It’s not often the IRS reduces the information taxpayers need to report with their tax return. Luckily for Canadians, however, the IRS did just that yesterday when it announced Canadians no longer need to report their RRSP and RRIF accounts on Form 8891.
Before getting too excited that Form 8891 is now obsolete, keep in mind that these accounts still may need to be reported on Form 8938 and FinCen 114.
The main benefit of yesterday’s IRS rule change is to provide retroactive relief to Canadians who did not properly make an election under the U.S.-Canada tax treaty that enables U.S. citizens and resident aliens to defer tax on income accruing in their RRSP or RRIF until it is distributed.
Under this change, many Americans and Canadians with RRSP and RRIF accounts now automatically qualify for tax deferral similar to that available to participants in U.S. individual retirement accounts (IRAs) and 401(k) plans. In general, U.S. citizens and resident aliens qualify for this special treatment as long as they filed and continue to file U.S. returns for any year they held an interest in an RRSP or RRIF and include any distributions as income on their U.S. returns.