirements is the Report on Foreign Bank and Financial Accounts (FBAR). Generally, FBAR is required to be filed by any U.S. person who has a financial interest in or signature authority or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year.

For example, if a taxpayer receives an inheritance of $120,000 in 2011 which is then deposited into the taxpayer’s checking account in India, this taxpayer must file both forms 3520 and FBAR.  The likely due date for Form 3520 would be April 15, 2012 whereas the FBAR must be received by the Department of Treasury by June 30, 2012. (Note: Form 3520 and FBAR are both now due in April as of 2017.)

Finally, a note of caution: requirements under Form 3520 may become complex fairly fast.  For example, the exact date of inheritance or gift may be in dispute.  Also, it is possible that some gifts should be reported in a certain way only.  Even the calculation of $100,000 per year may be subject to various interpretations.  Therefore, a help of an international tax attorney should be secured by the taxpayer in order to determine what international tax reporting requirements apply.

Contact Sherayzen Law Office for International Tax Help

If you believe that you may be subject to Form 3520 reporting requirement, contact Sherayzen Law Office now to resolve this situation.  Our experienced international tax firm will guide you through the complex international tax reporting requirements, including voluntary disclosure issues.

Remember, it does not matter whether you are located in another state or outside of the United States – we can help!

FBAR Deadline Extension for Signature Authority Only – IRS Notice 2011-54

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On June 16, 2011, the Internal Revenue Service issued IRS Notice 2011-54, granting additional relief to persons with signature or other authority over, but no financial interest in, a foreign financial account held during calendar year 2009 or earlier calendar years.

Previous, IRS Notices 2009-62 and 2010-23 already extended this deadline until June 30, 2010: “Persons with signature authority over, but no financial interest in, a foreign financial account for which an FBAR would otherwise have been due on June 30, 2010, will now have until June 30, 2011, to report those foreign financial accounts.” (IRS Notice 2010-23).

Notice 2011-54 further states that:

Persons having signature authority over, but no financial interest in, a foreign financial account in 2009 or earlier calendar years for which the reporting deadline was extended by Notice 2009-62 or Notice 2010-23 will now have until November 1, 2011, to file FBARs with respect to those accounts. The deadline for reporting signature authority over, or a financial interest in, foreign financial accounts for the 2010 calendar year remains June 30, 2011.

Thus, IRS Notice 2011-54 extends the FBAR filing deadline from June 30, 2011 until November 1, 2011 for all persons with signature authority over, but no financial interest in, a foreign financial account in 2009 or earlier calendar years.

Be careful, though – the deadline for the 2010 FBAR remains June 30, 2011.

Also, note that the relief granted by FinCEN Notices 2011-1 and 2011-2 is not affected by IRS Notice 2011-54.

Contact Sherayzen Law Office NOW For FBAR Help

If you believe that you may be subject to FBAR requirements, contact Sherayzen Law Office as soon as possible. Our experienced international tax firm will guide you through the complex maze of FBAR reporting requirements, including any voluntary disclosure issues.

Remember, it does not matter whether you are located in another state or outside of the United States – we can help!

FBAR Extension for Certain Individuals: FinCEN Notices 2011-1 and 2011-2

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On May 31, 2011, and June 17, 2011, in FinCEN Notices 2011-1 and 2011-2, the Internal Revenue Service and the Financial Crimes Enforcement Network (FinCEN) announced that a small subset of individuals, who are required to file the Report of Foreign Bank and Financial Accounts (FBAR), will receive a one-year extension beyond the recent filing date of June 30, 2011.

FinCEN Notices 2011-1 and 2011-2 concern only individuals with signature authority and apply to the following narrow categories of filers:

1). An employee or officer of a covered entity (see 31 C.F.R. § 1010.350(f)(2)(i)-(v)) who has signature or other authority over and no financial interest in a foreign financial account of another entity more than 50 percent owned, directly or indirectly, by the entity (a “controlled person”).
2). An employee or officer of a controlled person of a covered entity (see 31 C.F.R. § 1010.350(f)(2)(i)-(v)) who has signature or other authority over and no financial interest in a foreign financial account of the entity or another controlled person of the entity.
3). An employee or officer of an investment advisor registered with the Securities and Exchange Commission who has signature or other authority over and no financial interest in a foreign financial account of persons that are not investment companies registered under the Investment Company Act of 1940.

Notice that categories 1 and 2 do not apply to companies that are not publicly traded or not SEC-registrants.

The new extended filing deadline for the categories of individuals above is June 30, 2012. The deadline applies to FBARs for 2010, 2009 and earlier years.

Unless another relief notice applies, all other U.S. persons required to file an FBAR this year are required to meet the June 30, 2011 filing date. Unlike with federal income tax returns, extensions of time to file are not available.

Contact Sherayzen Law Office for FBAR Guidance

If you have any questions with respect to FinCEN Notices 2011-1 and 2011-2 or if you are looking for FBAR guidance, contact Sherayzen Law Office NOW! Eugene Sherayzen an experienced tax attorney will explain to you the current FBAR requirements and devise the appropriate FBAR compliance strategy for you.

Gold Bullion Foreign Accounts and FBAR

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A frequent question in my practice is whether a foreign account holding gold bullion is required to be reported on FinCEN Form 114 formerly Form TD F 90-22.1, usually referred to as “FBAR” (Report on Foreign Bank and Financial Accounts).

FBAR is required to be filed by any U.S. person who has a financial interest in or signature authority or other authority over any financial account in a foreign country, if the aggregate value of these accounts exceeds $10,000 at any time during the calendar year. FBAR is due April 15th or October 15th (for the previous calendar year). There is an automatic extension if the FBAR is not filed by the April 15th deadline, unlike Federal and some State returns that must be filed by extension. For federal returns the extension is Form 4868. The FBAR rules are enforced by the Internal Revenue Service.  You can read more about the general FBAR requirements here.

Whether gold buillion is required to be reported on the FBAR involves a general issue of whether FBAR definition of “financial account” covers foreign accounts that hold only non-monetary assets.  The answer is yes – an account with a financial institution that is located in a foreign country is a financial account for FBAR purposes whether the account holds cash or non-monetary assets.

Therefore, most taxpayers must reports foreign accounts that hold gold bullion on the FBAR.

Contact Sherayzen Law Office For FBAR Help

If you have any questions with respect to FBARs or you just found out that you should have filed the FBARs for the past years and you wish to go through a voluntary disclosure, contact Sherayzen Law Office as soon as possible.  Our experienced international tax firm can help you deal with any FBAR-related issues.

Remember, it does not matter whether you are located in another state or outside of the United States – we can help!