On October 7, 2014, the IRS issued a new revenue procedure, Rev Proc. 2014-55, which eliminates the requirement to attach Form 8891 to an individual income tax return for deferral of tax as a result of an individual's ownership of a Canadian Registered Retirement Savings Plans (RRSP) and Registered Retirement Income Funds (RRIF).
In general, an individual who is a citizen or resident of the United States and who is a beneficiary of a Canadian retirement plan, would be taxed on the income accrued in the retirement plan in the United States, even though the income would not be taxable in Canada until distributed. Under the original Revenue Procedure, Rev Proc. 2002-23, an individual had to attach an election to his/her timely filed individual income tax return to elect to defer the income under the United States-Canada tax treaty, Article VII of the Convention. To simplify the procedures, the IRS released Form 8891 in 2004 which allowed an individual to include his/her contributions, distributions, plan balance, and an election to defer the tax on the accrued income of the retirement plan on one simplified form instead of multiple elections and forms.
Under the new revenue procedure, an individual who needed to make the election on Form 8891 to defer the income under Article VII will no longer have to include the election to treat the accrued income on the retirement plan as deferred income for U.S. tax purposes. Income treatment is similar to that of U.S. 401(k) plans, where the income of the retirement plan is taxable upon distribution from the plan. The deferral will continue until the taxpayer makes a distribution from the plan and includes in income the taxable portion of the distribution that has not been previously taxed by the United States. This revenue procedure does not eliminate a taxpayer's requirement to disclose ownership of the Foreign Account on FINCEN 114, Report of Foreign Bank and Financial Account (Commonly referred to as the FBAR), or Form 8938, Statement of Specified Foreign Financial Assets, subject to reporting threshold amounts.
If you have questions about the new revenue procedure and how it will affect your individual tax situation, please contact one of the Schneider Downs tax professionals for assistance.
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