IRS Grants Automatic Treaty Relief for Canadian RRSPs and RRIFs (10/8/14)

The IRS has adopted a revenue procedure to provide relief for U.S. taxpayers with certain Canadian retirement plans (RRSPs and RRIFs).  Previously, provided an election under the U.S. Canada double tax treaty was made, those plans were exempt from current taxation for contributions and internal build-up, provided that the taxpayer made an election, with taxation deferred until distribution (much like U.S. IRAs).  The IRS was liberal in granting relief for late elections.  The relief is now automatic in most cases without an election provided that the taxpayer has otherwise complied with the U.S. filing requirements.

The press release is IR-2014-97 (10/7/14), here.  Key excerpts (virtually all) of the notice summarizing the new revenue procedure are:

The Internal Revenue Service today made it easier for taxpayers who hold interests in either of two popular Canadian retirement plans to get favorable U.S. tax treatment and took additional steps to simplify procedures for U.S. taxpayers with these plans. 

As part of this, the IRS provided retroactive relief to eligible taxpayers who failed to properly choose this benefit in the past. In addition, the IRS is eliminating a special annual reporting requirement that has long applied to taxpayers with these retirement plans. 

Under this change, many Americans and Canadians with 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 general, U.S. citizens and resident aliens qualify for this special treatment as long as they filed and continue to file U.S. returns for any year they held an interest in an RRSP or RRIF and include any distributions as income on their U.S. returns. 

The change relates to a longstanding provision in the U.S.-Canada tax treaty that enables U.S. citizens and resident aliens to 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 would get tax deferral by attaching Form 8891 to their return and choosing this tax treaty benefit, something many eligible taxpayers failed to do. Before today'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 also failed to comply with another requirement; namely that they file Form 8891 each year reporting details about each RRSP and RRIF, including contributions made, income earned and distributions made. This requirement applied regardless of whether they chose the special tax treatment. The IRS is eliminating Form 8891, and taxpayers are no longer required to file this form for any year, past or present. 

The revenue procedure does not modify any other U.S. reporting requirements that may apply under the Bank Secrecy Act (BSA) and section 6038D. See FinCEN Form 114 due by June 30 of each year, and Form 8938 attached to a U.S. income tax return for more information about the reporting requirements under the BSA and section 6038D. Different reporting thresholds and special rules apply to each of these forms.

Rev. Proc. 2014-55 is here.

Canada Implements Offshore Tax Whistleblower Program (1/16/14)

Canada is reported to have implemented a tax whistleblower process, including a hotline, to report offshore tax evaders.  See Jason Fekete, Tax cheats whistleblower hotline up and running (Canada.com 1/15/14), here.  Excerpts:

Revenue Minister Kerry-Lynne Findlay announced Wednesday the government has opened the tipster line for people with information on offshore tax evaders. 

The whistleblower program — now dubbed the Offshore Tax Informant Program (OTIP) — will pay cash rewards to snitches with tips on international tax evasion. 

The CRA will enter into a contract with tipsters and pay them between five and 15 per cent of the federal tax collected for quality information leading to tax assessments and collection of more than $100,000 in additional federal taxes.

I guess the next question is whether Canada will have the negotiating position to bring the banks -- particularly Swiss banks -- to the table for "discussions."

Article for Canadians with Unreported Canadian Retirement Plans and Accounts (2/6/13)

Hale Sheppard has a new article that should be of interest to Canadians.  The article is introduced on  his firm's Blog,  IRS Introduces Two Unique Remedies for U.S. Persons with Unreported Canadian Retirement Plans and Accounts, here.  The article can be linked to in that blog entry or can be linked here.  The summary of the article is:

Life isn’t fair.  Neither is the IRS’s most recent settlement initiative designed to entice taxpayers to proactively resolve their international tax non-compliance, such as failing to report foreign income, foreign accounts, foreign entities, etc.  In both instances, some people win and some people lose, often with little or no regard to what is equitable.  Among those basking in the benefits of favored status lately are certain Canadians, residing either in the United States or the homeland, who have neglected their tax-related obligations with Uncle Sam.  Indeed, thanks to recent modifications to the offshore voluntary disclosure program (“OVDP”) and the introduction of a special “streamline procedure” for select expatriates, many Canadians are able to resolve their tax transgressions on terms vastly superior to those applicable to the masses.  This is particularly true for persons with specific types of Canadian retirement plans.  The article, published in the most recent edition of the International Tax Journal, analyzes the unique options available to Canadians.

IRS Will Give Canadians Some Breaks!!! (12/2/11)

There is breaking news that the IRS will give some breaks to Canadians in the application of the penalty regimes.  I have not had time to assimilate the information, so just now link to some news items as they come in.  I will later add such summaries and comments as appropriate,'

Addendum 12/3/11:

As reported, the relief is only for U.S. / Canadian dual citizens living in Canada.  I can understand why such dual citizens living in the U.S. would be excluded, but what about such dual citizens whose center of gravity was in Canada but they resided outside both the U.S. and Canada?

The second test they must past is that they owe no U.S. taxes.  Under the two initiatives to date, U.S. persons (regardless of dual nationality) could be penalized even if they owed no U.S. tax (usually because of foreign tax credits or related deductions that might have offset any offshore income); if they failed to report the income even though owing no additional tax, they were subject to penalty.  So this is some relief that would be available.

Finally, this is from an article published to on Tax Notes Today (Kristen A. Parillo, IRS to Minimize Penalties on Dual U.S.-Canadian Citizens Unaware of U.S. Tax Filing Obligations, 2011 TNT 233-9)):

While the IRS spokesperson didn't provide any details on what that guidance will provide, Jacobson said in the Globe and Mail interview that the IRS will make it clear that if a dual citizen living in Canada files a U.S. tax return late and owes no taxes, there will be no penalties for failure to file. The guidance also will provide that those who were unaware of the FBAR filing requirement will be able to file previous reports now, along with a statement explaining why they're filing late, and that no penalty will be imposed if the IRS determines that there is reasonable cause. Finally, individuals who took part in the IRS's 2011 offshore voluntary disclosure initiative or in the 2009 special offshore voluntary disclosure program will be able to get back penalties already paid, according to Jacobson. 

Jacobson said in the interview that it is unclear how many years of back taxes will be covered or what would happen to people who owe relatively small amounts of tax to the IRS.

The news items are:

Barrie McKenna, U.S. taxman to go easy on American residents in Canada (The Globe and Mail 12/2/11), here.

Kristen A. Parillo, IRS to Minimize Penalties on Dual U.S.-Canadian Citizens Unaware of U.S. Tax Filing Obligations, 2011 TNT 233-9)