Before April 15, 2002, and despite the fact that tax deferral for RRSPs was provided by the US Canada tax treaty of September 26, 1980, RRSPs didn’t have specific forms, hence 3520s and 3520-As were used by the minority of taxpayers wanting to be compliant with the rules relating to having an interest in foreign trusts. To these, a form 8833 was also required in order to take the treaty position to defer taxation of the income within the RRSP.
Birth date: April 15, 2002
Revenue Procedure 2002-23 was the IRS’ (late) response to Article XVIII(7) of the Canada–U.S. Tax Treaty, to simplify the otherwise onerous reporting requirements. It created Form 8891, which allows U.S. Persons with RRSPs to avoid the brain damage previously suffered by U.S. Persons with RRSPs filing forms 3520, 3520-A & 8833
Future
For RRSPs
Based on Revenue Procedure 2014-55, there is nothing else to be done other than report the income in a fashion consistent with your election (time when earned within RRSP if no treaty election, or on accumulated earnings at time of withdrawal if treaty election). See also The IRS makes it easier for RRSPs to be elected as tax-deferred under US law
For RESPs & TFSAs
Nothing new, still a foreign trust, still not covered by treaty or revenue procedure. As such, taxpayers will still have to file forms 3520 and substitute 3520-A. Hey IRS do you think that among the few who know the existence of such forms, that they’ll endure the brain damage to actually file them? Just saying…
For non-Canadian
retirement plan.
That’s where the greatest irony/difference in treatment is seen. Canadian RRSPs now get tax-deferral (should be noted: not on contributions but just on investment income within RRSP) and taxpayer would get compliant with the reporting requirement by doing : Nothing (aside from regular FBAR / form 8938 requirement).
Compare that with the treatment of retirement plans of other countries:
– No treaty benefit:
Investment income has to be reported and taxed as earned
– Still a foreign trust:
Forms 3520 and substitute 3520-A to file. I mean hey IRS, have you looked at these forms with questions like “Will any person (other than the U.S. transferor or the foreign trust) be treated as the owner of the transferred assets after the transfer?”, not to forget my favorite “Attach an explanation of the facts and law (including the section of the Internal Revenue Code) that establishes that the foreign trust (or portion of the foreign trust) is treated for U.S. tax principles as owned by the U.S. person.”,
I mean it sounds like stuff taken straight out of a law school exam – when it actually is questions that one has to fill out if they have a foreign retirement account – which may be mandatory in some countries (2nd pillier in Switzerland for instance)
