The IRS, aiming to facilitate U.S. treatment regarding two popular Canadian retirement plans, has simplified procedures for Americans in those plans.
Many Americans and Canadians with registered retirement savings plans and registered retirement income funds now automatically qualify for tax deferral similar to that available to participants in U.S. IRAs and 401(k) plans.
The agency also provided retroactive relief to eligible taxpayers who failed to properly choose this benefit in the past, and is eliminating an annual reporting requirement long applied to these plans.
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 distribution. (Otherwise, U.S. tax comes due each year on this income, even if it is not distributed.)
In the past, some taxpayers also secured deferral by attaching a Form 8891 to their return and choosing the tax treaty benefit. Many eligible taxpayers failed to do. Before the change, a primary way to retroactively obtain the treaty benefit was to request a private letter ruling from the IRS, which the agency itself admits was usually “a costly and often time-consuming process.”
U.S. citizens and resident aliens generally qualify for this 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 IRS is also eliminating the Form 8891.
Further details are in Revenue Procedure 2014-55.
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