May 7, 2012 - Phil Hodgen

IRS meetings today about RRSPs

OK, possums. Today was a day of meetings, followed by dinner with my brother- and sister-in-law (hi, John and Jane) at The Old Ebbitt Grill. Now I’m back in my room at the Army and Navy Club on Farragut Square in Washington DC.

I promised a wrap-up blog post today on my meetings at the IRS, asking for ways to fix the problem so many people have with RRSPs and paperwork the IRS wants you to file, but about which you had no clue. This is a long post. Grab a cup of coffee. Or a martini.


The State Bar of California Tax Section and the Los Angeles County Bar Association Tax Section have an annual trip to Washington DC each year. We go to the Internal Revenue Service, Department of the Treasury, and Capitol Hill, where we meet with the Joint Committee on Taxation staffers and others, depending on what can be arranged.

This is my third time on the trip. I spent three years on the State Bar of California Tax Section’s Executive Committee. I was an author of a paper on one trip, and a mere chaperone on another.

We–tax lawyers in California–prepare a bunch of papers on a variety of tax topics. These are things we see in our day-to-day lives–problems that we think are worth fixing.

The paper

Last fall, Steve Walker (a current member of the Executive Committee of the State Bar of California Tax Section) called me to discuss possible paper topics for this year’s trip to Washington. I ran down a few ideas and the RRSP idea was one of them. (The horrible mess that is currency gains and losses as applied to mere mortals rather than multinationals was another idea).

Steve liked the RRSP idea, proposed it to the Committee and it was approved. He had planned to write the paper but graciously offered me co-author status if I wanted it. Hell, yes. 🙂

Steve wrote the first draft. I worked on revisions. The final version was reviewed by Rufus Rhoades.

Office of Associate Chief Counsel

The people at the Office of Associate Chief Counsel (International, Branch 1) were gracious enough to say “Yes” when we called a few months ago to set up the meeting. Today was that day. Just so you know where they fit in, the Office of Chief Counsel is a bunch of lawyers whose client is the Internal Revenue Service. They are in-house counsel for the IRS.

Steve Walker, John Harbin (the incoming President of the Los Angeles County Bar Association Tax Section), and I went to the meeting. (John was our minder. He was there to make sure we didn’t get lost, that our shoes were shined, etc.)

I don’t know that it is fair to identify the people attending the meeting for the government. I frankly don’t know the protocol here. There is no magic and no mystery. I’d just rather be polite and not identify them publicly until I know the rules of the road.

The topic at hand was RRSPs and how to clean them up if you never knew about the magic Form 8891 before. One of the people in the meeting was integrally involved the the work of the Fifth Protocol to the Canada/USA income tax treaty, from which Form 8891 finally evolved to take some of the pressure off Canadians with RRSPs who found themselves in a pickle with the IRS.

Let me just say that the people in the room were entirely sympathetic to the problem at hand, and the concerns of you, the taxpayers.

The problem

The problem is this. You are a Canadian. You have an RRSP. You move to the United States to live. Several years later you hear that your RRSP has some U.S. tax paperwork requirements that you had never heard of. Panicking, you call your favorite international tax lawyer. (Hint: THAT WOULD BE ME!).

I tell you about a little piece of paper. Form 8891. If you attach this to your tax return, you can inoculate your RRSP from all harm.

Here’s what I tell you to do. First, file your current year tax returns correctly. That means Form 8891, Form 8938 (if it applies), Form TD F 90-22.1, and don’t forget to check the ridiculously anal-retentive little boxes at the bottom of Schedule B. The Hippocratic Oath says “First, do no harm.” The tax lawyer’s equivalent is “First, don’t f— things up more than they are right now.”

Then I tell you “Sorry, if you want to fix the prior years–those years when you should have filed that paperwork but didn’t–it is going to be an expensive and unsatisfyingly incomplete solution.”

The current solution

The only current way–according to IRS published guidance–to fix the problem of “I should have filed Form 8891 but I didn’t” is to apply for a Private Letter Ruling. In plain English, this means you pay the IRS $2,000 as a user fee, pay me a mega-ton of money for legal fees, and I put together a request to the government to please give you private relief from a rule that bars you from fixing the problem. You’re too late, but if you jump through these hoops and get the ruling, the IRS says you can fix the problem.

You get the ruling, then you file amended tax returns going back six or eight years (depending on what the IRS gives you–the policies seem to have varied over the last year, and we have been variously told that they’d give us six years of relief or–currently–eight). You attach the Form 8891 to those amended tax returns. You attach a copy of the letter ruling.

You have solved one of the problems. Your RRSP is now treated like a pension in the USA. You won’t get taxed on that RRSP until you take a distribution.


Now you have a related problem. If you didn’t know about Form 8891, you probably didn’t know about Form TD F 90-22.1. Yes, the dreaded FBAR, scourge of tax evaders, bloated plutocrats, cocaine traffickers, terrorists, and Canadian grannies.

Your Private Letter Ruling from the IRS does not give you relief from the potential of a penalty for failure to file FBARs.

You may reasonably ask, “What kind of church is the government running?” You thought you bought a Papal Dispensation that promised escape from Purgatory. Nope.

It’s simple. A Papal Dispensation in the form of a Private Letter Ruling is not enough. Sinners must spend yet more time in Purgatory. So the possibility of massive penalties remains — $10,000 per year for “non willful” failures to file the form. Or maybe zero. Or maybe 50% of the balance of the RRSP each year times six years. It’s all up to the government to decide.

So you prepare a bunch of late FBAR forms reporting that you had an RRSP, sign them, and drop them in the mail. You quiver in dread and anticipation, sure that you will get a letter in the mail. And that fear will not go away for as much as 6 years.

That, my friends, is the “solution” that exists today.

The solution sucks the farts out of dead seagulls.

The proposal

The proposal that Steve and I gave in our paper was simple–dispense with the requirement of getting a Private Letter Ruling. Just let people fix the past all by themselves. File Form 1040X (the amended tax return form) with Form 8891 attached for the relevant prior years. The End.

The reaction at International, Branch 1

The people from Branch 1 are hugely sympathetic. (I hope they will correct me if I am wrong in my assessment). Frankly, processing the Private Letter Ruling Requests for RRSPs is a giant pile of zero-payoff busy-work for them. They are sympathetic, too, to the burden on you, the taxpayer.

They are on your side. Remember that. If they can possibly fix this, they will do so. But they face internal pressures that prevent this, or at least will slow it down.

They need help

If we can help them, they may be able to push through a fix for this problem.

In order to get something published at the IRS, there are about forty-bazillion different different offices that must review and approve what you want to do. That’s standard bureaucracy in action.

In order to get the bureaucracy into gear, you must get grab it by the neck and get its attention. Right now, the IRS’s attention is focused on FATCA. So getting a bunch of different divisions of the IRS to sign off on a Revenue Procedure (which could be written in an afternoon) is impossible unless you can make RRSPs more enthralling or annoying (and thus worthy of solving) than FATCA stuff.

That’s the reality of the situation.

What you can do

I am putting out a call to everyone reading this–and everyone you know–to tell your story to the IRS. Your “I’d love to fix my RRSP stuff but you’re making it too hard” story. I’ll tell you how to do this in a bit.

What I can do: legal stuff

There is a second thing that holds up the IRS (specifically Office of Associate Chief Counsel (International, Branch 1)) from fixing the problem. They need some sort of legal authority to rely on in order to give you the relief you need–the ability to fix your RRSPs without spending a mega-ton of money on applying for a Private Letter Ruling.

That’s my job.

I told them the ideas today in the meeting. I’m going to write it up, all lawyerly ‘n stuff, for the people in the meeting today. I blogged the legal authority for how the IRS can let you fix your RRSP a few days ago. That’s what I’m going to punch up and make presentable.

What else I can do: help you make an avalanche

There is another thing I can do. Remember I said that we have to make RRSPs look more interesting to solve that FATCA? Here’s my second devious plan. I can help people–by the hundreds, I hope–prepare their own application for a Private Letter Ruling. This still means you have a $2,000 filing fee. But you will get your result. You will get your ruling.

And the thud of hundreds of new applications for Private Letter Rulings falling on the very few desks of the lawyers in Branch 1 might even be heard downstairs in Room 3000, where the Commissioner lives.

Let’s hold that off, for the moment. I don’t want to inflict pain on the people I met with today, and I don’t see that it is all that fabulous to tell you to spend the $2,000 filing fee just to make a statement.

But it would be one hell of a statement.

The reason we have Form 8891 (Canadian pension plans are the only ones in the world with their own handy-dandy simplified form to sanitize them for U.S. tax purposes) is because there was a MASSIVE amount of noise from Canadians in the late 90’s and early 2000’s about this problem.

Making more noise is what we need to do again. And an avalanche of useless paperwork might get the Commissioner’s attention. Of course, he’s announced that he’s pulling an Elvis and is leaving the building, so he might not care one little bit. But let’s give him the benefit of the doubt.


This is a long blog post. Maybe worthy of Tomi Ahonen’s long-form prose. Here’s where we are so far:

1. The lawyers of Associate Chief Counsel are inclined to help.

2. They need legal arguments they can use to justify what they do.

3. I will supply some legal arguments to them.

4. They need some PR in order to get the solution pushed through the system.

5. This means you need to tell the IRS what’s happening in RRSP-land. (Again, I’ll tell you how to do this shortly).

6. We can also supply some PR in the form of work overload at the IRS.

7. I can show people how to file do-it-yourself private letter ruling applications. I hope this can generate hundreds of applications.

If successful, the “fix” would be some simple paperwork that you can file on your own, without hiring a lawyer. Minimal cost. No brain damage. Your RRSP is fully U.S. tax compliant.

The F-ing FBAR

That leaves the second part of the problem to be solved. This is the FBAR problem.

The likelihood of an explicit and published blanket exception to the FBAR penalties for RRSPs is a number that asymptotically approaches zero. Or, in English? N.F.W.

Sorry. Until the government decides what to do here, you’ve got a problem. You have stress and anxiety that you’re going to have to live with.

My thought — THIS IS NOT LEGAL ADVICE SO DON’T GO SAYING “PHIL SAID I SHOULD DO THIS” is to run straight into the shitstorm. Sorry. It had to be said. (Have you noticed how all of a sudden I got all potty-mouthed ‘n stuff when I started talking about the FBAR penalties?)

“Run straight into your shitstorm” is basically my motto for how I prefer to run my life. If there is a problem, don’t avoid it. Wade in. Deal with it. I am sometimes good at this, sometimes not so good.

This means that for a regular person with a regular life and an RRSP the best strategy might be (REMEMBER!!!! THIS ISN’T LEGAL ADVICE!!!!) to file a bunch of late FBAR forms. And wait for the government to act. Because I don’t think they will.

If the government wants to impose FBAR penalties on you, they have the burden of proof. And it would be an act of spectacularly poor judgment if the government picked out your FBAR filing and filed a Federal court case to tag you with FBAR penalties.

Diplomatic hilarity would ensue. Trust me. Even the ever-polite Canadian politicians would be inclined to fling poo at the IRS.

My feeling is that there is an informal, unspoken policy at the IRS to not pursue ordinary people filing late FBARs. They dare not say this out loud. And even if this is not the case at IRS World HQ, I sense that most of the Revenue Agents have no stomach for amputating huge chunks of a regular person’s retirement savings.


Those of you who are about to die, we salute you. I cannot say out loud what I think.

But wait! That’s not all!

After our meeting with the Office of Associate Chief Counsel, Steve, John, and I went to the Taxpayer Advocate‘s office and had a meeting with Herself. Nina Olson. No, it wasn’t just us. It was the whole delegation. We were just the ones arriving fashionably late.

Nina Olson knows the FBAR problem and the RRSP problem. She too is sympathetic to the problems that taxpayers are having here, both inside and outside the various voluntary disclosure programs.

We told our story to her. What the problem was. What we see as the solution. My sense is that if it is possible, the Taxpayer Advocate’s office would lend its considerable moral weight to getting a solution here.

Oh yeah. Shameless pimping

I forgot to tell you. In both meetings, I told the people at the IRS about IBS. Told them the URL. They wrote it down.

You guys have been kind to me. It is the least I can do — to tell the lawyers at Chief Counsel’s Office inside the IRS, and Nina Olson herself — to go look at the Isaac Brock Society website to get a sense of what is really happening in the arena of RRSPs, IRS tax policy, expatriations, etc.

So Petros, go check your server logs and see if you’re getting U.S. government IP addresses browsing the site. 🙂

You deserve it. You’re doing the Lord’s work.

Here’s what to do

We need stories. We need reports from the field. Canadians with RRSPs that are noncompliant with U.S. tax rules specifically. In other words, we need PR ammo.

Stories that tell the Service what’s going on. That regular people prepare their own tax returns using TurboTax. That TurboTax doesn’t (or at least it didn’t until this year) flag the possibility of RRSPs to unsuspecting souls. Etc. Whatever your story, please tell it.

Be articulate. Be plain. It doesn’t matter. Just remember the three “B’s” of public speaking: be honest, be brief, and be seated.

Because I don’t have a better idea than this, I suggest you address your letters to the Commissioner and the National Taxpayer Advocate at the same time. Send a copy of the Office of Associate Chief Counsel (International, Branch 1).

Here are the addresses:

Commissioner Douglas Shulman
Internal Revenue Service
1111 Constitution Avenue NW
Washington DC 20224

Nina E. Olson
National Taxpayer Advocate
1111 Constitution Avenue NW
Washington DC 20224

M. Grace Fleeman
Senior Technical Reviewer
Office of Associate Chief Counsel (International, Branch 1)
1111 Constitution Avenue NW
Washington DC 20224

Also, why not send a copy to me or to the Isaac Brock Society people for publication? If you send it here I will hide your name and identifying information. I bet the Isaac Brock Society people would do the same thing if you asked them.

I don’t care where it goes, but what I do want is to have a centralized archive so we can show the critical mass achieved from the efforts all of you put in. I will work with IBS to coordinate this.

If you need help writing your letter, email me at phil at the domain name for this blog.


That’s a long blog post. And it’s after midnight in Washington DC and (aaaaargh!) they’re doing jackhammer work in the street below my window. Time for bed. I’m up early tomorrow for more meetings. Let’s hope I get some sleep.

DIY PLR Workshop

I have a tentatively-scheduled workshop for a do-it-yourself private letter ruling application “how to” training. It is for mid-July in Pasadena. I plan to limit it to 10 people.

This plan may change. If you want to be kept up to date on the workshop, please sign up for the special-purpose mailing list. Here is the link to sign up. The only email you will get on that mailing list will be related to RRSP workshops. Nothing else. When that workshop is finished, I am going to throw away the list and all of the email addresses in it.

So be sure to sign up for my flagship email newsletter, Jell-O Shots, if you want the regular updates.