Get a Private Letter Ruling to File a Late Form 8891

If you are fixing your RRSP problems after you filed your U.S. income tax returns, you cannot just file a Form 8891. The filing requirement is that it be attached to a “timely filed” tax return. Your amended tax return won’t be timely filed because your amendment will be filed after the deadline for the year you are fixing.

In order to file a late Form 8891, you need to request permission from the IRS to do so. You WILL get permission. On the Resources page of this website there are copies of Private Letter Rulings issued by the IRS. Your objective is to get one of these with your name on it.

The official solution involves a lot of work: you are going to make an application for a Private Letter Ruling. This is a process by which you ask the Internal Revenue Service to make a one-off legal ruling as to the application of tax law to you and only you. The Private Letter Ruling grants you formal permission to make your election under the U.S./Canada income tax treaty even though you are late in doing so.

When you are eligible

There is a set of rules that allows the IRS to give you time—even if you’re late—to make a late election under the U.S./Canada income tax return to fix your RRSP-related tax problems.

You qualify for this relief if

  • you acted reasonably and in good faith, and
  • granting you the relief will not harm the government.

Requirement 1: reasonable, good faith

Any one of the following items will constitute reasonable and good faith status for you:

  • You ask for permission to file late Form 8891’s before your error is discovered by the IRS; or
  • Your failure to request relief was due to events beyond your control; or

    You were unaware of the U.S. tax requirements governing RRSPs, even after you exercised reasonable diligence (taking into account your experience and the complexity of the issue); or

  • You relied on written advice from the IRS; or
  • You relied on a qualified tax professional and that person failed to make the election or advise you to make the election.

    • Requirement 2: no harm to the government

    No harm to the government is simple: if you get the relief you are seeking, will the government lose any tax revenue? In the case of the RRSP, the answer is no: the U.S. was not entitled to tax the investment earnings on your RRSP under the treaty.

    The procedures generally

    The specific procedures for how to prepare and file the application are found in Revenue Procedure 2010-1. It is attached in the Appendix. This will apply for all applications made in calendar year 2010. If you apply for a Private Letter Ruling in 2011, there will be a Revenue Procedure 2011-1.

    You make the application by preparing and filing a petition. There is a sample format for the petition in Revenue Procedure 2010-1 that you can follow to make your application.

    The Revenue Procedure contains a comprehensive set of instructions, including checklists, for making the Private Letter Ruling request. The checklist will help you understand what to do. You are also encouraged to call the Internal Revenue Service ahead of time to pre-clear your application.

    What “win” looks like

    So you know what you are aiming for, I have included a copy of an actual letter ruling from the Internal Revenue Service giving a Canadian taxpayer the authority to file Form 8891 late. Yours will probably look similar to this one.

    What you do after the letter ruling is issued

    When you get your Private Letter Ruling, you will file a Form 1040X for each year in question. Your tax liability will not change. Attached to Form 1040X will be:

    • Form 8891;
    • Schedule B, with Part III properly completed; and
    • A copy of the Private Letter Ruling.

    Do that, mail it all off to the Internal Revenue Service, and you are finished.