Part III. Administrative, Procedural, and Miscellaneous

er’s behalf are not currently includible in Taxpayer’s gross income.

Service Recipient Corporation takes the reporting position that the entire amount paid to Domestic Leasing Corporation in return for Taxpayer’s services is currently deductible as a trade or business expense under § 162 of the Internal Revenue Code. Service Recipient Corporation does not treat the amount paid to Domestic Leasing Corporation as compensation to Taxpayer and, therefore, does not report any amount attributable thereto or withhold or pay any amount therefrom for federal tax purposes.

Domestic Leasing Corporation takes the reporting position that both the compensation paid to Taxpayer and the amount paid to Foreign Leasing Corporation are currently deductible as a trade or business expense. Domestic Leasing Corporation does not treat the amount paid to Foreign Leasing Corporation as compensation to Taxpayer and, therefore, does not report any amount attributable thereto or withhold or pay any amount therefrom for federal tax purposes.

Foreign Leasing Corporation takes the position that it is a resident of a country with which the United States has an income tax convention, and that it is entitled to all of the benefits afforded under that convention. Foreign Leasing Corporation also takes the position that, pursuant to the convention, no portion of the amount paid to it by Domestic Leasing Corporation is subject to income tax by the United States because such amount is business profits which are not attributable to a permanent establishment in the United States.

The structure of the arrangement may vary without altering the applicability of this notice to the arrangement. For example, the applicability of this notice is not dependent upon Taxpayer owning Service Recipient Corporation, or Service Recipient Corporation being the same taxpayer before and after Taxpayer enters into the arrangement. Similarly, the applicability of this notice is not dependent upon Domestic Leasing Corporation or Foreign Leasing Corporation existing before Taxpayer enters into the arrangement. In addition, the applicability of this notice to the arrangement is not affected by replacing Domestic Leasing Corporation, Foreign Leasing

Offshore Deferred Compensation Arrangements

Notice 2003–22

The Internal Revenue Service and the Treasury Department have become aware of a type of arrangement, described below, that is being promoted to and used by taxpayers for the purpose of avoiding or evading federal income and employment taxes. This notice alerts taxpayers and their representatives that the tax benefits purportedly generated by these arrangements are not allowable for federal income or employment tax purposes. This notice also alerts taxpayers, their representatives, and promoters of these arrangements of certain responsibilities that may arise from participating in or promoting these arrangements.

FACTS

In general, the arrangement involves a series of steps involving domestic and foreign parties. First, Taxpayer, an individual, purports to terminate Taxpayer’s existing employment relationship with a domestic corporation (“Service Recipient Corporation”) that may be owned, either directly or indirectly, in whole or in part by Taxpayer. Taxpayer then purports to enter into an employment relationship with a foreign corporation (“Foreign Leasing Corporation”) that is incorporated and managed in a country with which the United States has an income tax convention. Foreign Leasing Corporation purports to lease the right to Taxpayer’s services in the United States to a domestic corporation (“Domestic Leasing Corporation”). Domestic Leasing Corporation, in turn, purports to lease Taxpayer’s services to Service Recipient Corporation.

Before entering into the arrangement, Taxpayer has little or no business relationship either with Foreign Leasing Corporation or with Domestic Leasing Corporation. After entering into the arrangement, Taxpayer continues to provide substantially the same services for Service Recipient Corporation that Taxpayer provided before entering into the arrangement, and, thus, the interposition of Foreign Leasing Corporation and Domestic Leasing Corporation has

no significant effect on Taxpayer’s performance of services for Service Recipient Corporation.

Service Recipient Corporation makes payments to Domestic Leasing Corporation for Taxpayer’s services. Domestic Leasing Corporation makes payments to Taxpayer for Taxpayer’s services in an amount substantially less than the amount paid to Domestic Leasing Corporation by Service Recipient Corporation. After deducting a fee for its participation in the arrangement, Domestic Leasing Corporation remits to Foreign Leasing Corporation, in return for Taxpayer’s services, the remainder of the amount paid to Domestic Leasing Corporation by Service Recipient Corporation.

Foreign Leasing Corporation deducts a fee from the amount paid by Domestic Leasing Corporation and typically credits the remainder to a notional account maintained on behalf of Taxpayer. In certain cases, Foreign Leasing Corporation transfers the remainder to a trust (“Trust”) for the benefit of Taxpayer. Although the assets of Trust may be nominally subject to the claims of Foreign Leasing Corporation’s creditors, it is typically difficult or impossible for creditors of Foreign Leasing Corporation, Domestic Leasing Corporation, or Service Recipient Corporation to reach the assets of Trust in the event of insolvency or bankruptcy of any of these entities.

The arrangement is often designed to provide Taxpayer, either directly or indirectly, with explicit or implicit control over the amounts held on Taxpayer’s behalf by Foreign Leasing Corporation or Trust. For example, the arrangement may permit or require Foreign Leasing Corporation to provide Taxpayer with a device, such as a credit or debit card, for paying personal, business, or professional expenses out of such amounts. As another example, the arrangement may permit Taxpayer to submit bills and receipts for payment or reimbursement from such amounts or to borrow from such amounts.

Taxpayer takes the reporting position that only the compensation actually paid to Taxpayer by Domestic Leasing Corporation is currently includible in Taxpayer’s gross income and that amounts held by Foreign Leasing Corporation or Trust on Taxpay

May 5, 2003 851 2003–18 I.R.B.

ments of § 6111, or the list maintenance requirements of § 6112 (§§ 1.6011–4, 301.6111–1T, 301.6111–2, and 301.6112– 1). Persons who are required to satisfy the registration requirement of § 6111 with respect to the arrangement described in this notice and who fail to do so may be subject to the penalty under § 6707(a). Persons who are required to satisfy the listkeeping requirement of § 6112 with respect to the transaction and who fail to do so may be subject to the penalty under § 6708(a). In addition, the Service may impose penalties on participants in this arrangement or substantially similar arrangements, or, as applicable, on persons who participate in the promotion or reporting of this arrangement or substantially similar arrangements, including the accuracy-related penalty under § 6662, the return preparer penalty under § 6694, the promoter penalty under § 6700, and the aiding and abetting penalty under § 6701. In addition to other penalties, any person who willfully attempts to evade or defeat tax by means of the arrangement described in this notice or substantially similar arrangements, or who willfully counsels or advises such evasion or defeat, may be guilty of a criminal offense under §§ 7201, 7203, 7206, or 7212(a) or other provisions of federal law. The Service cautioned taxpayers against the arrangement described in this notice in a recent outreach project. Although that particular outreach project was directed toward medical professionals, the applicability of this notice is not dependent upon Taxpayer being a medical professional. Taxpayers can obtain copies of the Service’s alert on the IRS web site at www.irs.gov search term “employee leasing.”

Taxpayers who have participated or who are currently participating in the arrangement described in this notice are encouraged to apply to participate in the Offshore Voluntary Compliance Initiative described in Rev. Proc. 2003–11, 2003–4 I.R.B. 311.

The principal author of this notice is Ken Griffin of the Office of Division Counsel/ Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this notice, contact Mr. Griffin at (202) 622–6030 (not a tollfree call).

Corporation, or Service Recipient Corporation (or two or more of those corporations) with one or more non-corporate entities. Likewise, the applicability of this notice to the arrangement is not affected by replacing Trust with another person or persons, or by involving one or more other corporations or non-corporate entities. These and similar variations are within the scope of this notice. Moreover, the means (if any) by which Taxpayer has control over the amount held by Foreign Leasing Corporation or Trust on Taxpayer’s behalf are not limited to the means described in this notice.

ANALYSIS

The arrangement described in this notice involves a series of steps, some or all of which do not reflect the underlying economics of the arrangement, and has been designed to circumvent longstanding legal principles to enable Taxpayer and Service Recipient Corporation to avoid or evade income and employment taxes. Taxpayers who participate in the arrangement may believe they can achieve its purpose or intended result by relying on various documents and agreements, which purportedly create binding and legally enforceable obligations among the parties to the arrangement. The Internal Revenue Service intends to challenge the purported tax benefits claimed for this arrangement on a number of grounds, including, but not limited to, the nature and substance of the arrangement and of the documents and agreements used to facilitate it.

In challenging the purported tax benefits, the Service will, in appropriate cases, assert that Taxpayer’s employment by Foreign Leasing Corporation and the additional steps by which Taxpayer’s services are leased back to Service Recipient Corporation are disregarded for federal tax purposes. Thus, the Service will assert that Taxpayer remains the employee of Service Recipient Corporation and that amounts paid by Service Recipient Corporation to Domestic Leasing Corporation either (1) are currently includible in Taxpayer’s gross income as compensation for services provided to Service Recipient Corporation or (2) are not currently deductible by Service Recipient Corporation.

More specifically, with regard to the tax benefits claimed by Taxpayer and irrespective of whether the Service asserts that the leasing arrangement should be disregarded

for tax purposes, the Service may assert, in appropriate cases, that amounts paid to Domestic Leasing Corporation by Service Recipient Corporation have been actually or constructively received by Taxpayer. The Service may assert, in addition or in the alternative, that such amounts are currently includible in Taxpayer’s gross income under § 83(a), the economic benefit doctrine, the cash equivalency doctrine, or the assignment of income doctrine, or that such amounts are constructive dividends to Taxpayer.

With regard to Service Recipient Corporation, the Service may assert that the amount paid to Domestic Leasing Corporation, less the amount Domestic Leasing Corporation pays currently to Taxpayer, is nonqualified deferred compensation, the deductibility of which is governed by § 404(a)(5) and which is subject to FICA tax under § 3121(v)(2), or property transferred to Taxpayer in connection with the performance of services, the deductibility of which is governed by § 83(h) and which is subject to FICA tax under § 3121(a) or 3121(v)(2). The Service also may disallow the deductibility of such amount as (1) not being an ordinary and necessary business expense under § 162 or (2) being a nondeductible constructive dividend to Taxpayer.

Finally, the Service also may challenge attempts to apply a tax convention between the United States and a foreign country to the arrangement in a manner that is inconsistent with the way the arrangement is characterized for United States tax purposes.

Arrangements that are the same as, or substantially similar to, the arrangement (“Offshore Deferred Compensation Arrangement”) described in this notice are, with respect to Taxpayer, Service Recipient Corporation, and Domestic Leasing Corporation, identified as “listed transactions” for purposes of § 1.6011–4(b)(2) of the Income Tax Regulations and §§ 301.6111– 2(b)(2) and 301.6112–1(b)(2) of the Procedure and Administration Regulations. Further, it should be noted that, independent of their classification as “listed transactions” for purposes of §§ 1.6011–4(b)(2), 301.6111–2(b)(2), and 301.6112–1(b)(2), arrangements that are the same as, or substantially similar to, an Offshore Deferred Compensation Arrangement may already be subject to the disclosure requirements of § 6011, the tax shelter registration require

2003–18 I.R.B. 852 May 5, 2003

ing with an employee representative over benefits to be provided to some or all of the employees of the business (including employees who are also owners of the business) and over certain other terms. While its name may include the word “union,” the employee representative is often established specifically for the purpose of the welfare benefit arrangement that is being promoted. In other cases, the employee representative may be affiliated with an established union.

These arrangements usually require large employer contributions relative to the amount actually needed to provide the current coverage for the welfare benefits under the arrangement. Typically, benefits that are provided or expected to be provided to employees who are also owners are more favorable than the benefits provided to employees who are not owners. For example, if death benefit protection is being provided, owners may be covered by cash value life insurance policies (and entitled to certain benefits resulting from amounts accumulating under those policies) while other employees receive only term insurance coverage or other less valuable coverage than that provided to the owners.

In some of the arrangements, participants can access funds by obtaining a loan from the trust. While the plan documents may indicate that the loans are available only for unanticipated future events, in reality, most owners will be able to obtain a loan without regard to whether those events occur.

Often, the arrangement will operate to allow the owner or owners to benefit from any contributions to the trust in excess of amounts actually used to provide coverage to other employees.

In general, these arrangements and other similar arrangements do not satisfy the requirements of § 419A(f)(5) of the Code and do not provide the tax deductions claimed by their promoters. For example, if an employer (or its agent) bargains for benefits to be provided to employees, including the owner or owners of that employer, and the benefits to be provided to an owner are more favorable than those provided to other employees, the circumstances of that bargaining process strongly indicate a lack of the good faith bargaining required to satisfy the conditions for the § 419A(f)(5) exception. Further, even if the stated benefits

Tax Problems Raised by Certain Trust Arrangements Seeking to Qualify for Exception for Collectively Bargained Welfare Benefit Funds Under § 419A(f)(5)

Notice 2003–24

The Internal Revenue Service and the Treasury Department have become aware of certain arrangements purporting to qualify as collectively-bargained welfare benefit funds excepted from the account limits of § 419 and § 419A of the Internal Revenue Code. This notice alerts taxpayers and their representatives that the tax benefits purportedly generated by these transactions are not allowable for federal income tax purposes. This notice also identifies some purported collectively bargained arrangements as listed transactions and alerts taxpayers, their representatives, and organizers or sellers of these transactions to certain responsibilities that may arise from participating in these transactions.

In general, contributions to a welfare benefit fund are deductible when paid, but only if they qualify as ordinary and necessary business expenses of the taxpayer and only to the extent allowable under § 419 and § 419A of the Code. Those sections impose strict limits on the deduction for contributions in excess of current costs. An exception to some of the limits is provided under § 419A(f)(5) for contributions to a separate welfare benefit fund under a collective bargaining agreement. The exception is based in part on the premise that deductions in such a setting will not be excessive because of the arms’ length negotiations between adversary parties inherent in the collective bargaining process. See S. Rep. No. 313, 99th Cong., 2nd Sess. 1010 (1986), 1986–3 C.B. (Vol. 3) 1, 1010. Section 1.419A–2T, Q&A–2, of the Income Tax Regulations sets out a number of requirements that a fund must meet in order to qualify as a welfare benefit fund under a collective bargaining agreement for purposes of § 419A(f)(5) of the Code. One of those requirements is that the benefits provided through the fund were the subject of arms-length negotiations between employee representatives and one or more employers. Another requirement is that the circumstances surrounding a collective bar

gaining agreement must evidence good faith bargaining between adverse parties over the welfare benefits to be provided through the fund.

Section 7701(a)(46) of the Code provides, in part, that an agreement will not be treated as a collective bargaining agreement unless it is a bona fide agreement between bona fide employee representatives and one or more employers. When this language was added to the Code in 1986, the Committee on Ways and Means reported that some promoters of tax avoidance arrangements were entering into arrangements with employers under which, superficially, the employer and its employees were represented by agents in collective bargaining. The Committee noted that the named bargaining agent for the employees may have obtained a ruling by the Internal Revenue Service that the agent is exempt from tax as a labor organization. Even so, the Committee noted, no good faith bargaining occurred under this type of arrangement because the bargaining agent for the employees merely acts in concert with the named bargaining agent for the employer. The Committee Report states:

The committee believes that these arrangements are, in fact, designed for no material purpose other than the improper exploitation of provisions that are appropriate only for legitimate collectively bargained plans. The committee wishes to make clear that it does not regard such an arrangement as the product of good faith bargaining and that it does not consider an entity to be an employee representative merely because of its status for tax exemption or a determination by the Internal Revenue Service with respect to that status. H.R. Rep. No. 426, 99 ^th Cong., 1st Sess. 760 (1986), 1986–3 C.B. (Vol. 2) 1, 760. A number of business owners have been approached about arrangements that purportedly allow the business to take a current tax deduction for all contributions to a welfare benefit fund. Prior to this contact, these businesses typically have had no involvement with labor organizations or other aspects of the collective bargaining process. The promoters of these arrangements rely on § 419A(f)(5), claiming that the benefits are provided under a collective bargaining agreement. The individual or company promoting the arrangement typically arranges for an organization (sometimes referred to as a management group) to act on the business’s behalf in bargain

May 5, 2003 853 2003–18 I.R.B.

receiving more favorable coverage or benefits than other employees are as follows:

An arrangement providing benefits only to participants who have completed a specified number of years of service with the employer, if it can be expected that one or more owners will be the only employees to satisfy the years-of-service requirement. It should be noted that, independent of any classification as “listed transactions” for purposes of §§ 1.6011–4(b)(2), 301.6111– 2(b)(2), and 301.6112–1(b)(2) of the regulations, arrangements that are the same as, or substantially similar to, the arrangements described in this notice may already be subject to the disclosure requirements of § 6011 of the Code, the tax shelter registration requirements of § 6111 or the list maintenance requirements of § 6112 (§§ 1.6011–4, 301.6111–1T, 301.6111–2, and 301.6112–1).

Persons who are required to satisfy the registration requirement of § 6111 of the Code with respect to the arrangements described in this notice and who fail to do so may be subject to the penalty under § 6707(a). Persons who are required to satisfy the list-keeping requirement of § 6112 with respect to the arrangements and who fail to do so may be subject to the penalty under § 6708(a). In addition, the Service may impose penalties on participants in these arrangements or substantially similar arrangements, or, as applicable, on persons who participate in the promotion or reporting of these arrangements or substantially similar arrangements, including the accuracy-related penalty under § 6662, the return preparer penalty under § 6694, the promoter penalty under § 6700, and the aiding and abetting penalty under § 6701. In addition to other penalties, any person who willfully attempts to evade or defeat tax by means of the arrangements described in this notice, or who willfully counsels or advises such evasion or defeat, may be guilty

for an owner are not more favorable than those for other employees ( e.g., all benefits are based on a uniform percentage of compensation), the facts and circumstances of the particular arrangement or the bargaining process may indicate that the good faith bargaining requirement, or another requirement to be treated as a collective bargaining agreement for purposes of § 419A(f)(5), has not been met.

In addition, an employer’s deduction for contributions to the trust will be subject to the deduction limits of §§ 419 and 419A of the Code if it is not a “separate” welfare benefit fund under a collective bargaining agreement. Moreover, the deduction may be subject to or disallowed by other provisions of the Code. For example, depending on the facts and circumstances, the arrangement may actually be providing deferred compensation or a constructive dividend to an owner rather than welfare benefits. If the arrangement is providing deferred compensation, the employer’s deduction for contributions to the trust is governed by § 404(a)(5) of the Code, rather than by §§ 419 and 419A. If the arrangement is providing a constructive dividend, to the extent of the constructive dividend, the contributions are not deductible at all.

Taxpayers and their representatives should be aware that the Service has disallowed deductions for contributions to these types of arrangements in the past and intends to do so in the future.

The Service would like to emphasize that the fact that a trust used to provide benefits under an arrangement may have received a determination letter stating that the trust is exempt under § 501(c)(9) of the Code has no relevance to the issues discussed in this notice. A determination letter under § 501(c)(9) determines only the tax status of the trust. It does not determine the tax deductibility of contributions to such a trust, nor does it determine the taxation of the benefits provided through the fund to the participants. Also, as provided by regulations, even if a union has been recognized as exempt under § 501(c)(5), the Service nevertheless has the authority to determine whether there is a collective bargaining agreement under the Code. Regs. § 301.7701–17T.

Listed Transactions

The following arrangements, and any arrangement that is substantially similar to one of the following arrangements, are identi

fied as “listed transactions” for purposes of § 1.6011–4(b)(2) of the Income Tax Regulations and § 301.6111–2(b)(2) and § 301.6112–1(b)(2) of the Procedure and Administration Regulations. For purposes of determining whether an arrangement is a listed transaction described in this notice, the term owner refers to a “key employee” as defined in § 416(i)(1) of the Code, other than an individual who is a key employee solely by reason of § 416(i)(1)(A)(i) (officers having annual compensation greater than a specified amount).

Any arrangement involving a purported collectively bargained welfare benefit fund is a listed transaction with respect to an employer if, in any year, the employer’s contributions with respect to any owner or owners of the employer, considered in the aggregate, are more than one-half of the employer’s total contributions, but only if there is at least one owner with respect to whom the employer’s contributions exceed $20,000. For this purpose, an employer’s contributions with respect to an owner means employer contributions used to fund the coverage or benefits for the owner, including any employer contributions used to pay premiums on an insurance contract covering the owner.

Any arrangement involving a purported collectively bargained welfare benefit fund is a listed transaction with respect to an employer if it provides more favorable coverage for an owner of the employer than for employees who are not owners. Even if the stated coverage under an arrangement is not more favorable for an owner, an arrangement provides more favorable coverage for an owner (and thus is a listed transaction) if it has any attributes that are likely to result in an owner actually receiving more favorable coverage or benefits than other employees, either during the term of the purported collective bargaining agreement or after the agreement has terminated. An arrangement that provides coverage based on a uniform percentage of each employee’s compensation will not be treated as providing more favorable coverage to an owner merely because the owner has higher coverage as a result of the owner’s higher compensation.

Some examples of purported collectively bargained arrangements that have attributes likely to result in an owner actually

An arrangement providing death benefits based on a uniform multiple of compensation, if it can be expected that an owner will obtain other benefits, such as rights to accumulated amounts under the arrangement, that are not available on the same basis to other employees;

An arrangement allowing loans to participants under which it can be expected that an owner will be able to obtain the loans more readily, or on better terms, than the other employees;

2003–18 I.R.B. 854 May 5, 2003

gation to file Form 3520–A for any year for which such requirements are met.

Treasury and the IRS are interested in establishing for future taxable years a simplified reporting regime for RRSPs and persons with interests in RRSPs. In addition to streamlining the reporting requirements, Treasury and the IRS are considering coordinating them with the election described in Rev. Proc. 2002–23. Treasury and the IRS also will consider whether there are other pension plans similar to RRSPs for which similar simplified reporting is appropriate.

The principal author of this notice is Amanda A. Ehrlich of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact Amanda A. Ehrlich or Willard W. Yates at (202) 622–3880 (not a toll-free call).

Public Comment Invited on Recommendations for 2003–2004 Guidance Priority List

Notice 2003–26

The Department of Treasury and Internal Revenue Service invite public comment on recommendations for items that should be included on the 2003–2004 Guidance Priority List.

Treasury’s Office of Tax Policy and the Service use the Guidance Priority List each year to identify and prioritize the tax issues that should be addressed through regulations, revenue rulings, revenue procedures, notices, and other published administrative guidance. The 2003–2004 Guidance Priority List sets forth guidance that the Treasury Department and the Service intend to issue from July 1, 2003, through June 30, 2004. The Treasury Department and the Service recognize the importance of public input to formulate a Guidance Priority List that focuses resources on guidance items that are most important to taxpayers and tax administration.

In reviewing recommendations and selecting projects for inclusion on the 2003– 2004 Guidance Priority List, the Treasury Department and the Service will consider the following:

of a criminal offense under §§ 7201, 7203, 7206, or 7212(a) or other provisions of federal law.

Future Regulations

The Service is planning to publish proposed regulations under § 419A(f)(5) that will address, among other things, the “separate” fund requirement discussed above. The Service understands that there are bona fide collectively bargained welfare benefit plans that provide benefits to one or more employees who are not collectively bargained, and that some of these plans might not have maintained a separate and distinct fund for only the collectively bargained employees. The Treasury and the Service request comments from the public regarding the “separate” fund requirement in advance of publishing the proposed regulations.

Those comments may be mailed to CC:PA:RU (Notice 2003–24), room 5226, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Alternatively, comments may be hand delivered Monday through Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:RU (Notice 2003–24), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC, or submitted electronically to: Notice.Comments@ irscounsel.treas.gov . Comments should be submitted no later than August 3, 2003. All comments will be available for public inspection and copying.

Drafting Information

The principal authors of this notice are Louis Leslie of the Employee Plans, Tax Exempt and Government Entities Division and Betty Clary of the Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities). For further information regarding this notice, contact Mr. Leslie at (202) 283–9888 (not a toll-free call) or Ms. Clary at (202) 622– 6080 (not a toll-free call).

Canadian Retirement Plan Trust Reporting

Notice 2003–25

Internal Revenue Code section 6048 requires information reporting with respect to

certain foreign trusts. Persons subject to these information reporting rules must file Form 3520 ( Annual Return to Report Trans- actions with Foreign Trusts and Receipt of Certain Foreign Gifts ) or Form 3520–A ( Annual Information Return of Foreign Trust With a U.S. Owner ), as applicable.

Form 3520 is generally filed on an annual basis on or before the due date for the U.S. owner’s or U.S. beneficiary’s income tax return. A person may obtain an extension of time to file Form 3520 by obtaining an extension of time to file the applicable income tax return. Form 3520–A is generally due by the fifteenth day of the third month after the end of the trust’s tax year. A person may seek an extension of time to file Form 3520–A by filing Form 2758 ( Application for Extension of Time to File Certain Excise, Income, Information, and Other Returns ). Specific penalties under Internal Revenue Code section 6677 apply if a Form 3520 or Form 3520–A is not timely filed or if the required information is incomplete or incorrect.

Treasury and the Internal Revenue Service have become aware that many taxpayers with interests in Canadian registered retirement savings plans (RRSPs), as well as the custodians of such plans, are unfamiliar with the requirements for filing Forms 3520 and 3520–A. Under the circumstances, the IRS has determined that it will enforce neither filing requirements, nor penalties under section 6677, for Forms 3520 and 3520–A with respect to such plans for tax years before 2002, and will grant additional time to file these forms for 2002. Any person who is required to file a 2002 Form 3520 or Form 3520–A with respect to an RRSP or other eligible plan within the meaning of section 3 of Revenue Procedure 2002–23, 2002–1 C.B. 744, is granted an automatic extension of time to file until August 15, 2003. If a person obtains an extension of time to file a Form 3520 or Form 3520–A for a date later than August 15, 2003, then such later extension date applies. Penalties for failure to file will not apply to a person who files by the relevant extension date.

In addition, if the beneficiary of an eligible plan has made an election in accordance with section 4 of Rev. Proc. 2002–23 and the beneficiary complies with the annual reporting requirements of Rev. Proc. 2002–23, the plan is relieved of any obli

May 5, 2003 855 2003–18 I.R.B.