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  1. The FBAR form wants you to prepare the form using the unintelligent, non-intuitive, and wildly misleading way. Highest balance for every account. The good thing about this is that after a few efforts the examining agent will start to distrust the aggregate highest balance on an FBAR because it is self-evidently wrong — because of the over-counting you describe. That means they distrust their own data. Yay.

  2. Hi Phil,
    Quick question (famous last words…). Some of my accounts are connected and money gets transferred back and forth. As a result, if I report the highest balance for each of these accounts at any point in the year it makes it appear I have far more money than I actually do. It’s the same money showing up in different accounts. If I was trying to get approved for a loan and prove I had $25,000 I couldn’t open up 5 accounts and transfer the same $5000 to each account and say look I have $25,000. So does the Fbar care about the actual true total amount or do I just report the highest balance in the year (because technically that amount was in that account) and make it look like I’m three times richer than I actually am?

  3. Phil, I am starting the Streamlined Domestic Offshore Disclosure process. I’ve been reading IRS doc for the last 5 days trying to make sense of everything. Luckily, I came across your blog. Thank you for clear and easy to understand explanations. I might just get some sleep tonight.

    I have a question on income distributions in my Canadian RRSP. “Income Distribution” was the actual wording in my statement with the gross amount, unit price, additional units for each distribution was listed as individual transactions . The income distributions were actually automatically re-invested back into the plan as additional shares. Since I did not get any money from the monthly distributions, the statement also do not state any Cap and/or income gain and realized Gain was left blank, I tend to think it is not a real distribution and should not have to pay tax on it. However, after 2 days of research without any clear answer, I am ready to throw in the towel and just claim it as interest and pay the tax and penalties. Am I wrong and possibly getting myself into more trouble later on by doing this?

  4. @Adam,

    You are correct in your thinking. I am not saying the conclusion is right or wrong — I don’t know enough about your situation — but the approach you are taking is the way I approach questions like this. Therefore, you are correct in your thinking! 🙂

    There are plenty of times when it is worth paying the 5% to get closure. If the numbers are small enough in your case (this is a judgment call for you personally) I think you are right to buy peace of mind. Thereafter, you cannot be buffaloed by the IRS’s fear-based marketing. You will be a free man.

    We are a Nation of Laws(TM) — quite unlike those countries where law enforcement is based on capricious application of informal and unwritten understandings hidden deep inside the bowels of bureaucracy. Heh. As if.

  5. Phil, Thank you for this summary. If a US taxpayer with an RRSP (only foreign account/asset they have), who never made a 8891 election and never filed 8938 or FBARs wanted to get their ducks in a row – as I review the US Taxpayer Streamlined Domestic Offshore Disclosure Program – it appears that there is a title 26 miscellaneous offshore penalty of 5% due. Whereas participating in the Delinquent FBAR and Delinquent International Information Return programs appear to require nearly all the same information as required under a Offshore Voluntary Disclosure (which provides that RRSP won’t be factored in for penalties), but without the guarantee of no audit or the explanation of reasonable cause. Why not participate in the Offshore Disclosure to ensure you won’t receive a penalty and get closure? It doesn’t appear to be that much more work. Thanks for you input.

  6. Greetings from 30th Street and 7th Avenue in NYC. I will have to get back to you later on that. Time to jump on the subway and head back to my hotel — I am about out of battery. 🙂

  7. Far be it from a Canadian accountant to know these answers–or my accountant.

    For Part VI of the 8938 in which I will list my RRSP accounts:
    How do I know if the issuer is a a corporation or trust? Both issuers are banks, so I suspect they are corporations. Since theses are Canadian banks, I imagine that the issuer is a foreign person for US tax purposes.

    Also, can I check 3d, “no tax it4em reported in Part 111 with respect to this asset” and report no summary information for my RRSPs in Part 111, #2? I have been filing 1040s and the 8891 in previous years.

    Thanks so much for your help.

  8. Wow everyone. Silly me. I wrote this post because I thought I could definitively answer all RRSP questions. Hehehe.

    We are in the midst of a big push to revamp the website. When we do that we will be promoting this blog post to its own standalone page, with more opportunities to answer all of the questions.

    We make no money on RRSP stuff. That is as it should be. RRSPs should be ridiculously easy to handle. Unfortunately, the government begs to differ.

  9. I have RRSPs. I have completed the filings for past years, but I don’t know how to fill out Part VI of 8938 for 2014.

    We are not supposed to fill out line 7. Does that mean that we have to fill out line 8 which states that the RRSP is not an interest in a foreign entity? Is the RRSP an issuer or a counterparty? How can I tell? I do know that one of my RRSPs is a corporation. Another is a trust.

    Does that mean I should say for c. that they are foreign PERSONS?

    Whew! At least I know their address.

    Thank you so much for your clear and heartfelt information!

  10. Thank you for your very informative blogs.
    I work for an international organization in NY, which has a 401(a) qualified “employees trust” that is a defined benefit plan. (The IRS issued an affirmative determination that it was a 401(a) plan.)
    The organization contributes 2/3 and the employee contributes 1/3 to the plan. The employee contribution is reported on a W-2 and is taxable in the year earned. The organization’s contribution is taxable upon distribution subject to Sec 72 annuity rules.
    The plan’s assets are held by two US global custodians. The custodians are US corporations based in the US, ie, domestic FIs.
    Since it is a 401(a) plan-even though it was technically not created in the US-is it reported on FinCen 114? Also, since only part of it is nonexempt and is not a 402(b) is it a grantor trust subject to 3520 and 3520-a and FinCen114? I have been told no but I am not sure and thought you might have some insight on this. Finally, how far back do information returns need to be filed under streamlined if no tax is owed?
    Thank you in advance for any assistance!

  11. @Steve,

    True. Another example is expatriation. The exit tax is a Federal-only tax. States don’t care.


  12. Regarding California not taxing unrealized gains, this is a good difference from the Federal treatment of PFICs. Not all the state differences are bad.

  13. Bravo, Phil!
    Thank you for writing such a clear, and delightfully humorous, explanation of the arcane RRSP mess.
    It’s the 4th post on the topic I’ve read, and the first that a non-lawyer, non-accountant like me can understand.
    What a gift! You’ve made my day!

  14. Everyone rolled over and played dead. Courts have ruled that the FBAR penalty is not excessive. FATCA serves the purposes of your Overlords and it will not go away. Indeed, expect other countries to follow suit. If I were to go Putin a limb I would predict that we are at the dawn of Citizenship-Based Taxation for most of the developed countries. Give it 20 years.

  15. Hi Phil, thanks very much for your blog. I am a U.S. citizen that has lived in Canada for 48 years. I have always filed my 1040’s and made the Tax treaty declaration many years ago. I retired 10 years ago and converted part of my RRSP to a Life Annuity and the remainder to an RRIF. I always report this income as Pension on Line 16a and 16b of the 1040. I use the Canadian Tax Credit on F1116 and have filled out 8891’s in the past and now the 8938. I have always reported a Bank Savings Account on 1040 Schedule B and on the FBAR Fincen 114 but not the annuity or the RRIF distributions. Am I supposed to report these on the Fincen 114 ? If so how do I fix prior years ?

  16. Hi, Phil:
    First of all, thank you very much for the informative post! I’m one of the Canadians living in the US that didn’t know about the filing requirements for RRSP’s. I didn’t know about any of the forms that were required ( old Form 8891, FinCen Form 114 etc). so I have filed extension this year in order to figure out what I need to do. Now I know I need to file form 8938 since I have Canadian RRSP and the value of my RRSP is more than $75,000 for 2014.
    my question is: Do I have to file FBAR as well, even though I will file form 8938? also, do I have to get the previous years of FBAR’s filed? if I filed these forms, will I get into trouble for not filing these in previous years? what is my choice? I would appreciate your advice.
    Thanks in advance.

  17. So what is the semi-nearly-somewhat nearly way to fix it I have not filed FinCen Form 114 for the past 5 years? I have been in US since 2000 and have been filing 8891 every year since 2004… and didn’t realize I need to include RRSP in FinCen until I found out that 8891 become obsolete :(. Is the fix able way is file prior year from (5 years) and pray that IRS wont come after me? Thanks very helpful website.

  18. Phil,

    First of all, you taught me a lot, thank you! I’m one of the Canadians living in the US that didn’t know about the filing requirements for RRSP’s. I didn’t know about any of the forms that were required ( Form 8891, FinCen Form 114 etc). I guess that I lucked out with the changes made last October. I’m exempt from filing 8938 since the value of the RRSP is less than $50K for 2014, and I’m married filing jointly. I’m currently in the process of getting the last 6 years of FBAR’s filed, so hopefully that goes well. My only question is where do you claim the RRSP? Is it only on Schedule B Part III, Foreign Accounts and Trusts? If so, that only tells the IRS that you have an account and it is from Canada.

    PS I also learned about the expatriate tax here!


  19. I do not remember finding situations where a person was ineligible under a treaty. Maybe it happens, but I have not seen it.

    Currency translation–if you are in the weeds and lost on what to do here, find a consistent method and keep using it. You are going to have trouble if you change methods to cherry-pick the best exchange rates all the time. Pick December 31 as your date. Technical answer: I don’t know off the top of my head. 🙂

  20. As I’m doing my first tax return as a US resident, I’ve only recently become aware of this issue but I guess it can’t hurt to try get this on the agenda of a few politicians for future years. Any suggestions of where I might find guidance around how the currency transalation of the pension growth should be handled and whether the growth is treated as a capital gain or ordinary income? Have you any experience of this with Canadian pensions where people were ineligible to claim the treaty exemption? Thanks.

  21. @Chino, I will be happy to help if the IRS gets stinky about the 8938s. 🙂

  22. Phil,

    I enjoyed your post.

    I have been religiously filing Form 8891, FinCen Form 114 and before that TD F 90-22.1 disclosing all my canadian RRSP accounts. I have not filed Form 8938 in the prior year tax returns because the tax software I used never steered me in this direction and I was not aware of this requirement. I know this sounds like the ‘ the dog ate my homework’ excuse. I was going to file this form with the 2014 return of course. If the IRS come after me for something that I have disclosed all along in form 8891 and in my filings with the Dept of Treasury – form TD F… and FinCen form 114, will you be able to help undo the mess?

    Thank you

    Chino Srinivasan

  23. I seriously doubt that we will see the Treasury Department provide any kind of blanket guidance for foreign pensions to create solutions such as we see for Canadian RRSPs. It seems that they do this on a country by country basis. Irish politicians need to be prodded to yell at their U.S. counterparts. 🙂

  24. Phil,

    Thanks for a very thorough article. I am amazed that the official guidance is so unclear and also by the fact that a US resident or citien could be required to pay US taxes on unidistributed growth in a foreign pension plan even if that person was unemployed for a period of time and therefore had no current income with which to pay the tax. Any advice for a US resident who moved to the US from Ireland in 2014 but has reasonably high savings in an Irish pension plan? Unfortunately, I don’t believe the US-Ireland tax treaty provides for relief on undistributed pension growth. Do you think there is any likelihood of a similar exemption to the Canadian treaty being established in the future for other countries and applied retrospectively and, if so, whether it might be better to take an approach of not considering foreign pension growth as taxable income? If not, are you aware of any guidelines regarding how the FX impact on foreign pension fund growth is calculated? I am hoping it is based off the change in USD value of the pension from the start to the end of the tax year as the other alternative of firstly calculating the growth in the fund in foreign currency (Euro) and converting to USD using an average FX rate for the year would result in a much higher USD amount given the drop in the EURUSD FX rate in 2014. Lastly, if an individual’s pension is invested solely in a managed equities fund which doesn’t make distributiions, do you know whether the growth in the pension funds value would be treated as a capital gain or ordinary income for US tax purposes?

    Thanks, James

  25. @HEC,

    The withdrawal from an RRSP is taxable income to you for U.S. purposes. It will flow through to Line 16 on Form 1040, and you will claim a foreign tax credit on Form 1116 for the Canadian tax withheld. I am not sure whether your RRSP administrator will issue a 1099-R or not. The bet is on “not”. You’re on your honor to report the income.

  26. For Phil

    Under the new rules, how does one report a withdrawal from an RRSP. The RRSP account had been properly reported according to the old rules (8891) in previous years. Do I use a 1099-R ? If so, it looks might arcane.

  27. For Phil,
    First of all thanks a lot for this post. It was very informative. I still however have one question- I am a Canadian citizen living in US for last 5 years. I fall in the category of eligible individual who had filled form 8891 for tax year 2010 and for subsequent tax years we were told by E&Y who did our taxes that we need to report ONLY our RESP- education fund on form 3520-A (since RESP is considered a TRUST) and not our RRSP. My question is going forward for TAX year -2014- quest-1- do I need to fill form 8898 if my RRSP saving are greater than 100,000?
    Second question- if I do fill up form 8898, where do I specify that these are my tax sheltered savings and not my income since I haven’t taken out that money yet.

  28. @stickman – Your strategy (ETFs etc.) is the right one. California only cares about actual cash transactions, not unrealized gains. You put those on Schedule CA in order to tell California how much income you realized. As you note, you can choose investment strategies to keep this at a minimum, so it is mostly an annoyance. 🙂

  29. Phil,

    Thank-you for the quick reply. Although it’s a pain to calculate these internal dividends or distributions the net California tax owed by most filers will be negligible so long as they do not trade any of the holdings in the RRSP (which would generate a realized capital gain) and it would be preferable to hold index funds or etf’s to limit any internal dividends or distributions. Your explanation makes sense to me – I had seen on other forums/boards on the net where people claimed that RRSP holders in California had to pay tax on unrealized capital gains (paper capital gains from increased stock or fund appreciation that has not been realized and will not be realized until the stock or fund is sold) – that made no sense to me.

  30. @stickman,

    California could give two flicks of a horse’s . . . tail for Federal tax law and the solution to the RRSP problem. You are correct — California wants to tax the internal dividends etc even if there is no distribution to the RRSP holder.

  31. Hi Phil:

    Your website and blog are very helpful. I have the following question: are California taxes due on unrealized gains in a Canada RRSP account ? If the holdings in the account remain untouched are the only California taxes due on dividends or distributions generated by the fund itself for the tax year in question ?

  32. Re the e-file for 8938. At least with the FreeFile Fillable Forms for 2014, there are three major limitations on this form: 1. You can only file one copy with your return, even a joint 1040. 2. You can only report details for one foreign asset on that one copy. And 3. it does not have continuation pages. So for those of us with more than one (e.g. Canadian spouses in the US permanently, each with an individual RRSP), my reading is that we *still* have to do paper filing. This is crushingly disappointing, as it really looked like it would finally be possible. (The annoying thing is that one of those is only worth ~$500. I guess it’s time to close it out and pay the tax and Canadian penalties, to leave just one, unless doing so would create even worse headaches.)

    If anyone knows of a (legit) way to make two accounts work with the current limitations, I would love to hear about it.

  33. California will never align itself with tax treaties. This flies directly in the face of the Culture of Californian Exceptionalism. 🙂

    An RRSP that just sits there is not likely to generate enormous California tax costs. I personally would suggest filing Schedule CA to report the income on the California tax return. The marginal cost is low and the sleep-at-night benefit is worthwhile.

    That said, the probability of RRSP visibility is negligible now that nothing is reported to the IRS on Form 8891. He said, gazing skyward and whistling a tune to himself.

  34. Thanks for the clear writeup Phil, much appreciated by those of us in this boat of absurdity!

    Do you have a recommendation for how to deal with nonsensical states such as California? Wait patiently for them to align with international tax treaties / reality? File each year as they request and pay the “best state in the union” use fee, and screw oneself further later in case the cleanup is similar to the fed one which screws you if you reported in the past? Move back home, or to a better state?

  35. @anotherbrick,

    Yep. Even though the IRS has done away with the Form 8891 (finally!) your basic point remains true. There are other things that Americans abroad must file that bork the e-file systems, forcing them to go back to paper.


  36. You forgot to mention the other horror show even for those of us who were doing it correctly… 8891 forced paper filing instead of e-filing, at least for the e-file systems I am aware of, which is big fat pain when you live in another country. I am really hoping to e-file now in 2015.

  37. Thanks for the clarification. I will update the post. You have improved the quality of information available to the world and so many thanks for that.


  38. Just to clarify Cdn taxation of RRSPs for US residents, the 15% rate aplies ONLY to periodic pension payments. Periodic is defined in the ITCIA Section 5.
    In essence this requires the payouts to be (a) NOT from an RRSP and (b) be less than twice the minimum prescribed annual payout or 10% of the account value (at start of year), which ever is greater.
    So, an RRSP payout, regardless of how small or the age of the beneficiary, will always be withheld at the 25% non-resident rate. An RRSP would need to be converted to a RRIF or other Income fund, and paid out at less than 10% per year, to be considered “periodic” and thus benefit from the 15% withholding rate.

  39. Phil,

    Good comprehensive post! But the discussion of Form 8891 needs to be modified in light of the new instructions for Form 8938 that just came out. These instructions appear to say that 8891 *cannot* be used for 2014 under any circumstances, even though there’s still a reference to it on 8938.

  40. The only reason that Canadian RRSPs have treaty protection is because a lot of U.S/Canadian taxpayers woke up and started yelling at the Canadian banks to give them Form 3520-A forms. Banks have political clout, so diplomacy happened and the treaty was amended to solve the problem. Also, the IRS started fielding a metric tonne of calls from irate/distraught taxpayers, so they got hit over the head with the Cluestick, too.

    This has not yet happened with Australia. Ultimately the only solution is a diplomatic solution–amending the income tax treaty between the two countries. The U.S. could care less, so the impetus must come from the Australian side.

    I am told that in the early 2000’s there was internal discussion at the IRS and Treasury Department to find a Keep It Simple solution for superannuations, but the idea was shot down by some Poohbah or another in the Treasury Department. That’s why the solution (that took a couple of decades to incubate) is Canadian only.

    Short answer: USA and its tax people know it’s a problem. Probability of a fix: nil. Recommended solution: ask the Australian ambassador to start yelling. Keep yelling for five or six years.

  41. Any idea if we’ll see something like this for Australian Superannuation accounts? These are essentially the same situation, except that by Australian law, Australians cannot close Superannuation accounts until age 60 — they can’t even move the money to the US if they want to (unlike RRSPs, which can be closed at any time).

  42. Good news for Canadians, then.

    Nothing at all, though, for residents and/or citizens of any of the other approx 68 countries with which the US has a tax treaty .

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Tax laws change over time, and the information in this post above may be less accurate today than it was at the time of the last revision. This post is not tax advice for your specific situation. Please contact an international tax professional to get personalized advice for your situation.