Update on RRSPs in OVDI (9/26/11)

This blog entry reviews a Tax Notes Today article -- Marie Sapirie, Clarification of Retirement Plans Need in OVDI, 2011 TNT 186-4 (9/26/11):

1. RRSPs are similar to U.S. IRAs permitting Canadian tax deductions and reporting of income upon subsequent withdrawal. For persons also subject to U.S. taxation, deferral requires the filing of a Form 8891, "U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans."  U.S. persons residing in Canada were often unaware of the implications of the RRSP and thus did not file the Form 8891. Late filing of the Form 8891 requires filing a private letter ruling request for relief under under Reg. Section 301.9100-3.

2. The issues raised by RRSPs are (i) whether, absent the Form 8891, the RRSP will be included in the in lieu of penalty base in OVDI; (ii) whether the income earned inside the RRSP is subject to current U.S. taxation in the year earned or whether the taxpayer may get some retroactive Form 8891 relief; and (iii) whether the U.S. sourced income inside the RRSP will be considered in determining the $10,000 relief.
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