I am genuinely grateful to see such strong participation from Intuit employees to help clients with a complex subject. Thank you for that. Unfortunately the experts here, along with others on similar TT Community Q&A threads, differ in ways that affect how the reporting should be done: gross income vs net of taxes; passive vs general income on the 1116; 1099-R substitute or not; etc. Would it be possible to reach a consensus so there isn't a wide variety of methods in what the IRS receives, as well as reducing client exposure to errors the IRS would catch?
Note that the TurboTax "interview" process has a line for Canadian plans under the Retirement section of Wages & Income. Therefore, I reported my RRSP income this way (gross amount because it is all taxable, converted to USD using the exchange rate that was applied to the net amount I actually received). Then I let TT handle it. The income appeared on line 5a of the 1040, as expected; if it hadn't, TT - and perhaps the IRS - would get hung up on the lack of a valid TIN, which few foreign payors have. ("Try entering ones" seems a bit dodgy since it isn't true, which makes the final 1040 signature declaration perjurious.) After that, I followed the instructions for doing the 1116. For whatever it's worth, most cross-border accountants who have posted on the subject say to categorize it as Passive Income, but a few do say General Income instead.
Re IRS Topic 425, linked above: it seems to pertain to rental and real estate activities, so I'm not clear on its applicability here. I would like to note, though, that many RRSP/RRIF holders living in the U.S. cannot make any modifications to their investments due to SEC broker-licensing restrictions. Some waivers have been granted but they don't cover everyone. For those of us affected this way, the only "active and material participation" consists of initiating a withdrawal - and even that isn't an active choice with a RRIF.
