I am making the trip in early May (06-09 May, 2012, to be precise) to Washington DC with the State Bar of California’s annual Tax Section pilgrimage to the IRS, Treasury Department, and Congress.
Every year the Tax Section presents papers on various topics of tax law. Basically, we’re saying “There oughta be a law” or “There shouldn’t oughta be a law” to the appropriate Federal body in order to solve persistent problems in tax law or tax procedure that we see in our day-to-day work.
RRSPs need fixing
This year, I have co-authored a paper with
Steven Walker about RRSPs. Something needs fixing. We are proposing a simple shortcut fix.
Canadians who live in the United States almost always have RRSPs. They don’t make contributions, they don’t take distributions. The accounts just sit there. They are unaware of hypertechnical tax requirements that apply to the RRSPs — Form 8891 and Form TD F 90-22.1 to be specific.
The only way to fix prior year errors is to apply for a private letter ruling from the IRS. The IRS charges a filing fee of $2,000 and you have to hire someone like our firm to do the legal work. The cost is
too damn high. (Warning: YouTube).
I’m solving the cost problem in two ways. One is by asking the government to create a simple, cost-free procedure to give people a way to fix their own problems.
For instance, if you screw up your S corporation election (“I formed a corporation but I forgot to elect to treat it as an S corporation, please let me time-travel to the past and fix this”) the IRS has an easy-peasy solution.
Similarly, if you screw up your “check-the-box” election (see Form 8832) the IRS has an easy-peasy method to time-travel to the past and fix it. In both cases you don’t have to do this private letter ruling stuff that costs a metric ton of money and takes months and months to do.
Why shouldn’t there be an easy-peasy solution for RRSPs? “I moved to the USA in 2004 and started filing my U.S. tax returns and paying my taxes. I had no idea that my RRSP had all sorts of special filing requirements. I didn’t take any distributions, and I didn’t make any contributions. I’d like to fix the problem but the risks are just to damn high.”
Steve and I think a simple, cost-free, “do-it-yourself” solution is a good idea for taxpayers. They save money, they keep fully compliant with U.S. tax law, and they don’t suffer unnecessary stress.
And we think it is a good idea for the IRS. These RRSP applications for private letter rulings are low-value busy work for the lawyers in Chief Counsel’s office. They should be able to spend their time doing more productive–and fun–projects.
We think the IRS could implement such a solution by issuing a Revenue Procedure.
Meanwhile, an RRSP workshop
If and when the IRS implements an easy, quick, and cheap solution for RRSP problems, all of you out there will be golden. In the meantime, you need a solution. Our firm has done a metric ton of these private letter requests for fixing RRSPs. It’s expensive. So in July we’re going to put on a one-day workshop in Pasadena, in person and live. Maximum 10 participants, so we can give each person full attention. Walk in with a problem. Walk out at the end of the day fully prepared to do a DIY private letter ruling application to solve your own RRSP problem.
If you’re interested, email me. My email address is phil (then the @ sign) followed by the domain name for this website. Or go to the
contact page and tell us you want to be one of the 10 people at the workshop.
Meet me in DC
I’ll be staying at the
Army-Navy Club (not the golf course; the other one). I have a lot of commitments as a member of the State Bar delegation. And I will be having dinner with my brother-in-law and sister-in-law, who live in Alexandria. But I’ll have some free time. Email me if you’d like to meet up.
Good point! Looking forward to hear about your discussion with the IRS in May. I hope the IRS will consider your advice.
@bruno,
If people are doing this, tell them to return to the other forum to report the end result.
The correct end result should be that the Austin service center (where they file the amended returns) will bounce the Form 1040X as untimely. I think they are telling the first half of the story: “I boarded the Titanic for a glorious ocean cruise to New York . . . ”
The IRS service center used to — incorrectly — accept Form 1040X with a late-filed Form 8891 attached. So a few people might have had a lucky break. They (the people running the Austin service center) got yelled at and told to stop accepting a 1040X with a late 8891.
If they are still accepting Form 1040X with a late Form 8891 attached, well, what can I tell you? Graciously accept your good fortune, keep your mouth shut, and carry on. 🙂
I read from other forum about quite disclosure. Meaning people are back filing 8891 together with 1040x without using private letter ruling.
Unfortunately all of these regulations capture those US citizens who came to Canada (or pick any other country!!) when they were 2 months old and never lived in the US. I recognize that these individuals have the right to enter and live in the US but what if that is not their intention. They never want to go and live the US. There should be an easy program that allows these types of individuals the opportunity to OPT OUT of being considered US persons for all of this tax compliance. Give them the ‘choice’ – retain your rights for residency and comply with the US taxation OR give up your residency rights. I’m guessing most would give up the residency rights!
I agree the US is going to have a hard time applying penalities without a backlash from the local government.
At the end of the day, if you don’t have any assets or financial connections with the US, the IRS is going to have a tough time enforcing the fines. The IRS can’t put leins on foreign properties or attach your foreign wages so where back to the border situation again.
They’d be better off going for lower hanging fruit.
You’re absolutely right. There is a desperate need for clear, simple rules. Superannuations from Australia would be a good place to start.
The easiest solution for an unreported RRSP is to do nothing, nothing, nothing. If the United States ever finds out about it, let them apply a draconian fine in violation of the Eighth Amendment (let’s say 300% of the contents) and set off a major diplomatic incident with Canada. Then we can just tear up the NAFTA agreement, Canada can sell its oil to China and India instead, and we can all live happily ever after.
In addition, how about an easy paperwork remedy for folk coming to the US from a country other than Canada? Canada’s arguably the “easy” case, after all. Retirement plans from any other country held by US residents tend to be an order of magnitude harder even than RRSPs. In many cases there’s no clear guidance from the IRS at all, and often disagreement even among professionals. Unlike immigrants from Canada, those coming from other countries may well have English only as their second or third language.