U.S. citizen with RRSPs to report on US forms 3520 or

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Hello,
I have recently been informed by my Canadian mutual fund company with whom I have an RRSP, that I should be reporting income earned in the plan to the IRS, and that as of 2002 tax year and forward, the IRS will be enforcing the requirement.  They further state that I have two options - 
1) to report the income on form 3520 by August 15, 2003 
or 
2) elect to defer the taxation on income earned until such time as I take a distribution. 
Certainly option 2 sounds easier at the moment, but I am uncertain how I make this election, and if I have to do it every year from here on in. Also, is there any circumstance which would make option 1 preferable? Is there any other paperwork that I need to complete? Will I be alright starting this reporting in 2002 and not backtracking? 
I also have a small GIC RRSP ($4700), which I would have rolled over into the mutual funds, except apparently until recently I was not allowed to make such a transaction (U.S. securities exchange commission rules, I believe) as I am residing in the. U. S.  Does it make any sense to treat this one any differently?
I should point out that I very dutifully filled out both Canadian and U.S. tax forms for the years I resided in Canada and afterward, until I had cashed out all Canadian assets aside from the RRSPs.  It just didn't occur to me that I had to report the retirement funds.
So what advice can you offer? 
Thanks.
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David Ingram replies:
Assuming that you have your tax return or extensions filed on time, the due date has been extended to Oct 15, 2003.
It is far easier to follow option 2 above.  The 3520 is a six hour form for some.  
We will do these for you for a fee of $300 Canadian for the first RRSP and $100 per extra RRSP, You should be able to follow the process after that in subsequent years unless you have made a withdrawal in which case you must filke the form 3520.
You can find more information and/or work on doing it yourself in our centapede archives at:
http://www.centa.com/CEN-TAPEDE/centapede/2003-May/000046.html
Because the penalties are so extreme, I recommend that you use someone like us this first year.
You must also file form TDF-90 (look at the bottom question about foreign accounts on the bottom of Schedule B on your 1040) for each of your RRSP's and any opther Canadian (foreign) financial accounts you have.  Failure to file your form TDF-90 for each account can bear a penalty of up to $500,000 PLUS 5 years in jail.  Our record for silliness was a 105 year old lady with a $10,000 penalty for failure to report "the existence" of a Royal Bank of Canada account in Edgemont Village in North Vancouver.
We need the Dec 31st, 2001 and Dec 31st 2002 annual statements for each RRSP to fulfill these requirements.
You can email or fax or mail us the information to:
David Ingram of the CEN-TA REALTY  Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
US/CANADA RRSP Specialists
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 913-9133 - Fax 913-9123 [email protected]
www.centa.com www.david-ingram.com
Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader and the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent and appropriately qualified legal practitioner or tax specialist in connection with personal or business affairs such as at www.centa.com. If you forward this message, this disclaimer must be included."
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