rp-10-19.pdf

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Part III

Administrative, Procedural, and Miscellaneous

26 CFR 1.601.602: Tax forms and instructions.
(Also Part I, Section 894; Part II, United States-Canada Income Tax Convention)

Rev. Proc. 2010-19

Deemed Dispositions by Individuals Emigrating from Canada

SECTION 1. PURPOSE
This revenue procedure provides guidance for individuals who emigrate from Canada
and wish to make an election for U.S. federal income tax purposes under paragraph 7
of Article XIII (Gains) of the Convention between the United States of America and
Canada with Respect to Taxes on Income and on Capital, signed on September 26,
1980, as amended by Protocols signed on June 14, 1983, March 28, 1984, March 17,
1995, July 29, 1997, and September 21, 2007 (the “Treaty”) with respect to property
that is subject to Canadian departure tax under Canada’s deemed alienation rules (the
terms “alienation” and “disposition” are used interchangeably throughout this revenue
procedure). This guidance is limited to the circumstances described in the revenue
procedure and therefore does not address other situations in which the election under
paragraph 7 of Article XIII may be available.

SECTION 2. BACKGROUND
Prior to amendment by the Protocol signed on September 21, 2007 (the “2007
Protocol”), Article XIII(7) of the Treaty provided that where, at any time, an individual

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was treated for purposes of taxation by one Contracting State as having disposed of
property and was taxed in that State by reason thereof and the domestic law of the
other Contracting State at such time deferred (but did not forgive) taxation, that
individual could elect on his annual return of income for the year of such disposition to
be liable to tax in the other Contracting State in that year as if he had, immediately
before that time, sold and repurchased such property for an amount equal to its fair
market value at that time.

Instances of double taxation arose under the prior version of Article XIII(7). Canadian
residents who emigrated from Canada to the United States and paid Canadian
departure tax on a deemed disposition of their property could not elect to be liable for
U.S. federal income tax on a deemed disposition of their property if they were not U.S.
citizens immediately before they ceased to be residents of Canada and would not
otherwise have been subject to U.S. federal income tax on a disposition of the property.

Article XIII(7) of the Treaty was amended by the 2007 Protocol (“new Article XIII(7)”) to
provide that where, at any time, an individual is treated for purposes of taxation by one
Contracting State as having disposed of a property and is taxed in that State by reason
thereof, the individual may elect to be treated for the purposes of taxation in the other
Contracting State, in the year that includes that time and all subsequent years, as if the
individual had, immediately before that time, sold and repurchased the property for an
amount equal to its fair market value at that time.

Thus, under new Article XIII(7) the election is now available to any individual who
emigrates from Canada to the United States, without regard to whether the individual
was a U.S. citizen immediately before ceasing to be a resident of Canada (or would
otherwise have been subject to U.S. federal income tax on a disposition of property). If
the individual is not subject to U.S. federal income tax at the time of emigration, the
effect of the election will be to give the individual an adjusted basis in the relevant
property for U.S. federal income tax purposes equal to the fair market value of the
property as of the date of the deemed disposition in Canada, with the result that only
post-emigration gain will be subject to U.S. federal income tax when there is a
disposition of the property. As was the case prior to the changes made by the 2007
Protocol, if the Canadian resident is also a U.S. citizen at the time of his emigration from
Canada or otherwise would be subject to taxation in the United States on a disposition
of the property (e.g., the property is real property situated in the United States (within
the meaning of Article XIII(3)(a) of the Treaty)), the individual may elect to be liable to
tax in the United States in that year as if he had, immediately before the date of
emigration, sold and repurchased such property for an amount equal to its fair market
value (which means that the individual may elect to accelerate the U.S. federal income
tax on the deemed disposition). In that case, relief from double taxation would be
governed by the rules of Article XXIV of the Treaty.

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The rule in new Article XIII(7) was publicly announced in simultaneous press releases
issued on September 18, 2000, by the Department of Finance Canada and the U.S.
Treasury Department. The press releases stated that the new rule, if approved, would
apply to changes in residence that took place on and after September 18, 2000.
Consistent with the press releases, paragraph 3(e) of Article 27 of the 2007 Protocol
provides that new Article XIII(7) will have effect with respect to dispositions of property
that occur (including, for greater certainty, those that are deemed under the law of a
Contracting State to occur) after September 17, 2000.

SECTION 3. SCOPE

This revenue procedure provides guidance for taxpayers making an election with
respect to changes in residence for taxpayers who emigrate from Canada after
September 17, 2000. Sections 4.01 and 4.02 provide procedures for taxpayers who
emigrate from Canada on or after March 29, 2010. Sections 4.03 and 4.04 provide
procedures for taxpayers who emigrated from Canada after September 17, 2000 and
before March 29, 2010 and who are not time barred from making the election. Section
4.05 provides rules for deemed dispositions of multiple properties.

SECTION 4. ELECTION PROCEDURES AND EFFECT OF ELECTION
.01 Election for property of an individual emigrating from Canada on or after
March 29, 2010, with respect to which a disposition of the property would have
been taxable by the United States (“Prospective elections for property taxable by
United States”)

(1) Subject to section 4.05 of this revenue procedure (Deemed disposition of multiple
properties), the rules in this section 4.01 apply, in the case of a change in residence that
occurs on or after March 29, 2010, to a Canadian emigrant’s property that was subject
to Canadian departure tax under Canada’s deemed disposition rules and with respect to
which a disposition immediately before the individual’s change of residence would have
been subject to tax by the United States in accordance with the Treaty. Such property
includes (but is not limited to) the following:

(a) real property situated in the United States (within the meaning of Article XIII(3)(a)
of the Treaty) with respect to which gain from a disposition would be taxable by
the United States pursuant to Article XIII(1) of the Treaty,

(b) personal property forming part of the business property of a permanent
establishment which a resident of Canada has or had (within the twelve-month
period preceding the date of disposition) in the United States, with respect to
which gain from a disposition would be taxable by the United States pursuant to
Article XIII(2) of the Treaty, and

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(c) property with respect to which gain from a disposition would be taxable by the
United States pursuant to paragraph 2 of Article XXIX (Miscellaneous Rules) of
the Treaty (i.e., the saving clause).

(2) If an individual with property that is subject to the rules of this section 4.01 makes an
election pursuant to new Article XIII(7) to be treated as having disposed of and
reacquired such property, the individual must recognize gain (and, if permitted by
section 4.05 of this revenue procedure, loss) in the taxable year of the deemed
disposition. If the individual is not a U.S. citizen at the time of the deemed disposition
(but is still a resident of Canada), alleviation of double taxation is governed by
paragraph 2 of Article XXIV (Elimination of Double Taxation) of the Treaty. If the
individual is both a U.S. citizen and a resident of Canada at the time of the deemed
disposition, however, alleviation of double taxation is governed by the rules of
paragraph 4 of Article XXIV (Elimination of Double Taxation) of the Treaty.

(3) The individual must make the election by reporting the deemed disposition on the
individual’s timely filed U.S. federal income tax return for the individual’s first taxable
year ending after the individual’s change of residence and attaching a Form 8833,
Treaty Based Return Position Disclosure under section 6114 or 7701(b) of the Internal
Revenue Code, stating that the individual is making an election to pay U.S. federal
income tax on a deemed disposition of property pursuant to new Article XIII(7). The
individual must attach documentation establishing the fair market value of the property,
as determined under Canada’s deemed disposition rules, and confirming that gain
(and, if permitted by section 4.05 of this revenue procedure, loss) was recognized and
properly reported for Canadian tax purposes for the taxable year of the deemed
disposition. The individual must retain copies of the Form 8833 and accompanying
documentation (including the information reported to Canada) as required pursuant to
section 6001 of the Code and the regulations promulgated thereunder.

.02 Election for property of an individual emigrating from Canada on or after
March 29, 2010, with respect to which a disposition of the property would not
have been taxable by the United States (“Prospective elections for property not
taxable by United States”)

(1) Subject to section 4.05 of this revenue procedure (Deemed disposition of multiple
properties), in the case of a change of residence that takes place on or after March 29,
2010, the rules in this section 4.02 apply to a Canadian emigrant’s property that was
subject to Canadian departure tax under Canada’s deemed disposition rules but with
respect to which a disposition immediately before the individual’s change of residence
would not have been subject to U.S. federal income tax.

(2) If an individual with property that is subject to the rules of this section 4.02 elects for

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U.S. federal income tax purposes to be treated as having disposed of and reacquired
such property pursuant to new Article XIII(7), the individual takes an adjusted basis in
such property for U.S. federal income tax purposes equal to the fair market value of the
property as of the date of the deemed disposition under Canada’s deemed disposition
rules if the individual complies with the requirements of paragraph (3) of this section
4.02. An individual who makes this election will not be subject to U.S. federal income
tax, solely as a result of the election, with respect to the deemed disposition of such
property.

(3) The individual must make the election by reporting the deemed disposition on the
individual’s timely filed U.S. federal income tax return for the individual’s first taxable
year ending after the individual’s change of residence and by attaching a Form 8833 to
such return, indicating on the form that for U.S. federal income tax purposes the
individual is electing pursuant to new Article XIII(7) to take an adjusted basis in the
property equal to its fair market value as of the date of the deemed disposition under
Canada’s deemed disposition rules. The individual must attach the documentation
described in section 4.01(3) of this revenue procedure and must retain copies of the
Form 8833 and accompanying documentation (including the information reported to
Canada) as required pursuant to section 6001 of the Code and the regulations
promulgated thereunder.

.03 Election for property of an individual emigrating from Canada after September
17, 2000, and before March 29, 2010, with respect to which a disposition of the
property would have been taxable by the United States (“Retroactive elections for
property taxable by United States”)

(1) Subject to section 4.05 of this revenue procedure (Deemed disposition of multiple
properties), in the case of a change of residence that took place after September 17,
2000, and before March 29, 2010, the rules in this section 4.03 apply to a Canadian
emigrant’s property that was subject to Canadian departure tax under Canada’s
deemed disposition rules and with respect to which a disposition immediately before the
individual’s change of residence would have been subject to tax by the United States in
accordance with the Treaty. See section 4.01(1) of this revenue procedure for
examples of such property.

(2) If an individual with property that is subject to the rules of this section 4.03 makes an
election pursuant to new Article XIII(7) to be treated as having disposed of and
reacquired such property immediately prior to emigration, the individual must recognize
gain (and, if permitted by section 4.05 of this revenue procedure, loss) in the taxable
year of the deemed disposition. If the individual was not a U.S. citizen at the time of the
deemed disposition (but was still a resident of Canada), alleviation of double taxation is
governed by paragraph 2 of Article XXIV (Elimination of Double Taxation) of the Treaty
If the individual was both a U.S. citizen and a resident of Canada at the time of the

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deemed disposition, however, alleviation of double taxation is governed by the rules of
paragraph 4 of Article XXIV (Elimination of Double Taxation) of the Treaty.

(3) The individual must make the election by reporting the deemed disposition on an
amended federal income tax return for the open taxable year that includes the date of
emigration and attaching a Form 8833 stating that the individual is making an election to
pay U.S. tax on a deemed disposition of property in the taxable year that includes the
date of emigration pursuant to new Article XIII(7). Thus, an individual may make an
election with retroactive effect only if the statute of limitations under 6511 of the Internal
Revenue Code is open. Appropriate adjustments must be made to avoid duplicate
benefits in years with respect to which the statute of limitations on assessment and
collection, as set out under section 6501 through 6504, is closed. If the statute of
limitations is closed with respect to the year of the deemed disposition, then the
individual is time barred from making an election with respect to such property
(however, the individual may still be able to make the election with respect to property
described in section 4.04 (Retroactive elections for property not taxable by United
States), subject to section 4.05(2) of this revenue procedure (Deemed dispositions of
multiple properties)). The individual must attach the documentation described in section
4.01(3) of this revenue procedure and must retain copies of the Form 8833 and
accompanying documentation (including the information reported to Canada) as
required pursuant to section 6001 of the Code and the regulations promulgated
thereunder.

(4) If, prior to March 29, 2010, an individual who had property the disposition of which
would have been subject to tax by the United States at the time of emigration made an
election with respect to such property under Article XIII(7) by attaching a Form 8833 or
similar statement to a timely filed federal income tax return for the taxable year that
included the date of the deemed disposition, the IRS will not challenge such election
(and the individual is not required to make a new election under this revenue procedure)
provided that the election is not inconsistent with the principles set out in this revenue
procedure and that the individual has filed all U.S. federal income tax returns and
information returns consistent with such election.

.04 Election for property of an individual emigrating from Canada after September
17, 2000, and before March 29, 2010, with respect to which a disposition of the
property would not have been taxable by the United States (“Retroactive
elections for property not taxable by United States”)

(1) Subject to section 4.05 of this revenue procedure (Deemed dispositions of multiple
properties), in the case of a change of residence that took place after September 17,
2000, and before March 29, 2010, the rules in this section 4.04 apply to a Canadian
emigrant’s property that was subject to Canadian departure tax under Canada’s
deemed disposition rules but with respect to which a disposition immediately before the

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individual’s change of residence would not have been taxable by the United States.

(2) If an individual with property that is subject to the rules of this section 4.04 elects for
U.S. federal income tax purposes to be treated as having disposed of and reacquired
such property pursuant to new Article XIII(7), the individual takes an adjusted basis in
such property for U.S. federal income tax purposes equal to the fair market value of the
property as of the date of the deemed disposition under Canada’s deemed disposition
rules, if he complies with the requirements of paragraph (3) of this section 4.04. An
individual who makes this election will not be subject to U.S. federal income tax, solely
as a result of the election, with respect to the deemed disposition of such property.

(3) If the individual had only property described in section 4.04(1) of this revenue
procedure (and did not have property described in section 4.03(1) of this revenue
procedure (Retroactive elections for property taxable by United States)), the individual
must make the election by attaching a Form 8833 to the individual’s first timely filed U.S.
federal income tax return filed after March 29, 2010, indicating on the form that for U.S.
federal income tax purposes the individual is electing pursuant to new Article XIII(7) to
take an adjusted basis in the property equal to the fair market value of the property as of
the date of the deemed disposition under Canada’s deemed disposition rules. The
individual must attach documentation establishing the fair market value of the property,
as determined under Canada’s deemed disposition rules, and confirming that gain
(and, if permitted by section 4.05 of this revenue procedure, loss) was recognized and
properly reported for Canadian tax purposes for the taxable year of the deemed
disposition. The individual must attach the documentation described in section 4.01(3)
of this revenue procedure and must retain copies of the Form 8833 and accompanying
documentation (including the information reported to Canada) as required pursuant to
section 6001 of the Internal Revenue Code and the regulations promulgated
thereunder. The individual must file amended U.S. federal income tax returns for any
prior taxable years with respect to which the statute of limitations on claiming a credit or
refund, as set out under section 6511 of the Internal Revenue Code, is open and that
are affected by the election (e.g., the year of disposition of property subject to the rules
of this section 4.04). Appropriate adjustments must be made to avoid duplicate benefits
in years with respect to which the statute of limitations on assessment and collection, as
set out under section 6501 through 6504, is closed.

(4) If, in addition to property described in section 4.04(1) of this revenue procedure, the
individual had property described in section 4.03(1) of this revenue procedure
(Retroactive elections for property taxable by United States), the Form 8833 included
with the election made in accordance with section 4.03(4) must include the property
described in section 4.04(1), and no separate Form 8833 needs to be filed under this
section 4.04(4).

(5) If an individual with property that is subject to the rules of this section 4.04 has

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disposed of any such property prior to making the election provided in new Article
XIII(7), that individual may make an election with retroactive effect and file an amended
tax return to reflect the adjusted basis of such property, provided the statute of
limitations under 6511 of the Internal Revenue Code is open for the year of the
disposition. If the statute of limitations is closed with respect to the year of the
disposition of the property, then the individual is time barred from making an election
with respect to such property (however, the individual can still make the election with
respect to the remaining property, subject to section 4.05(2) of this revenue procedure
(Deemed dispositions of multiple properties)). If the disposition of properties described
in section 4.04(1) in a year with respect to which the statute of limitations has closed
resulted in a net loss for U.S. federal income tax purposes, the individual may make an
election with respect to the individual's remaining property or properties described in
section 4.04 only if the individual makes appropriate adjustments to the adjusted basis
of the remaining property or properties to reflect the net loss that was taken into account
in the year for which the statute of limitations is closed, using any reasonable method to
allocate the adjustment. For example, the step up in basis for the gain properties will be
reduced by the amount of loss that was recognized with respect to the property that was
disposed of in the closed year.

(6) If, prior to March 29, 2010, an individual who had property the disposition of which
would not have been subject to tax by the United States at the time of emigration made
an election with respect to such property under Article XIII(7) by attaching a Form 8833
or similar statement to the first timely filed U.S. federal income tax return filed after the
date of the deemed disposition, the IRS will not challenge such election (and the
individual is not required to make a new election under this revenue procedure)
provided that the election is not inconsistent with the principles set out in this revenue
procedure and that the individual has filed all U.S. federal income tax returns and
information returns consistent with such election.

.05 Deemed disposition of multiple properties

(1) If an individual is deemed under Canadian law to have disposed of multiple
properties immediately before ceasing to be a resident of Canada with respect to which
gain or loss is recognized for Canadian tax purposes in the year of the deemed
disposition, the individual may not make an election pursuant to new Article XIII(7)
unless the deemed disposition of all such properties results in a net gain for Canadian
tax purposes. If the deemed disposition of all such properties results in a net loss for
Canadian tax purposes, the individual may not make any election under new Article
XIII(7) with respect to any of the properties. Such an individual may neither claim an
adjusted basis for U.S. federal income tax purposes with respect to any of the
properties nor recognize gain or loss for U.S. federal income tax purposes in the year of
the deemed disposition in Canada with respect to any of the properties.

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(2) If an individual is deemed under Canadian law to have disposed of multiple
properties, any election under new Article XIII(7) must be made with respect to all such
properties. The individual must prepare and file a Form 8833 listing each such property.
In the case of property subject to the rules of section 4.04 (Retroactive elections for
property not taxable by United States), if the individual has disposed of property with
respect to which that individual is time barred from making the election because the
statute of limitations under section 6511 of the Internal Revenue Code has closed, the
individual may still make an election with respect to all of the individual’s remaining
property described in section 4.04, provided that appropriate adjustments are made to
the adjusted basis of the remaining property as set forth under section 4.04(5). If an
individual is time-barred from making an election with respect to property subject to the
rules of section 4.03 (Retroactive elections for property taxable by the United States),
the disposition of which would have resulted in a net loss at the time of emigration, and
makes an election with respect to property subject to the rules of section 4.04
(Retroactive elections for property not taxable by the United States), the individual must
make appropriate adjustments to the adjusted basis of the property that is subject to the
rules of section 4.03.

.06 Irrevocability of election

An election made under this revenue procedure cannot be revoked except with the
consent of the Commissioner.

SECTION 5. EFFECTIVE DATE
The effective date of this revenue procedure is March 29, 2010, the date of its
publication in the Internal Revenue Bulletin.

SECTION 6. PAPERWORK REDUCTION ACT

The collection of information contained in this revenue procedure has been reviewed
and approved by the Office of Management and Budget in accordance with the
Paperwork Reduction Act (44 U.S.C. 3507) and is reported on Form 8833 under control
number 1545-1354.

SECTION 7. DRAFTING INFORMATION
The principal authors of this revenue procedure are M. Grace Fleeman and Lara A.
Banjanin of the Office of Associate Chief Counsel (International). For further
information regarding this revenue procedure contact Lara A. Banjanin at (202) 622-
3880 (not a toll free call).