PLR 201307003: IRS grants more time for a treaty election on Canadian RRSP earnings

Plain-English summary

A taxpayer who moved from Canada to the United States had two Canadian Registered Retirement Savings Plans. The taxpayer’s preparer did not advise the taxpayer to make the treaty election needed to defer current U.S. taxation of earnings in the plans or to file the related information returns. The IRS determined that the taxpayer satisfied the standards for relief under the applicable regulation and granted 60 days to make the election. The ruling also states that the extension does not determine whether the taxpayer is otherwise eligible, and requires amended returns and continuing Forms 8891 filings.

Ruling snapshot

• Question: May the taxpayer make a late election to defer U.S. tax on earnings in Canadian RRSPs under the U.S.-Canada treaty?
• 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: 201307003
Third Party Communication: None
Release Date: 2/15/2013
Date of Communication: Not Applicable
Index Number: 9100.22-00, 9114.03-06
Person To Contact:
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Telephone Number:
---------------------------------------------- --------------------- Refer Reply To:
CC:INTL:B01
PLR-137124-11
Date:
November 13, 2012

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

Legend

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

RRSP 1 = ----------------------------------
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RRSP 2 = ----------------------------------
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Tax Years = ---------------

Year 1 = -------

Year 2 = -------

Year 3 = -------

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

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

Tax Preparer = -----------------------------------------------------
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PLR-137124-11
2

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

This is in reply to a letter dated Date A 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, with respect to Tax Years. Additional information was submitted in a letter dated Date B.

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

FACTS

Taxpayer became a U.S. resident in Year 1 and a U.S. lawful permanent resident in Year 2. Prior to becoming a U.S. resident, Taxpayer was a resident of Hong Kong. Prior to that, Taxpayer was a Canadian resident who established and contributed to two Canadian Registered Retirement Savings Plans (RRSPs) with Financial Institution, RRSP 1 and RRSP 2. Taxpayer continued to maintain RRSP 1 and RRSP 2 with Financial Institution after moving to the United States.

Taxpayer’s timely filed joint Federal income tax returns for Tax Years were prepared by Tax Preparer. Tax Preparer did not advise Taxpayer to elect to defer current U.S. income taxation on earnings in RRSP 1 and RRSP 2 pursuant to Article XVIII(7) of the U.S.-Canada Income Tax Treaty (Treaty) for Tax Years.

Taxpayer 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 Taxpayer’s failure to make the election and file Forms 8891. Taxpayer reported RRSP 1 and RRSP 2 on Forms 8891 timely filed with Taxpayer’s Year 3 joint Federal income tax return. The Internal Revenue Service has not communicated with Taxpayer concerning the 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 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.

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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 an election under Rev. Proc. 2002-23 for RRSP 1 and RRSP 2 for Tax Years. 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 Forms 8891 for RRSP 1 and RRSP 2 are attached. Taxpayer must attach a Form 8891 for each RRSP to his 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.

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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 representative.

Sincerely,

________
M. Grace Fleeman
Senior Technical Reviewer, Branch 1
Office of Associate Chief Counsel (International)

Enclosure:
Copy for 6110 purposes