IRS backtracks on RRSP, RRIF rules

(November 28, 2003) The U.S. Internal Revenue Service has changed course on filing requirements for RRSP and RRIF account holders living in America and Americans living in Canada, stating that it will not require the submission of two complicated tax forms.

The IRS had announced in the spring it was clamping down on offshore trusts, requiring RRSP and RRIF holders to submit forms as long as six pages for each of their registered accounts.

Incomplete filings would have been subject to stiff penalties, causing a delegation of Canadian tax experts to head to Washington to lobby against the changes.

“We are delighted that the IRS and Treasury have changed their minds and come up with a brand-new reporting regime which is much, much simpler for Canadians to comply with,” said Jamie Golombek, vice-president of taxation and estate planning at AIM Trimark. “They’ve basically granted exactly what we were asking for.

“I think they’ve realized that RRSPs and RRIFs are not your typical offshore trust and they’re not being used to avoid income tax for U.S. persons and therefore the onerous requirements of forms 3520 and 3520a are simply not required.”

A new form will be made available which will simplify the filing procedure for the 2004 tax year.

“They have officially said that for the 2003 tax year, there is definitely no requirement to file forms 3520 and 3520a, which were very complicated, onerous and really inapplicable to Canadian RRSPs and RRIFs,” says Golombek. “As long as you make that tax deferral election and include certain information, that’s all you need to do. That’s certainly great news.”

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To read the IRS document in PDF format, click here.

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Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com