The Investment Dealers Association of Canada has issued a notice updating the filing requirements required by the Internal Revenue Service for U.S. citizens with registered plans.

A notice issued by the IRS in April subjected US citizens and residents to complex U.S. filing requirements if they owned, contributed to, or made withdrawals from RRSPs or RRIFs. Failure to file the forms could have resulted in severe penalties.

On August 1, the IRS issued a new notice that provides some relief to those who at least attempt to comply. “However, those who ignore the filing requirements may still be assessed severe penalties,” the IDA warns.

The IDA says that the latest notice from the IRS acknowledges that, although Treasury and the IRS are working toward implementation of an alternative, simplified reporting regime for RRSPs and RRIFs for future taxable years, additional relief from current reporting requirements should be provided to RRSPs and RRIFs and their beneficiaries.

Specifically, no Form 3520 or 3520-A is required to be filed for the 2002 tax year if the beneficiary of a RRSP or RRIF: makes an appropriate election pursuant to the Canada/U.S. Income Tax Treaty to defer the income in the plan, and received no distribution from the plan during the 2002 tax year.

The IRS notice also provides that if an individual, RRSP, or RRIF has filed these forms, but has failed to provide all appropriate information, the IRS may request the individual or plan to provide the information.

However, unless the IRS requests this information and doesn’t receive it, no individual or plan that has filed the forms will be subject to failure-to-file penalties.

Where an individual has filed his or her 2002 return on a timely basis without making the election, and that individual would like to make the election for the 2002 tax year, he or she may make the election by filing an amended 2002 return by October 15.

“It appears that the IRS recognizes that US citizens and residents with RRSPs and RRIFs may not have all the required information to file complete and accurate information returns,” the IDA says. “Consequently, the August Notice appears to provide relief by protecting the filer from severe penalties if they make a reasonable effort to complete the returns.”