PLR 201132007: Canadian retirement plan election granted a late-filing extension

Plain-English summary

The IRS granted a Canadian resident who became a U.S. resident more time to elect deferred U.S. tax treatment for income in a Canadian Registered Retirement Savings Plan. The taxpayer missed the election because the first preparer did not explain the U.S. and treaty rules, and a later preparer identified the issue. The IRS found that the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the government. The extension lasted 60 days from the ruling date, subject to the stated conditions, and the taxpayer still had to meet the underlying eligibility requirements.

Ruling snapshot

• Question: May the taxpayer make a late election under Rev. Proc. 2002-23 for treaty-based deferral of income from a Canadian RRSP?
• Outcome: approved
• Key authorities: Treas. Reg. §§ 301.9100-1 and 301.9100-3; Rev. Proc. 2002-23; Article XVIII(7) of the United States-Canada Income Tax Convention.

Full text (IRS public release)

Internal Revenue Service
Department of the Treasury
Washington, DC 20224

Number: 201132007
Third Party Communication: None
Release Date: 8/12/2011
Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.22-00, 9114.03-06
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Telephone Number:
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Refer Reply To:
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CC:INTL
-------------------------------------------- PLR-111711-11 Date:
May 03, 2011

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

Legend

A = ----------------
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RRSP = --------------------------------------

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

Year 1 = -------

Year 2 = -------

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

This is in reply to a letter dated March 15, 2011, 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 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
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A was a Canadian resident who became a U.S. resident in Year 1. A established RRSP, a Canadian Registered Retirement Savings Plan prior to becoming a U.S. resident. A hired a certified public accountant (CPA) to prepare his Year 1 return. A was not aware of the rules regarding the U.S. taxation of Canadian retirement plans and his accountant failed to advise him of the need to make an election to defer taxation of income accruing in RRSP under Article XVIII(7) of the United States-Canada Income Tax Convention (the “Treaty”).

In Year 2, A hired a different CPA to prepare his returns for Year 2, and was advised by his accountant of the need to elect the provisions of Rev. Proc. 2002-23, for Tax Years, to defer income tax under Article XVIII(7) of the Treaty. After A was informed of the need to make an election to benefit from the Treaty, he decided 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 his RRSP.

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 toRev. Proc. 2002-23, to defer U.S. federal income taxation on income accrued in his RRSP, 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 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
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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 make an election for Tax Years under Rev. Proc. 2002-23. 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 Year 1, and all subsequent tax years until the tax year in which a final distribution is made from RRSP, A must file Form 8891 for RRSP.

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 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,

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

Enclosure:
Copy for 6110 purposes

cc: --------------------------------