Canadian citizen but US permanent resident (with green card) -- what to do with Canadian RRSPs?

My_question_is: Applicable to both US and Canada
Subject:        Canadian citizen but US permanent resident (with green
card) -- what to do with Canadian RRSPs?
Expert:         taxman at centa.com
Date:           Friday January 26, 2007
Time:           12:33 PM -0500
QUESTION:
Hi!
I'm hoping that you can help me.
I am a Canadian Citizen. When I got married to my US citizen husband and
moved to the US, I left my RRSPs in Canada. I now have my permanent resident
(and green card) status in the US and was wondering what to do with my
Canadian RRSPs:
1. Should I cash them in? (They amount to just over $100K Canadian.)
If so, after the 25% withholding, I'll transfer the balance to my US bank.
2. Will I have to file any Federal or Provincial tax return for that year?
(I thought I was done with that.)
3. Will I have to do anything special on my US tax return for the year that
I cash in my RRSPs? (ie. claim any "income" from the RRSP cash-in)
Thanks sooooo much for your help. I'm feeling very lost in this.
--------------------------------------------
david ingram replies:
When you left Canada, you should have filed a "departing Canada" return with
forms 1161, 1243 and 1244 if you left assets behind.
When you file your US return as MFS or a joint return with your husband, the
bottom two questions on Schedule B ask
1:	Do you have foreign accounts?
2.	Were you the Grantor to a foreign trust?
A Canadian RRSP is both of these and requires the filling out of US forms T
D F 90-22.1 and 8891.  The penalties for not filling them out are:  Up to
$500,000 PLUS up to 5 tears in Jail AND 35% of the amount in the RRSP PLUS
5% for each year you do not/did not report it.
For 2006 and 2007, those forms MUST be filled in.  If you are in California,
any internal earnings which are exempted on Form 8891 ARE taxable on your
California return and are added on Schedule CA.  All other states recognize
the 8891 exemption.
If you cash them in in 2007, the tax bill to Canada is 25% - end of story.
But, any internal earnings earned from the date you moved to the US until
the day you cashed them in are now taxable on your US return on (usually)
schedule B and or schedule D.  You can claim a pro-rata share of the 25% tax
paid to Canada on US form 1116.
It is almost as complicated as a Hollywood engagement.
-----------------------------
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