U.S. reporting requirements for Canadian RRSPs/RRIFs.

• Author: Sullivan, Neil A.J.
• Position: Registered retirement savings plans, registered retirement income funds

As requested by the AICPA Tax Division's Form 3520 Task Force in August 2003, (1) Notice 2003-75 (2) sets forth a simplified reporting regime for taxpayers with interests in Canadian registered retirement savings plans (RRSPs) and registered retirement income funds (RRIFs), effective for tax years beginning after 2002.

A Canadian RRSP is similar to a Sec. 401(k) plan. Canadian employers often contribute on a tax-deferred basis to an account in an employee's name. The difference is that current-year earnings of an RRSP or RRIF need to be reported on Form 1040, unless an affirmative election is made to defer tax until funds are distributed.

Scope

This reporting regime is in lieu of filing obligations under Sec. 6048 (Forms 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, and 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner) that otherwise apply to U.S. citizens and resident aliens with interests in RRSPs and RRIFs and to custodians of such plans.

Notice 2003-75 discusses a new form being developed under the authority of Sec. 6001, which U.S. citizens and resident aliens with RRSP and RRIF interests will have to attach to Form 1040. The new form will coordinate the reporting rules for electing under Article XVIII(7), Pensions and Annuities, of the U.S.-Canada income tax treaty, to defer U.S. income taxation of income accrued in an RRSP or RRIF. Interim reporting rules are set forth in Rev. Proc. 2002-23, (3) Section 4. On Aug. 26, 2004, the IRS issued a draft Form 8891, U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans. At press time, the Service was still reviewing the comments received and had not yet released the final form and instructions.

Rules

For current-year undistributed earnings (i.e., interest, dividends or capital gains), one can either (1) report income currently on Form 1040, Schedule B or D or (2) elect to defer reporting income until funds are distributed to the account holder. The election is made by attaching a statement to the return containing information prescribed in Rev. Proc. 2002-23, Section 4 and Notice 2003-75, Section 2.02.

Section 2.03 of Notice 2003-75 sets forth additional interim disclosure requirements for beneficiaries not electing to defer Federal income tax on current-year undistributed earnings. Section 2.04 describes the interim reporting rules for annuitants of RRSPs and RRIFs.

The recipient...