PLR 1123024: IRS grants more time for Canada treaty elections on foreign retirement plans

Plain-English summary

Two people who became U.S. residents after living in Canada had not made the elections required to defer U.S. tax on income accrued in their Canadian RRSPs and a DPSP. The IRS granted them 60 days from the date of the ruling letter to make the elections under Rev. Proc. 2002-23, using the extension rules in Treas. Reg. § 301.9100-3. The IRS found that they acted reasonably and in good faith after a new tax professional identified the missed elections, and that granting relief would not prejudice the government. The ruling also required future Form 8891 filings for the relevant plans until final distributions, and stated that the extension did not determine their underlying eligibility.

Ruling snapshot

• Question: May the taxpayers receive more time to make treaty elections for their Canadian retirement plans?
• Outcome: Approved.
• Key authorities: United States-Canada Income Tax Convention, Article XVIII(7); Treas. Reg. §§ 301.9100-1 through 301.9100-3; Rev. Proc. 2002-23; IRC § 6110.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201123024 Third Party Communication: None
Release Date: 6/10/2011 Date of Communication: Not Applicable
Index Number: 9100.22-00, 9114.03-06
Person To Contact:
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------------------------- Telephone Number:
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Refer Reply To:
CC:INTL
PLR-152234-10
Date:
March 07, 2011

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

Legend

A = ---------------------------
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B = -----------------------
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Company 1 = ----------------------
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Company 2 = ------------------
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Company 3 = --------------------------

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

Year 1 = -------

Year 2 = -------

Year 3 = -------
PLR-152234-10 2

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

This is in reply to a letter dated December 20, 2010, 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 rulings contained in this letter are based upon information and representations
submitted by the taxpayers and accompanied by a penalty of perjury statement
executed by an appropriate party. While this office has not verified any of the material
submitted 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 and B became U.S. residents in Year 1 and lawful permanent residents in Year 2.
Prior to becoming U.S. residents, A and B were residents of Canada. While residents of
Canada, A established Canadian Registered Retirement Savings Plans (RSSPs) with
Company 1 and Company 2 and a Deferred Profit Sharing Plan (DPSP) with Company
2, while B established two RRSPs with Company 1.

Recently, A and B engaged the services of Company 3 to prepare their return for Year

3. Company 3 reviewed A’s and B’s prior returns and discovered that A’s and B’s
   previous return preparers had never advised them of the need to make elections under
   Article XVIII(7) of the United States – Canada Income Tax Convention (the Treaty) to
   defer U.S. tax on income accrued in their RRSPs and DPSP. After Company 3 notified
   A and B of the need to make elections to benefit from the Treaty, A and B immediately
   took action to make a request under Treas. Reg. § 301.9100-3 for an extension of time
   to make Treaty elections pursuant to Rev. Proc. 2002-23.

As of the date of this ruling request, the Internal Revenue Service has not
communicated with A or B in any way regarding their RRSPs and A’s DPSP.

RULINGS 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 for Tax Years
pursuant to Rev. Proc. 2002-23 to defer U.S. federal income taxation on income
accrued in his RRSPs and DPSP. B requests the same relief with respect to her
RRSPs.

LAW AND ANALYSIS
PLR-152234-10 3

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
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
and B an extension of time, provided that A and B satisfy the standards set forth in
Treas. Reg. § 301.9100-3(a).

Based solely on the information submitted and representations made, we conclude that
A and B satisfy the standards of Treas. Reg. § 301.9100-3. Accordingly, A and B are
granted an extension of time until 60 days from the date of this ruling letter to elect the
provisions of 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 and B
are otherwise eligible to make the above-described election.

Pursuant to section 4.07 of Rev. Proc. 2002-23, the elections 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 each
RRSP and DPSP, A and B must file Form 8891 for each RRSP and DPSP for which an
election is made and from which a final distribution has not been 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 and B's U.S. income tax return for the year
in which A and B obtained the rulings and should be associated with A and B’s
amended returns for Tax Years.
PLR-152234-10 4

This letter ruling is directed only to the taxpayers 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 representatives.

                                        Sincerely,


                                        _______________
                                        M. Grace Fleeman
                                        Senior Technical Reviewer, Branch 1
                                        Office of Associate Chief Counsel
                                        (International)

Enclosure:
Copy for 6110 purposes