Need to still file 8938 for Canadian RRSP every year EVEN if one elected tax deferral on form 8891 back in 2013?

[kwt89]

I have a question that's been very challenging to find the correct answer regarding if there is definitely a need to file form 8938 for a RRSP under this circumstance:

- US Green Card living in US since 2009.  Has Canadian RRSP since 2005 ($20K in 2005, now $60K USD in 2021), and DID file 8891 every year from 2009 up until 8891's discontinuation in 2014.

- Has reported the RRSP every year to date on FBAR/finCEN 114.

- Has answered YES to year 2013's 8891 form to question 6a: "Have you previously made an election under Article XVIII(7) of the U.S.-Canada income tax treaty to defer U.S. income tax on the undistributed earnings of the plan?"

Does form 8938 still need filing every year?  (again, taking into account that the election of deferring US income tax going forward was answered YES in form 889)   If form 8938 IS still required, how to best correct years past of not filing form 8938 and what are the possible likely penalties?

[DMarkM1]

It depends.  Did the value during the tax year exceed the threshold amounts for your filing status as outlined below for your situation?  See the Form 8938 instructions for more details. The election to defer taxes until distribution does not affect the filing of this form.    

"Unmarried taxpayers or married taxpayers filing separate returns. If you are not married or married filing separately, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year. 

Married taxpayers filing a joint income tax return. If you are married and you and your spouse file a joint income tax return, you satisfy the reporting threshold only if the total value of your specified foreign financial assets is more than $100,000 on the last day of the tax year or more than $150,000 at any time during the tax year." 

For the years that you exceeded the thresholds, you need to file the form 8938.  The penalty is $10,000 initially and then $10,000 for each 30-day period after IRS notifies you of a failure to file up to a maximum penalty of $50,000.  However you can avoid the penalties if you can substantiate an "honest mistake."   Here is an extract from the Form 8938 instructions.

"Reasonable Cause Exception: No penalty will be imposed if you fail to file Form 8938 or to disclose one or more specified foreign financial assets on Form 8938 and the failure is due to reasonable cause and not to willful neglect. You must affirmatively show the facts that support a reasonable cause claim. The determination of whether a failure to disclose a specified foreign financial asset on Form 8938 was due to reasonable cause and not due to willful neglect will be determined on a case-by-case basis, taking into account all pertinent facts and circumstances."

[kwt89]

Ah, I see.  It's the word "specified" in the expression "specified foreign financial asset" which is causing me confusion.  Say that RRSP foreign financial assets=  $20,000, and non-RRSP foreign financial assets= $55,000.   Is RRSP considered "one" specified foreign financial asset (since it's tax differed), and non-RRSP considered a "second" specified foreign financial asset (which is taxable)?    That's how I assumed the meaning of "specified" (i.e there are 2 groups of financial assets, one taxable, and another tax differed, each with separate threshold), so only non-RRSPs were reported in 8938 as it was that portion >=$50,000. Was I correct or incorrect?

If incorrect, I see there is a way to (hopefully) get a reasonable cause exception through a "disclosure".  Does "disclosure" mean to write a letter to IRS and put into along with my income tax returns explaining my incorrect assumption?  Also, would it be effective I write the letter myself, or need a tax professional to write on my behalf?   (All FBARs have been filed correctly with all RRSP and non-RRSP accounts)

[DMarkM1]

Tax deferred status is not a factor in "Specified Foreign Assets."  Here is a link to an IRS table that may help. I believe the "Financial Account held in a foreign institution" probably fits your asset.  That is reportable on the 8938. 

Additionally, it is the "aggregate" of all specified foreign assets that determines whether you meet the reporting threshold.  

The disclosure is a letter to the IRS and I recommend a tax professional assist with that disclosure letter.