PLR 1213014: IRS grants extra time for a Canadian RRSP treaty election

Plain-English summary

The IRS granted a taxpayer 60 days to elect treaty treatment that defers U.S. tax on income accruing but not distributed by a Canadian registered retirement savings plan. The taxpayer became a U.S. resident after establishing the RRSP and did not learn about the election requirement until a later tax return was prepared. The IRS found that the taxpayer satisfied the requirements for relief under the regulatory-election rules. The taxpayer was required to file amended U.S. returns with Forms 8891 for the specified years and to continue attaching the forms for later years through the year of final distribution.

Ruling snapshot

• Question: Could the taxpayer receive an extension of time to elect Canadian RRSP treaty treatment under Rev. Proc. 2002-23?
• Outcome: Approved, a 60-day extension was granted.
• 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: 201213014 Third Party Communication: None
Release Date: 3/30/2012 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-135949-11
Date:
December 16, 2011

Legend

Taxpayer = --------------------------
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Financial Institution = ----------------------

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

Year 1 = -------

Year 2 = -------

Year 3 = -------

Tax Preparer 1 = -------------------------------

Tax Preparer 2 = --------------------------
---------------------------------------------

Dear ----------------

This is in reply to a letter dated August 24, 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.
PLR-135949-11 2

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 became a resident of the United States in Year 1. Before becoming a U.S.
resident, Taxpayer established a Canadian registered retirement savings plan (RRSP)
with Financial Institution. Taxpayer has no tax-related education, skills, or training. He
believed that RRSPs are conceptually similar to IRA accounts in the United States in
that any built-up gain inside an RRSP would be taxed only upon distribution.

After becoming a U.S. resident, Taxpayer relied on Tax Preparer 1 to prepare his U.S.
income tax returns and provide general tax advice. Tax Preparer 1 knew that Taxpayer
was Canadian, but did not advise Taxpayer prior to Year 3 that he might have special
U.S. filing, reporting, or payment obligations with respect to his RRSP.

In Year 3, Tax Preparer 2 acquired Tax Preparer 1. Tax Preparer 2 required all new
clients to review and sign a statement regarding foreign accounts, gifts and entities.
During this process, Taxpayer’s RRSP was discovered.

Until this issue arose in Year 3 in connection with the preparation of Taxpayer’s Year 2
return, Taxpayer had been unaware of the need to make an election under Article
XVIII(7) of the United States-Canada Income Tax Convention (the “Treaty”) to defer
U.S. taxation of income accruing but not distributed by Taxpayer’s RRSP.

Taxpayer states that the Internal Revenue Service has not communicated with him in
any way regarding his RRSP accounts.

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 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. §
PLR-135949-11 3
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 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 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
file amended U.S. income tax returns to which he attaches Forms 8891 (U.S.
Information Return for Beneficiaries of Certain Canadian Registered Retirement Plans)
for RRSP. For each subsequent tax year through the tax year in which a final
distribution is made from RRSP, Taxpayer must attach a Form 8891 for RRSP to his
U.S. income tax return.

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.
PLR-135949-11 4

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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