PLR 201239005: IRS grants more time to elect treaty deferral for Canadian RRSP earnings

Plain-English summary

Two taxpayers who moved from Canada to the United States maintained Canadian registered retirement savings plans and did not timely elect to defer U.S. income taxation on the plans' accrued earnings under the U.S.-Canada tax treaty. Their tax preparer later discovered that the election and required Form 8891 filings had been missed. The IRS granted the taxpayers 60 days to make the election under Revenue Procedure 2002-23 for the redacted tax years, subject to their substantive eligibility. The ruling also required amended returns and continuing Form 8891 filings for the accounts.

Ruling snapshot

• Question: May taxpayers receive extra time to elect treaty deferral for earnings in Canadian RRSPs?
• Outcome: Approved
• Key authorities: Treas. Reg. §§ 301.9100-1 through 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: 201239005
Third Party Communication: None
Release Date: 9/28/2012
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:B01
PLR-145550-11
Date:
June 28, 2012

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

Legend

Taxpayer A = ------------------------
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Taxpayer B = ----------------------------
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Financial Institution = -----------------------

RRSP 1 = -------------------------
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RRSP 2 = -------------------------
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RRSP 3 = -------------------------
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RRSP 4 = -------------------------
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PLR-145550-11
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Tax Years = --------------

Year 1 = -------

Year 2 = -------

Year 3 = -------

Date A = --------------------------

Date B = --------------------

Tax Preparer = ------------------------------------------------
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Dear -------------------------------

This is in reply to a letter dated Date A requesting an extension of time under Treas. Reg. § 301.9100-3 for Taxpayer A and Taxpayer B (collectively, “Taxpayers”) to elect the provisions of Rev. Proc. 2002-23, 2002-1 C.B. 744, with respect to Tax Years. Additional information was submitted by Taxpayers in a letter dated Date B.

The ruling contained in this letter is based upon information and representations submitted by Taxpayers 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 ruling, it is subject to verification on examination. The information submitted for consideration is substantially as set forth below.

FACTS

Taxpayers lived in Canada until Year 1 when they moved to the United States. Taxpayers were lawful permanent residents of the United States until Year 2 when they became United States citizens. While living and working in Canada, Taxpayer A and Taxpayer B each established and contributed to separate Canadian Registered Retirement Savings Plans (RRSPs) with Financial Institution. Taxpayer A established RRSP 1, RRSP 2, and RRSP 3. Taxpayer B established RRSP 4.

Taxpayers continued to maintain their RRSPs with Financial Institution after moving to the United States. At all times relevant to this ruling request, recognition of the accrued earnings in RRSP 1, RRSP 2, RRSP 3, and RRSP 4 has been deferred for U.S. income tax purposes. Taxpayers have not withdrawn any funds or received any distributions from the RRSPs.

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Taxpayers’ timely filed joint Federal income tax returns for Tax Years were prepared by Tax Preparer. Tax Preparer did not advise Taxpayers they should elect to defer current U.S. income taxation on earnings in RRSP 1, RRSP2, RRSP3, and RRSP 4 pursuant to Article XVIII(7) of the U.S.-Canada Income Tax Treaty (Treaty) for Tax Years.

Taxpayers became aware of the need to file Form 8891, “U.S. Information Return for Beneficiaries of Certain Registered Retirement Plans,” to defer current income taxation of the earnings in the RRSPs pursuant to the Treaty only in Year 3 when Tax Preparer discovered Taxpayers’ failure to make the election and file Form 8891. The Internal Revenue Service has not communicated with Taxpayers concerning the RRSPs.

RULING REQUESTED

Taxpayers request the consent of the Commissioner of the Internal Revenue Service for an extension of time under Treas. Reg. § 301.9100-3 to elect pursuant to Rev. Proc. 2002-23, to defer U.S. federal income taxation on income accrued in RRSP 1, RRSP 2, RRSP 3, and RRSP 4, 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 Taxpayers an extension of time, provided that Taxpayers satisfy the standards set forth in Treas. Reg. § 301.9100-3(a).

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Based solely on the information submitted and representations made, we conclude that Taxpayers satisfy the standards of Treas. Reg. § 301.9100-3. Accordingly, Taxpayers are granted an extension of time until 60 days from the date of this ruling letter to make an election under Rev. Proc. 2002-23 for RRSP 1, RRSP 2, RRSP 3, and RRSP 4 for Tax Years. As provided in Treas. Reg. § 301.9100-1(a), the granting of an extension of time is not a determination that Taxpayers 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, Taxpayers must file amended U.S. income tax returns to which Forms 8891 for RRSP 1, RRSP 2, RRSP 3, and RRSP 4 are attached. Taxpayers must attach a Form 8891 for each RRSP to their U.S. income tax return for each subsequent tax year through the year in which a final distribution is made from the respective 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 Taxpayers’ U.S. income tax return for the year in which Taxpayers obtained the ruling and should be associated with Taxpayers’ 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 representative.

Sincerely,

Craig R. Gilbert
Special Counsel to the Deputy Associate Chief Counsel (International Field Service and Litigation) Office of Associate Chief Counsel (International)

Enclosure:
Copy for 6110 purposes