PLR 1138012: IRS grants extra time to elect U.S. tax deferral for a Canadian retirement plan

Plain-English summary

A U.S. resident owned a Canadian Registered Retirement Savings Plan and had not made the election required to defer U.S. tax on income accruing in the plan under Article XVIII(7) of the U.S.-Canada income tax treaty. The taxpayer asked for more time under Treas. Reg. § 301.9100-3 to make the election under Rev. Proc. 2002-23. The IRS found that the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the government. It granted 60 days from the ruling date to make the election, while stating that the extension did not determine the taxpayer's underlying eligibility.

Ruling snapshot

• Question: Whether a taxpayer could make a late election to defer U.S. tax on income accruing in a Canadian retirement plan.
• Outcome: Approved, with a 60-day extension.
• Key authorities: Treas. Reg. §§ 301.9100-1 and 301.9100-3; Rev. Proc. 2002-23; Article XVIII(7) of the U.S.-Canada income tax treaty.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201138012 Third Party Communication: None
Release Date: 9/23/2011 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-118397-11
Date:
June 20, 2011

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

Legend

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

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

Year 1 = -------

Year 2 = -------

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

This is in reply to a letter dated April 7, 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

A established RRSP, a Canadian Registered Retirement Savings Plan, prior to
becoming a U.S. resident in Year 1. At all times during A’s ownership of RRSP, he was
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unaware that he had to make an election to defer U.S. taxation on income accruing in
RRSP pursuant to Article XVIII(7) of the United States-Canada Income Tax Convention
(the “Treaty”).

Since becoming a resident, A has relied on U.S. certified public accountants to prepare
his federal income tax returns. In Year 2, A hired a new certified public accountant with
respect to an unrelated matter. In the process of discussions between the new
accountant and one of A’s other accountants, it was discovered that all of A’s other
accountants had not informed A of the need to make an election to defer U.S. taxation
on income accruing in RRSP pursuant to Article XVIII(7) of the Treaty. After being
informed of the need to make the election, A immediately took action to request an
extension of time under Treas. Reg. § 301.9100-3 to elect the provisions of Rev. Proc.
2002-23, 2002-1 C.B. 744, for Tax Years.

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 to Rev.
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
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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 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 Tax Years 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,



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

Enclosure:
Copy for 6110 purposes

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