PLR 1210013: Taxpayer receives more time to elect treaty deferral for Canadian RRSP income

Plain-English summary

The IRS granted a taxpayer an extension of time to make an election under the U.S.-Canada Income Tax Treaty and Rev. Proc. 2002-23 to defer U.S. income tax on income accruing in three Canadian registered retirement savings plans until distribution. The taxpayer had moved from Canada to the United States, became a U.S. citizen, and had not known that the election and Form 8891 reporting were required. The IRS concluded that the taxpayer satisfied the reasonable-cause and good-faith standards under Treas. Reg. § 301.9100-3 and granted 60 days from the ruling letter to make the elections. The ruling did not determine whether the taxpayer was otherwise eligible to make the elections and required amended returns and Forms 8891 for the covered years.

Ruling snapshot

• Question: Could the taxpayer receive more time to make treaty-based elections for deferral of U.S. tax on income in three Canadian RRSPs?
• Outcome: Approved, with a 60-day extension and related filing requirements.
• 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: 201210013 Third Party Communication: None
Release Date: 3/9/2012 Date of Communication: Not Applicable
Person To Contact:
Index Number: 9100.22-00, 9114.03-06 ----------------------, ID No. -----------------
Telephone Number:
---------------------
------------------- Refer Reply To:
------------------------ CC:INTL:B01
------------------------------------ PLR-128520-11
Date:
December 08, 2011

               --------------------

Legend

Taxpayer = -------------------
------------------------

RRSP 1 = --------------------------------------
------------------------------

RRSP 2 = --------------------------------------
------------------------------

RRSP 3 = --------------------------------------

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

Year 1 = -------

Year 2 = -------

Year 3 = -------

Year 4 = -------

Year 5 = -------

Date 1 = --------------------------

Country X = ------

Dear ----------------:
PLR-128520-11 2

This is in reply to a letter dated July 6, 2011, as amended by supplemental information
dated November 15, 2011 and December 7, 2011, requesting an extension of time
under Treas. Reg. § 301.9100-3 for Taxpayer 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

Taxpayer was born and raised in Country X. He moved to Canada in Year 1 and
became a citizen of Canada. While a resident and citizen of Canada, Taxpayer
established three registered retirement savings plans, RRSP 1, RRSP 2, and RRSP 3.
In Year 2, Taxpayer received a job offer in the United States and moved to the United
States. He eventually became a lawful permanent resident of the United States. In
Year 4, Taxpayer became a citizen of the United States.

Taxpayer was aware that Canada does not tax income accruing in an RRSP until the
income is distributed to the beneficiary of the plan. Taxpayer assumed that the U.S. tax
rules regarding RRSPs were identical to Canada’s rules. Taxpayer retired in Year 3,
but as of Date 1, Taxpayer has not yet received any distributions from his RRSPs.

Taxpayer has complied with U.S. Federal income tax laws since he first moved to the
United States by filing Forms 1040 (U.S. Individual Income Tax Return) and paying tax
owed in each year. Prior to Year 5, Taxpayer did not know that he needed to make an
election under the United States-Canada Income Tax Convention (the “Treaty”) in order
to defer recognition of income in his RRSPs for U.S. income tax purposes. He also was
unaware of the obligation to file Form 8891 (U.S. Information Return for Beneficiaries of
Certain Canadian Registered Retirement Plans).

In Year 5, Taxpayer independently learned about the IRS offshore accounts tax
compliance initiative by reading a newspaper. Taxpayer performed independent
research and became aware of the provision in the Treaty that provides for deferral of
U.S. taxation of income accruing in an RRSP until there is an actual distribution of
income from the plan. Shortly thereafter, Taxpayer consulted a law firm to confirm his
understanding of his U.S. tax obligations with respect to his RRSPs. He was informed
that in order to defer U.S. taxation on his RRSPs, an election must be made pursuant to
Article XVIII(7) of the Treaty and Rev. Proc. 2002-23. He also was informed about the
requirement to file Forms 8891.
PLR-128520-11 3

Taxpayer retained tax attorneys to assist him in becoming fully compliant with U.S. tax
laws with respect to his RRSPs.

RULING REQUESTED

Taxpayer 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 RRSP 1, RRSP 2, and RRSP 3, as provided for in Article XVIII(7) of the
Treaty.

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
Taxpayer an extension of time, provided that Taxpayer satisfies the standards set forth
in Treas. Reg. § 301.9100-3(a).

Based solely on the information submitted and representations made, we conclude that
Taxpayer satisfies the standards of Treas. Reg. § 301.9100-3. Accordingly, Taxpayer is
granted an extension of time until 60 days from the date of this ruling letter to make
elections 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
Taxpayer 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, Taxpayer must
PLR-128520-11 4

file amended U.S. income tax returns to which he attaches Forms 8891 for each RRSP.
For each subsequent tax year through the tax year in which a final distribution is made
from each RRSP, Taxpayer must attach to his U.S. income tax return a Form 8891 for
each RRSP 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 Taxpayer’s U.S. income tax return for the year
in which Taxpayer obtained the ruling and should be associated with Taxpayer’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 representatives.

                                    Sincerely,


                                    M. Grace Fleeman
                                    Senior Technical Reviewer, Branch 1
                                    (International)

Enclosure:
Copy for 6110 purposes