The New York State Society of CPAs has written to the Internal Revenue Service asking for a simplified method of electing deferral of U.S. taxation on Canadian Registered Retirement Savings Plans.

The NYSSCPA is also requesting additional guidance on the taxation of foreign retirement and pension plans due to consumer confusion over the filing procedures required by such programs.

As noted in a comment letter sent to the IRS on May 3, the IRS must consider mechanisms and policies for addressing potential inequities associated with foreign retirement plans.

“It is not the taxpayers’ intent to avoid taxation,” said the NYSSCPA International Taxation Committee Chair Melissa Gillespie. “One of the biggest issues we are seeing is a general lack of familiarity with foreign pensions and retirement plans and the related U.S. taxation.”

As noted in the Society’s comment letter, U.S. taxpayers with retirement or pension plans in Canada and other countries are genuinely surprised to discover that these plans, which they often cannot access and are meant to be invested and growing tax free, could be subject to U.S. tax and U.S. tax reporting. 

The NYSSCPA is asking the IRS to simplify the election mechanism that saves US taxpayers from current U.S. taxation as the Canadian retirement savings plan derives income. The NYSSCPA also asked the IRS to address how to more equitably treat retirement savings plans from countries that do not have tax treaties similar to the U.S. – Canada agreement. 

Currently, those who fail to timely file the election with respect to a Canadian retirement savings plan are either taxed on the retirement plan’s income or must apply for a private letter ruling from the IRS to make a late election.  According to the comment letter, private letter rulings can be prohibitively expensive.

In order to address this issue, the NYSSCPA suggested that the IRS either treat all relevant taxpayers as having made the election, unless the taxpayer opts out, or create a streamlined process to facilitate late elections rather than requiring a full private letter ruling from the IRS.

For those with retirement savings accounts in countries that do not currently have specific tax treaties with the U.S., the NYSSCPA is asking the IRS to put forth legislation that would provide for the deferral of tax on foreign retirement plans which had compulsory participation required by the foreign country.

“Many taxpayers and tax-return preparers are unaware of the election mechanism and requirements,” said International Taxation Committee member Ryan Dudley. “To have no practical way to correct this oversight, when the result is accelerated tax on retirement savings, would be unjust.”

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