PLR 1244013: IRS grants extra time for a late Canadian RRSP election

Plain-English summary

Taxpayers who moved from Canada to the United States had Canadian registered retirement savings plan accounts. Their tax preparers did not tell them to make the election needed to defer U.S. tax on income accruing in those accounts under Article XVIII(7) of the U.S.-Canada treaty. The IRS granted them an extension of time until 60 days after the ruling letter to make the election under Rev. Proc. 2002-23. The ruling did not determine whether the taxpayers otherwise qualified to make the election.

Ruling snapshot

• Question: Could the taxpayers receive more time to make a late election for their Canadian RRSPs?
• Outcome: Approved
• Key authorities: Treas. Reg. § 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: 201244013 Third Party Communication: None
Release Date: 11/2/2012 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-150549-11
Date:
July 26, 2012

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

Legend

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

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

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

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

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

RRSP 4 = ------------------------------------------------------------------------

RRSP 5 = ------------------------------------------------------------------------

RRSP 6 = ----------------------------------------------------------

RRSP 7 = ----------------------------------------------------------

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

Tax Preparer 2 = ----------------------------------------------
PLR-150549-11 2

Legal Counsel = ------------------------------------------------------------------------

Year 1 = -------

Year 2-12 = --------------

Years 13-18 = --------------

Year 18 = -------

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

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

This is in reply to a letter dated December 1, 2011, and additional information provided
on May 17, 2012, and June 28, 2012, requesting an extension of time under Treas.
Reg. § 301.9100-3 for Taxpayer and Spouse (collectively, the “Taxpayers”) to elect the
provisions of Rev. Proc. 2002-23, 2002-1 C.B. 744, for Tax Years.

The rulings contained in this letter are based upon information and representations
submitted by the Taxpayers and accompanied by a penalty of perjury statement
executed by the appropriate parties. While this office has not verified any of the
material submitted in support of the request for rulings, it is subject to verification on
examination. The information submitted for consideration is substantially as set forth
below.

FACTS

Taxpayers are Canadian citizens and were Canadian residents until they became
residents of the United States in Year 1. Prior to becoming U.S. residents, Taxpayers
established several Canadian Registered Retirement Savings Plan (“RRSP”) Accounts.
Taxpayer established RRSP 1 and RRSP 2, and Spouse established RRSP 3, RRSP 4,
RRSP 5, RRSP 6, and RRSP 7 (collectively, the “RRSPs”). All contributions to the
RRSPs were made by the Taxpayers prior to Year 1, and Taxpayers have not received
any distributions from their RRSPs.

Taxpayers relied on Tax Preparer 1 to prepare their U.S. income tax returns for Years
2-12, and Tax Preparer 2 to prepare their U.S. income tax returns for Years 13-18.
Neither Tax Preparer 1 nor Tax Preparer 2 advised Taxpayers of the requirement to
make an election under Article XVIII(7) of the U.S.-Canada income tax treaty (the
“Treaty”) to defer U.S. income tax on income accruing in their RRSPs.
PLR-150549-11 3

In Year 18, Taxpayers sought legal advice regarding their RRSPs. In the course of
reviewing the matter for Taxpayers, Legal Counsel discovered that Taxpayers had not
made an election under Article XVIII(7) of the Treaty to defer U.S. income tax on income
accruing in the RRSPs. Prior to being notified by Legal Counsel in Year 18, Taxpayers
had been unaware of the requirement for the election. Immediately upon learning of the
requirement to make an election, Taxpayers instructed Legal Counsel to prepare a letter
ruling requesting relief for the late election.

Taxpayers represent that the Internal Revenue Service has not corresponded with them
regarding their 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 make an election pursuant to
Rev. Proc. 2002-23, to defer U.S. federal income taxation on income accrued in the
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
Taxpayers an extension of time, provided that Taxpayers satisfy the standards set forth
in Treas. Reg. § 301.9100-3(a).

Based solely on the information submitted and representations made, we conclude that
Taxpayers satisfy the standards of Treas. Reg. § 301.9100-3. Accordingly, Taxpayers
PLR-150549-11 4

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 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 they attach Form 8891 (U.S. Information
Return for Beneficiaries of Certain Canadian Registered Retirement Plans) for the
RRSPs. For each subsequent tax year through the tax year in which a final distribution
is made from each of the RRSPs, Taxpayers must attach a Form 8891 for each listed
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 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 representatives.

                                    Sincerely,



                                    Quyen P. Huynh
                                    Senior Counsel, Branch 1
                                    (International)

Enclosure