WHAT IS Form 8891

Form 8891 was an Internal Revenue Service (IRS) requirement for U.S. citizens or residents who participated in or received annuities from a registered Canadian retirement savings plan (RRSP) or income fund (RRIF). It was used to report any contributions made, earnings accrued but not distributed and distributions received from these plans, but mainly it was used to elect to defer U.S. tax on RRSPs or RRIFs.

BREAKING DOWN Form 8891

Form 8891 is no longer required by the IRS. It removed this annual reporting requirement for U.S. individuals that held interests in RRSPs or RRIFs to defer the income earned within the plan until it is distributed. 

A registered retirement savings plan is a savings and investing vehicle for employees and the self-employed in Canada. Pre-tax money is placed into a RRSP and grows tax free until withdrawal, at which time it is taxed at the marginal rate. A registered retirement income fund is similar to an annuity contract that pays out income to a beneficiary or a number of beneficiaries. To fund retirement, RRSP holders often roll over their RRSPs into an RRIF.

As part of that Form 8891 termination process, the IRS provided retroactive relief to eligible taxpayers who failed to properly file the appropriate forms in the past. The IRS found that many individuals failed to properly prepare and file Form 8891 each year and report details about each of their RRSPs or RRIFs including contributions made, income earned, distributions received and the year-end balance. If the forms were not properly filed with the annual U.S. income tax return, income earned in their RRSP or RRIF could have been taxable, even if it was not distributed.

The change relates to a longstanding provision in the U.S.-Canada tax treaty that enables U.S. citizens and resident aliens to defer tax on income accruing in their RRSP or RRIF until it is distributed. Otherwise, U.S. tax is due each year on this income, even if it is not distributed.

As a result of the change, many U.S.-dwelling with RRSPs or RRIFs automatically qualified for tax deferrals similar to those prominent in other retirement vehicles, such as Individual Retirement Accounts (IRAs) and 401(k) plans. Most U.S.-dwelling individuals qualified for the deferral as long as they filed U.S. income tax returns.

Other Form 8891 Considerations

Standard U.S. reporting requirements that may apply under the Bank Secrecy Act (BSA) and section 6038D were not affected by the government’s decision to eliminate Form 8891.