1. if tax deferral election has never been made (but RRSP has also never been cashed out), it is likely that a late tax deferral election would have been approved by IRS (9100 relief). This is so called taxpayers act in good faith, and there is no loss to US gov.

2. since RRSP source funds were well documented on CRA side, so it should be easy to prove if or not the source fund were US tax compliance (for example, if it was contributed before the taxpayer becoming a US person.

So, non-compliance can become compliance with late tax defferal election. And RRSP can be excluded from base penalty.

My recent communication with IRS OVDI examiner gave me the impression that IRS is likely to exclude RRSP from base penalty if a taxpayer file tax deferral election via f8891, and if it can be proved that source fund was US tax compliance.

In this particular case though this is a voluntary program created by the IRS. Hence, (at least in so far as I am aware) none of these things would apply.

Are you saying that the IRS would not be bound by their answers to these FAQs?

Looking forward to your insight into this hugely important issue.

Thanks again!

My advice for them, for what it is worth, is to hit the RRSP argument from every angle they can. Do it in writing requesting a written response. This will mildly frustrate the Examiner and his/her technical adviser, but forces them to really think about the issue and consult with higher management.

If one approach or argument doesn’t work, then try another. Be persistent, but be nice, professional, and keep it from becoming personal. I think this slows down the OVDI process a bit, but that delay could work in your advantage as the process evolves and more and more Examiners put pressure up the IRS ladder to exclude RRSPs from the penalty base. It is the right thing to do, but as we know the IRS sometimes resists the right thing, and therefore the TAS has to issue TADs, but we still don’t know if Shulman will see the light.