American $500,000 penalty October 15th DEADLINE for

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QUESTION:
I am a Canadian having lived in the US since 1995 and just this year obtained US citizenship.  I have another 10-15 years of work before retiring and will likely spend most of our time in the US.
My spouse and I are considering withdrawing our RRSPs from Canada and moving
the proceeds to the US.  I understand there is a 25% Canadian withholding
tax for doing so.
1. Are there any other taxes due on this transaction in Canada?
2. What is the tax treatment on this withdrawal under US tax law?
3. If you care to comment - are we foregoing much by cashing in on the
RRSPs?  The Cdn dollar looks strong and it seems like a good time to convert
to US dollars.
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david ingram replies:
1.    There are no more Canadian taxes.
2.    The earnings of the plan AFTER you entered the USA are taxable on your US return. In addition, there "might" be an additional 10% penalty on line 58 - see instructions for form 5329 at http://www.irs.gov/pub/irs-pdf/i5329.pdf and form 5329 itself at http://www.irs.gov/pub/irs-fill/f5329.pdf.  
You must also file form 3520 when making a withdrawal from a Canadian RRSP and should have reported the existence of your Canadian RRSP on forms TD F 90-22.1 and  3520A or reported the internal earnings under REV.PROC 2002-23 
goto www.centa.com click on newsletters - click on 2003 - click on August to see these regulations and find out about the penalties. 
Failure to file form TD F 90-22.1 by itself can result in a penalty of up to $500,000 PLUS 5 years in jail - see bottom of form at  http://www.irs.gov/pub/irs-fill/f9022-1.pdf
Failure to file forms 3520 or 3520A or deal with REV.PROC 2002-23 can result in penalties of 35% of the amount withdrawn plus 5% of the principal per year of failure to report - see  www.centa.com click on newsletters - click on 2003 - click on August to see these regulations and find out about the penalties.
3.    My advice is that if you have a use for the money, take it out and use it now.  If you are only going to try and re-invest it, I think you should leave it in your Canadian account.  If you are hamstrung by the inability to move stocks or re-invest because of the state you live in and your RRSP advisor's inability to deal with the problem, that is a different matter.
I also think that in the long term, the Canadian Dollar will go back up to 90 cents rather than down to 60.  If there are significant funds involved, you could hedge your bets by taking out 1/2 and leaving half.
Remember, the deadline for dealing with the 3520,  3520A or REV.PROC 2002-23 is October 15th - less than two weeks away.
david ingram
We are happy to help file these for $300 Canadian for the first RRSP and $100.00 Canadian for each extra RRSP. 
1 RRSP = $300.00
2 RRSP = $400.00
3. RRSP = $500.00
David Ingram of the CEN-TA REALTY  Group
US / Canada / Mexico tax and working Visa Specialists
US / Canada Real Estate Specialists
108-100 Park Royal South
West Vancouver, BC, CANADA, V7T 1A2
(604) 980-0321 - 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."
Be ALERT,  the world needs more "lerts"
 
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