1. RRSPs are similar to U.S. IRAs permitting Canadian tax deductions and reporting of income upon subsequent withdrawal. For persons also subject to U.S. taxation, deferral requires the filing of a Form 8891, "U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans." U.S. persons residing in Canada were often unaware of the implications of the RRSP and thus did not file the Form 8891. Late filing of the Form 8891 requires filing a private letter ruling request for relief under under Reg. Section 301.9100-3.
2. The issues raised by RRSPs are (i) whether, absent the Form 8891, the RRSP will be included in the in lieu of penalty base in OVDI; (ii) whether the income earned inside the RRSP is subject to current U.S. taxation in the year earned or whether the taxpayer may get some retroactive Form 8891 relief; and (iii) whether the U.S. sourced income inside the RRSP will be considered in determining the $10,000 relief.
3. There are other types of Canadian accounts with similar questions - "registered education savings plans, tax-free savings accounts, registered retirement income funds (RRIFs), and non-qualified deferred compensation arrangements." There is an issue here with the tax treaty technical explanation reference to a revenue procedure which in turn refers to, inter alia, RRSPs. These types of issues are also present for residents of other countries, atlhough they may not have the treaty technical explanation language.
4. Finally, the article says:
How to deal with RRSPs is on the IRS's radar, but it has not yet issued a consistent policy. As recently as a month ago, IRS staffers on the OVDI hotline said that account balances in RRSPs would be excluded from the base amount on which the miscellaneous offshore penalty is assessed if the taxpayer filed a timely Form 8891 or requested section 9100 relief for a late Form 8891. But the week of the original OVDI deadline (August 31), the message from hotline staffers apparently changed. They told callers that Forms 8891 filed with a request for section 9100 relief would not be enough to exclude the high RRSP account balance from the base for the offshore penalty but that it would be effective in deferring recognition of the investments in the account.
For now, the IRS seems to be considering its options. Ward [Robert E. Ward, principal of Robert E. Ward & Associates PC] said that in response to questions about the treatment of RRSPs, OVDI hotline personnel told him that "practitioners should make their best arguments as to what should or should not be included in the offshore penalty base, what should or should not be subject to U.S. income taxation, and what was or was not U.S.-source income."