PART II RRSP cost basis for US taxation - david ingram replies -Sarah Palin, Vice President - John McCain - US bankruptcies caus

Gary Gauvin has answered this succinctly and clearly.  - Gary is an enrolled Agent in Rockwall Texas.   He is also an old partner of mine in an office we had in Ottawa.  (the office still has my name on it but Neither of us have had anything to do with it for at least ten years now).

If you type "income tax expert" (with or without quotes"") into Google, Gary always comes up in the top three, sometimes number one.

The only potential problem is whether you had been reporting the existence of the RRSP accounts on an annual basis on forms 8891 and TDF 90-22.1, which are the bottom two questions, 7 and 8 on schedule B.  My advice is to back file those two forms for six years if you missed them.

david ingram - Gary's reply follows:

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Gary Gauvin wrote:

Any inheritance is always valued at market value on the date of death, for US tax purposes. An RRSP would be no different. Yes, you get the step up in basis.

The CPA doesn’t have a clue how to handle this correctly.

Gary

Gary P Gauvin LLC
International Income Tax
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Rockwall TX 75032
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www.garygauvin.com

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From: [email protected] [mailto:[email protected]] On Behalf Of US / Canada Income Tax Help - CEN-TAPEDE
Sent: Saturday, August 30, 2008 4:21 AM
To: CENTAPEDE-ca; centapede-us; CENTAPEDE; jurock
Subject: US CANADA RRSP cost basis for US taxation - david ingram replies -Sarah Palin, Vice President - John McCain - US bankruptcies caused by medical bills

QUESTION:

I have a RRSP to which both my late husband (Canadian) and I (American) contributed while living in Canada.  He died in 1995 and I inherited his RRSP. I moved back to

the USA in 1996. I withdrew about 30% ($200,000) of the RRSP in 2007.  My accountant initially thought the cost basis in the RRSP would be the amount of our

 contributions to the plan, but now she says that she can only include my contributions, and not my husband's (since I filed US tax returns during those years, but my Canadian

 husband did not).  Is this correct, or are there legitimate alternative ways to calculate cost basis?  I also had thought that perhaps a "step up" in cost basis for my husband's

 RRSP as of the date of his death might be possible, since he was not a US citizen and therefore his RRSP would not have been subject to US tax if I had not inherited it.  This

 is an important issue for me as there is still a significant amount of money in the RRSP and I am considering withdrawals, but need to know how it will be taxed first.

Thanks! If you can be of help to me I would surely appreciate it.

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david ingram replies:

I am amazed.  In the 45 years that I have been in this business, this is the first time, this situation has come up and I  have likely been involved in several hundred deaths in several situations similar to yours.

Only including your contributions makes no sense to me whatsoever.   If a  form 8891 had been  properly completed completed each year  (It did not exist until 4 years ago), both his contributions AND yours would have been included.  If you had followed the rules in REV-PROC 89-45, both contributions would have been included. 

Unless your accountant has a specific ruling or court case to the contrary, I believe that both contributions should be included when calculating the cost base. 

This question was originally rejected by the system but i happened to look at it while watching Larry King's coverage of Alaska Governor's Sarah Palin's being added to the McCain ticket.

There was no onus on your husband to report the payments to a spousal RRSP.  The account was yours once he made the contribution and since he was giving you less than $100,000 per year, there was NO REASON FOR YOU TO FILL IN FORM 3520 on an annual basis.

The net effect of the spousal RRSP was that he gave you $2,000, 5,000 or some other figure which was deposited to your account each year and would have shown up as a deposit "IF" form 8891 had existed at the time.

In my opinion, all deposits made add to the adjusted cost base for US tax purposes.  However, I could be wrong and am answering this at 1:45 AM from memory without looking anything up. To make up for that, I am sending this out to the list of about 13,000 people.  Maybe, perhaps, someone else will have a different opinion because of their own experience or education. 
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