PLR 1027019: IRS granted extra time for a Canadian RRSP tax-deferral election

Plain-English summary

The IRS granted a U.S. resident 60 days to elect to defer U.S. federal income taxation on income accrued in Canadian Registered Retirement Savings Plans. The taxpayer had not known that an election was needed under Article XVIII(7) of the U.S.-Canada Income Tax Convention and relied on a tax preparer who failed to advise her about the election. The IRS found that she acted reasonably and in good faith and allowed the late election under Rev. Proc. 2002-23. The election would be irrevocable without the Commissioner's consent, and the taxpayer would have to file Form 8891 for each RRSP covered by the election. The ruling did not determine whether she was otherwise eligible.

Ruling snapshot

• Question: Could the taxpayer make a late treaty election to defer U.S. tax on income accrued in Canadian RRSPs?
• Outcome: approved
• Key authorities: U.S.-Canada Income Tax Convention, Art. XVIII(7); Treas. Reg. § 301.9100-3; Rev. Proc. 2002-23

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201027019 Third Party Communication: None
Release Date: 7/9/2010 Date of Communication: Not Applicable
Index Number: 9100.22-00, 9114.03-06
Person To Contact:
------------------------------- ----------------------, ID No. -------------
---------------------- Telephone Number:
----------------------------------------- ---------------------
Refer Reply To:
CC:INTL
PLR-143208-09
Date:
March 22, 2010

TY: --------------

Legend

A = --------------------------

Company = ---------------------------

RRSPs = ---------------------------------------------------------------

Tax Years = ---------------

Year 1 = -------

Year 2 = -------

Year 3 = -------

Year 4 = -------

Dear----------------:

This is in reply to a letter dated September 21, 2009, requesting an extension of time
under Treas. Reg. § 301.9100-3 for A to elect the provisions of Rev. Proc. 2002-23,
2002-1 C.B. 744, for Tax Years.

The ruling contained in this letter is based upon information and representations
submitted by the taxpayer and accompanied by a penalty of perjury statement executed
by an appropriate party. While this office has not verified any of the material submitted
PLR-143208-09 2

in support of the requested rulings, it is subject to verification on examination. The
information submitted for consideration is substantially as set forth below.

FACTS

A established certain Canadian Registered Retirement Savings Plans (RRSPs) in Year

1. A has been a U.S. resident since Year 2. At all times during A’s ownership of the
   RRSPs, she was not aware that she had to make an election to defer U.S. taxation on
   income accrued in her RRSPs based on Article XVIII(7) of the United States-Canada
   Income Tax Convention (the “Treaty”).

In Year 3, A engaged the services of Company to prepare her returns for Year 3 and all
subsequent tax returns, and relied on Company with respect to her personal income tax
matters and the preparation of her federal income tax returns, attachments, and
elections related to such returns. In Year 4, Company reviewed its files and discovered
that it had not informed A of the need to make an election to defer income tax under
Article XVIII(7) of the Treaty. After A was notified of the need to make an election to
benefit from the Treaty, she immediately took action to request an extension of time to
file an election under Treas. Reg. §301.9100-3.

As of the date of this ruling request, the Internal Revenue Service has not
communicated with A in any way regarding her RRSPs.

RULING REQUESTED

A requests the consent of the Commissioner of the Internal Revenue Service for an
extension of time under Treas. Reg. § 301.9100-3 to make an election pursuant to Rev.
Proc. 2002-23, to defer U.S. federal income taxation on income accrued in her RRSPs,
as provided for in Article XVIII(7) of the Treaty for Tax Years.

LAW AND ANALYSIS

Treas. Reg. § 301.9100-1(c) provides that the Commissioner has discretion to grant a
taxpayer a reasonable extension of time, under the rules set forth in Treas. Reg. §
301.9100-3, to make a regulatory election under all subtitles of the Internal Revenue
Code, except subtitles E, G, H, and I.

Treas. Reg. § 301.9100 -1(b) provides that an election includes an application for relief
in respect of tax, and defines a regulatory election as an election whose due date is
prescribed by a regulation, a revenue ruling, revenue procedure, notice, or
announcement.

Treas. Reg. § 301.9100-3(a) provides that requests for relief subject to this section will
be granted when the taxpayer provides the evidence (including affidavits described in
PLR-143208-09 3

Treas. Reg. § 301.9100-3(e)) to establish to the satisfaction of the Commissioner that
the taxpayer acted reasonably and in good faith, and the grant of relief will not prejudice
the interests of the Government.

In the present situation, the election provided in Rev. Proc. 2002-23 is a regulatory
election within the meaning of Treas. Reg. § 301.9100-1(b). Therefore, the
Commissioner has discretionary authority under Treas. Reg. § 301.9100–1(c) to grant A
an extension of time, provided that A satisfies the standards set forth in Treas. Reg. §
301.9100-3(a).

Based solely on the information submitted and representations made, we conclude that
A satisfies the standards of Treas. Reg. § 301.9100-3. Accordingly, A is granted an
extension of time until 60 days from the date of this ruling letter to elect the provisions
Rev. Proc. 2002-23 for Tax Years. As provided in Treas. Reg. § 301.9100-1(a), the
granting of an extension of time is not a determination that A is otherwise eligible to
make the above-described election.

Pursuant to section 4.07 of Rev. Proc. 2002-23, the election once made cannot be
revoked except with the consent of the Commissioner. For Tax Years and all
subsequent tax years until the tax year in which a final distribution is made from the
RRSPs, A must file Form 8891 for each RRSP for which the election is made.

Except as expressly provided herein, no opinion is expressed or implied concerning the
tax consequences of any aspect of any transaction or item discussed or referenced in
this letter.

A copy of this letter must be attached to A's U.S. income tax return for the year in which
A obtained the ruling and should be associated with A’s amended returns for Tax Years.

This letter ruling is directed only to the taxpayer who requested it. Section 6110(k)(3)
provides that it may not be used or cited as precedent.

Pursuant to a power of attorney on file with this office, a copy of this letter will be sent to
your authorized representative.
PLR-143208-09 4

                     Sincerely,

                     _______________
                     Quyen Huynh
                     Senior Counsel, Branch 1
                     Office of Associate Chief Counsel
                     (International)

Enclosure:
Copy for 6110 purposes