Up to now the way to fix an unreported RRSP problem was by incurring brain damage, spending lots of money, or suffering through terminal uncertainty and fear. Or all of the above.
I kid, I kid. Your choices were:
All of this was required because the IRS would not let you file an amended tax return, attach Form 8891 to report your RRSP, and be done with it.
Guess what. Things have changed for the better. I’m serious.
We confirmed today in a phone call with Chief Counsel’s office that amended tax returns will be allowed with Form 8891 attached. You can fix your “Oops I never knew I was supposed to report my RRSP to the IRS” problems easily and simply.
Here is what to do:
Bingo you’re done.
Except you still have an FBAR problem. (For those of you who don’t live and die by tax jargon, that means Form TD F 90-22.1). If you didn’t file Form 8891 to report the existence of your RRSP, you probably didn’t list the RRSP on your FBAR forms, if you filed them.
An RRSP is a foreign financial account that should be reported on an FBAR. If you didn’t file an FBAR, you should have. If you filed an FBAR and didn’t report the RRSP, you should have.
You still face potential penalties for this FBAR violation. The Form 1040X fix you just did? It does not eliminate this risk.
I think it is a low probability risk for most people. Let’s say you filed a late FBAR form, and the only thing you put on it was your RRSP. If the IRS sent you a penalty letter for the late reporting, I am highly confident that a diplomatic shitstorm would erupt. And the effluent would be firehosed the direction of 1111 Constitution Avenue NW, Washington DC.
As a practical matter I think the IRS should be unwilling to open the can of whoop-ass that is an assertion of penalties on RRSPs. “USA seizes retirement savings from Canadian retirees.” Imagine that headline in Canadian newspapers.
Fix your unreported RRSP problems with amended tax returns. It’s so simple you don’t even need to hire someone to do it. Thank God for sanity; I’m guessing it arose due to the efforts of someone in Branch 1 (International) of Chief Counsel’s office. Call 202-622-3880 if you want to talk to them and verify this information.
This is not legal advice to you at all and you’d be a damned fool to listen to me, but for small RRSPs you’re likely safe if you file Form TD F 90-22.1 late. Go hire a lawyer and get specific advice and assess your penalty risk before you do this.