PLR 1340007: IRS grants a late election for Canadian retirement accounts

Plain-English summary

The IRS granted a taxpayer more time to elect treaty treatment for undistributed earnings in Canadian retirement accounts. The taxpayer had moved from the United States to Canada, later returned to the United States, and did not learn about the election requirement until a CPA prepared a later tax return. The IRS concluded that the taxpayer acted reasonably and in good faith and that granting relief would not prejudice the government. The taxpayer and spouse were required to make the election within 60 days and file the specified amended returns and information forms.

Ruling snapshot

• Question: Could the taxpayer receive an extension of time to elect the treatment provided by Rev. Proc. 2002-23 for Canadian retirement accounts?
• Outcome: Approved, 60-day extension granted
• Key authorities: IRC § 6110(k)(3); Treas. Reg. §§ 301.9100-1 and 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: 201340007 [Third Party Communication:
Release Date: 10/4/2013 Date of Communication: Month DD, YYYY]
Index Number: 9100.22-00, 9114.03-06
Person To Contact:
----------------------------------------------------- ---------------------, ID No. -----------------
--------------------------- Telephone Number:

                                                           Refer Reply To:
                                                           CC:INTL:BR1
                                                           PLR-123594-12
                                                           Date:
                                                           May 29, 2013

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

LEGEND

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

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

RPP
Account = ----------------------------------------------------------

RRIF = --------------------------

LIF = --------------------------

Year 1 = -------

Year 2 = -------

Year 3 = -------

Year 4 = -------

Year 5 = -------

Tax Years = --------------
PLR-123594-12 2

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

This is in reply to a letter from your representative dated May 31, 2012, as
supplemented by letters dated November 27, 3012, December 7, 2012, and December
10, 2012, 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.

The rulings contained in this letter are based upon information and representations
submitted by the taxpayers and accompanied by penalty of perjury statements executed
by an appropriate party. 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.

FACTS

Taxpayer was born in the United States and moved to Canada to work in Year 1. He
established RPP Account while living and working in Canada. In Year 2 and Year 3,
Taxpayer worked in the United States on a temporary basis. In Year 4, Taxpayer began
to live and work in the United States on a permanent basis. Taxpayer left RPP Account
in Canada and neither made additional deposits nor withdrew any funds from RPP
Account after leaving Canada.

In Year 5, Taxpayer reached age 70 and was required by Canadian law to move the
funds out of RPP Account. He transferred the funds to RRIF and LIF.

Taxpayer represents that he and Spouse filed timely U.S. income tax returns for Tax
Years with the assistance of a CPA. Although the CPA knew that Taxpayer had lived
and worked in Canada, the CPA did not ask Taxpayer about any retirement accounts in
Canada. Taxpayer was unaware of the need to make an election under Rev. Proc.
2002-23 to defer recognition of undistributed earnings in his Canadian retirement
accounts pursuant to Article XVIII(7) of the U.S.-Canada Income Tax Treaty (the
“Treaty”) until a CPA began to prepare Taxpayer and Spouse’s Year 5 returns and saw
statements for RRIF and LIF. As soon as Taxpayer and Spouse learned about the
need to make an election, they immediately requested an extension of time under
Treas. Reg. § 301.9100-3 to elect the provisions of Rev. Proc. 2002-23 for Tax Years.

Taxpayer represents that the Internal Revenue Service has not communicated with
Taxpayer or Spouse concerning RPP Account, RRIF or LIF

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 for Tax Years
PLR-123594-12 3

pursuant to Rev. Proc. 2002-23 to defer U.S. federal income taxation on income
accrued in RPP Account, RRIF, and LIF, as provided for in Article XVIII(7) of the Treaty.

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 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 each open Tax Year prior to
Year 5, Taxpayer and Spouse must file an amended U.S. income tax return to which
they attach a statement for RPP Account that complies with the requirements of section
3 of Rev. Proc. 2002-23. For Year 5, Taxpayer and Spouse must file an amended U.S.
income tax return to which they attach Forms 8891 (U.S. Information Return for
Beneficiaries of Certain Registered Retirement Plans) for RRIF and LIF. For each
subsequent tax year through the tax year in which a final distribution is made from
RRIF, Taxpayer and Spouse must attach a Form 8891 for RRIF to their income tax
return. For each subsequent tax year through the tax year in which a final distribution is
PLR-123594-12 4

made from LIF, Taxpayer and Spouse must attach a Form 8891 for LIF 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.

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.

A copy of this letter must be attached to any income tax return to which it is relevant.
Alternatively, taxpayers filing their returns electronically may satisfy this requirement by
attaching a statement to their return that provides the date and control number of this
letter ruling.

                                    Sincerely,



                                    M. Grace Fleeman
                                    Senior Technical Reviewer
                                    Office of the Associate Chief Counsel
                                    (International)

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