PLR 1219002: IRS grants a married couple more time for Canadian RRSP elections

Plain-English summary

The IRS granted a married couple 60 days to make elections under Revenue Procedure 2002-23 to defer U.S. income tax on income accruing in their Canadian Registered Retirement Savings Plans. The couple had moved from Canada to the United States and had relied on a U.S. accountant who did not prepare the required elections. The accountant later discovered the missed elections while correcting an unreported distribution from one of the plans. The couple must file amended returns with Forms 8891 for the covered years and continue filing the forms for each plan until its final distribution.

Ruling snapshot

• Question: May the taxpayers receive more time to make treaty-based elections for their Canadian RRSPs?
• Outcome: approved
• Key authorities: Treas. Reg. §§ 301.9100-1 and 301.9100-3; Rev. Proc. 2002-23; U.S.-Canada Income Tax Convention, Article XVIII(7)

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201219002 Third Party Communication: None
Release Date: 5/11/2012 Date of Communication: Not Applicable
Index Number: 9100.00-00, 9114.03-06
Person To Contact:
---------------------------------------- ------------, ID No. -----------------
-------------------------- Telephone Number:
------------------------------------- ---------------------
Refer Reply To:
CC:INTL:B01
PLR-126981-11
Date: February 14, 2012

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

Legend

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

Spouse = -----------------------------

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

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

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

Year 1 = -------

Year 2 = -------

Year 3 = -------

Year 4 = -------

Dear -------------------------------:
PLR-126981-11 2

This is in reply to a letter dated June 22, 2011, requesting an extension of time under
Treas. Reg. § 301.9100-3 for Taxpayer and Spouse 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 and Spouse became residents of the United States in Year 1. Before
becoming U.S. residents, Taxpayer and Spouse, each of whom is a Canadian citizen,
lived and worked in Canada where they each established a Canadian Registered
Retirement Savings Plan (RRSP), RRSP 1 and RRSP 2, respectively.

Prior to moving to the United States, Taxpayer obtained a written summary of his and
Spouse’s tax and financial matters from their Canadian tax accountant, which included
a brief description of their RRSPs.

After moving to the United States, Taxpayer and Spouse engaged a U.S. accountant to
prepare their income tax returns for Year 1 and all subsequent tax years since Year 1.
Taxpayer and Spouse provided all relevant tax and financial information to their U.S.
accountant, including the written summary of their tax and financial matters that
Taxpayer had obtained from their Canadian accountant. Taxpayer and Spouse do not
recall any discussion with their U.S. accountant of the requirement to make an election
to defer U.S. taxation on income accruing in RRSP 1 and RRSP 2 pursuant to Article
XVIII(7) of the United States-Canada Income Tax Convention (“the Treaty”).

The U.S. accountant prepared Taxpayer and Spouse’s returns for Tax Years. Each
year, Taxpayer and Spouse provided all relevant documents to the accountant,
including statements pertaining to the RRSP accounts. The U.S. accountant did not
prepare the necessary elections to defer U.S. tax on income accruing in RRSP 1 or
RRSP 2.

In Year 2, Taxpayer received a distribution from RRSP 1 and provided his and Spouse’s
accountant with relevant documentation showing a distribution to Taxpayer from RRSP

1. The accountant failed to include the distribution from RRSP 1 on Taxpayer and
   Spouse’s income tax return for Year 2. In Year 3, in the course of providing information
   relevant to the preparation of their Year 4 return, Taxpayer and Spouse again provided
   the accountant with the information about the Year 2 distribution to Taxpayer from
   RRSP 1. The U.S. accountant then realized that the distribution had not been reported
   on the Year 2 return and that the Year 2 return would need to be amended. While
   PLR-126981-11 3

reviewing the file to prepare an amended Year 2 return, it was discovered that no
elections had been made under the Treaty with respect to Taxpayer’s and Spouse’s
RRSPs.

As of the date of the ruling request, the Internal Revenue Service has not
communicated with Taxpayer or Spouse in any way regarding their RRSPs.

RULING REQUESTED

Taxpayer and Spouse request 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 their RRSPs, 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
Taxpayer and Spouse an extension of time, provided that Taxpayer and Spouse satisfy
the standards set forth in Treas. Reg. § 301.9100-3(a).

Based solely on the information submitted and representations made, we conclude that
Taxpayer and Spouse satisfy the standards of Treas. Reg. § 301.9100-3. Accordingly,
Taxpayer and Spouse are 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
PLR-126981-11 4

determination that Taxpayer and Spouse are 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 and
Spouse must file amended U.S. income tax returns to which they attach Forms 8891
(U.S. Information Return for Beneficiaries of Certain Canadian Registered Retirement
Plans) for each RRSP. For each subsequent tax year through the tax year in which a
final distribution is made from each RRSP, Taxpayer and Spouse must attach a Form
8891 for each RRSP from which a final distribution has not been made to their 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 and Spouse’s U.S. income tax return
for the year in which Taxpayer and Spouse obtained the ruling and should be
associated with Taxpayer and Spouse’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