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.
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.
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.
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.