Rp-2002-23

interest on 30-year Treasury Securities
solely on the basis of the monthly average
of the daily determination of yield on the
30-year Treasury bond maturing in February 2031. The Service will determine and
publish the average yield on such basis
for an interim period, pending the enact-

ment of legislative changes to §§ 412 and
417 that address the discontinuance of the
30-year Treasury bond.
Section 405 of the Job Creation and
Worker Assistance Act of 2002
(“JCWAA”) amended § 412(l)(7)(C) of
the Code to provide that for plan years

Month

Year

Weighted
Average

January
February
March

2002
2002
2002

5.71
5.70
5.69

90% to 120%
Permissible
Range

90% to 110%
Permissible
Range

5.14 to 6.85
5.13 to 6.84
5.12 to 6.83

5.14 to 6.28
5.13 to 6.27
5.12 to 6.26

Drafting Information

SECTION 2. BACKGROUND

The principal author of this notice is
Todd Newman of the Employee Plans,
Tax Exempt and Government Entities
Division. For further information regarding this notice, please contact the
Employee Plans’ taxpayer assistance telephone service at 1–877–829–5500 (a tollfree number), between the hours of 8:00
a.m. and 6:30 p.m. Eastern time, Monday
through Friday. Mr. Newman may be
reached at 1–202–283–9888 (not a tollfree number).

.01 Domestic Rules. Under the domestic law of the United States, an individual
who is a citizen or resident of the United
States and a beneficiary of a Canadian
retirement plan will be subject to current
United States income taxation on income
accrued in the plan even though the
income is not currently distributed to the
beneficiary, unless the plan is an employees’ trust within the meaning of section
402(b) of the Internal Revenue Code and
the individual is not a highly compensated employee subject to the rule of section 402(b)(4)(A). However, if the plan
satisfies certain requirements under the
domestic law of Canada, the income
accrued in the plan will not be subject to
Canadian income taxation until it is actually distributed from the plan (or from
another plan to which it is transferred in
a tax-free rollover). Thus, there may be a
mismatch between the timing of the
United States tax and the Canadian tax,
with the result that the individual may be
subject to double taxation for which no
relief is available under Article XXIV of
the Convention.
.02 Former Article XXIX(5). Former
Article XXIX(5) of the Convention
addressed the timing mismatch in respect
of a U.S. citizen who was a resident of
Canada and a beneficiary of a Canadian
registered retirement savings plan
(“RRSP”) by providing that such a U.S.
citizen could elect, under rules established by the competent authority of the
United States, to defer United States taxa-

26 CFR 601.602: Tax forms and instructions.
(Also Part I, section 894; Part II, United StatesCanada Income Tax Convention.)

Rev. Proc. 2002–23
SECTION 1. PURPOSE
This revenue procedure provides guidance for applying Article XVIII(7) of the
United States-Canada Income Tax Convention, signed on September 26, 1980,
as amended by Protocols signed on June
14, 1983, March 28, 1984, March 17,
1995, and July 29, 1997 (the “Convention”). It supersedes Revenue Procedure
89–45 (1989–2 C.B. 596), which provided guidance for applying former
Article XXIX(5) of the Convention.
Article XVIII(7), which was added to the
Convention by the Protocol that was
signed on March 17, 1995, expanded and
replaced Article XXIX(5).

2002–15 I.R.B.

744

beginning in 2002 and 2003 the permissible range is extended to 120 percent.
The following rates were determined
for the plan years beginning in the month
shown below.

tion with respect to any income accrued
in the RRSP but not distributed by the
RRSP, until such time as a distribution
was made from such RRSP or any plan
substituted therefor. The rules for making
an election under former Article XXIX(5)
were set forth in Revenue Procedure
89–45. Additional guidance was set forth
in Revenue Ruling 89–95 (1989–2 C.B.
131), which provided that if the proceeds
of a RRSP were rolled over to a Canadian
registered retirement income fund
(“RRIF”), the RRIF would be treated as a
plan substituted for the RRSP, with the
result that both the proceeds that were
rolled over from the RRSP and the
income subsequently accrued in the RRIF
could qualify for deferral under former
Article XXIX(5).
.03 Article XVIII(7). Article XVIII(7)
of the Convention now provides, effective
for taxable years beginning on or after
January 1, 1996, that a natural person
who is a citizen or resident of either the
United States or Canada and a beneficiary
of a trust, company, organization, or other
arrangement that is a resident of the other
country that is generally exempt from
income taxation in the other country (a
“plan”), and is operated exclusively to
provide pension, retirement, or employee
benefits, may elect to defer taxation in the
person’s country of citizenship or residence, under rules established by the
competent authority of that country, with
respect to any income accrued in the plan
but not distributed by the plan, until such
time as and to the extent that a distribution is made from the plan or any plan
substituted therefor.

April 15, 2002

SECTION 3. SCOPE
This revenue procedure applies to an
individual who is a citizen or resident of
the United States and a beneficiary of one
of the following Canadian plans (an “eligible plan”): a RRSP, a RRIF, a registered
pension plan, or a deferred profit sharing
plan. This revenue procedure applies
regardless of whether the individual was a
resident of Canada at the time contributions were made to the eligible plan. For
purposes of this revenue procedure, a
“beneficiary” of an eligible plan is an
individual who would, in the absence of
an election under Article XVIII(7) of the
Convention, be subject to current United
States income taxation on income accrued
in the plan. The revenue procedure
applies only to income accrued in an eligible plan and not to any contributions to
the plan.
SECTION 4. ELECTION
PROCEDURES
.01 In General. If income accruing in
an eligible plan would otherwise be subject to current United States income taxation, a beneficiary of the eligible plan
may elect for the beneficiary’s taxable
year (the “current year”) and all subsequent years to defer United States income
tax on the beneficiary’s share of income
accrued in the plan until that income is
distributed to the beneficiary. Beneficiaries shall make the election by attaching
to their timely filed (including extensions) United States federal income tax
return for the current year, a statement
that includes the following information:
(i) A statement that the taxpayer is
claiming the benefit of Article XVIII(7)
of the Convention under this revenue procedure;
(ii) The name of the trustee of the plan
and the plan account number, if any; and
(iii) The balance in the plan at the
beginning of the current year.
.02 Reporting. Beneficiaries shall
attach a copy of the statement required in
paragraph 4.01 to their timely filed
(including extensions) United States federal income tax return for each year subsequent to the current year, until the tax
year in which a final distribution is made
from the plan (or from any transferee plan
within the meaning of paragraph 4.03).

April 15, 2002

.03 Rollovers. If an eligible plan for
which an election has been made pursuant
to paragraph 4.01 (“transferor plan”) is
rolled over to another eligible plan
(“transferee plan”) in a transfer that does
not result in the current imposition of
Canadian income tax (e.g., a transfer such
as that described in Revenue Ruling
89–95), the previous election is deemed
to carry over to the transferee plan.
.04 Transferee Plan Reporting. In the
case of a transferee plan, in addition to a
copy of the statement required for the
transferor plan under paragraph 4.02, in
the tax year of the transfer (“transfer
year”), beneficiaries shall attach an additional statement that includes the following information:
(i) A statement that the taxpayer is
claiming the benefit of Article XVIII(7)
of the Convention under this revenue procedure;
(ii) The name of the trustee of the
transferee plan and the plan account number, if any;
(iii) The name of the trustee of the
transferor plan and the plan account number, if any;
(iv) The total amount of income
accrued in the transferor plan on which
United States income tax was deferred
under either Article XVIII(7) or former
Article XXIX(5); and
(v) The initial balance in the transferee
plan.
Beneficiaries of a transferee plan shall
attach a copy of the statement required in
paragraph 4.02 (transferor plan) and a
copy of the statement required in this
paragraph 4.04 (transferee plan) to their
timely filed (including extensions) United
States federal income tax return for each
year subsequent to the transfer year, until
the tax year in which a final distribution
is made from the transferee plan.
.05 Multiple Plans. An individual who
is a beneficiary of more than one eligible
plan must make a separate election and
file a separate statement for each eligible
plan.
.06 Extension Of Time For Making
Elections. An extension of time for making an election under paragraph 4.01 may
be available under the procedures applicable under sections 301.9100–1 and
301.9100–3 of the Procedure and Administration Regulations.

745

.07 Prospective Change of Election.
An election once made cannot be revoked
except with the consent of the Commissioner.
SECTION 5. DISTRIBUTIONS FROM
AN ELIGIBLE PLAN
Distributions received by a beneficiary
from an eligible plan shall be included in
gross income by the beneficiary in the
manner provided under section 72 of the
Internal Revenue Code, subject to any
other applicable provision of the Convention.
SECTION 6. EFFECT ON OTHER
DOCUMENTS
This revenue procedure supersedes
Revenue Procedure 89–45 (1989–2 C.B.
596).
SECTION 7. EFFECTIVE DATE
This revenue procedure is effective for
taxable years ending on or after December 31, 2001. For taxable years ending
before such date and beginning on or
after January 1, 1996, taxpayers may elect
to apply either this revenue procedure or
Revenue Procedure 89–45.
SECTION 8. 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) under control number
1545–1773.
An agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information
unless the collection of information displays a valid OMB control number.
The collection of information in this
revenue procedure is in section 4. This
information is required to enable taxpayers to claim a benefit under the Convention. This information will be used to
compute and collect the right amount of
tax. The likely respondents are individuals.
The estimated total annual reporting
burden is 10,000 hours. The estimated
annual burden per respondent varies from

2002–15 I.R.B.

0.1 hour to 1 hour, depending on individual circumstances, with an estimated
average of 0.5. The estimated number of
respondents is 20,000.
The estimated annual frequency of
responses is once per respondent.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. 6103.
DRAFTING INFORMATION
The principal authors of this revenue
procedure are M. Grace Fleeman and
Amanda A. Ehrlich of the Office of the
Associate Chief Counsel (International).
For further information regarding this
revenue procedure, contact Amanda A.
Ehrlich at (202) 622–3880 (not a toll-free
call).

26 CFR 601.105: Examination of returns and claims
for refund, credit or abatement; determination of
correct tax liability.
(Also Part I, §§ 163, 6601, 7122; 1.163–9T,
301.6601–1, 301.7122–1)

Rev. Proc. 2002–26
SECTION 1. PURPOSE
The purpose of this revenue procedure
is to update and restate the Internal Revenue Service’s position regarding the
application, by the Service, of a partial
payment of tax, penalty, and interest for
one or more taxable periods. This revenue
procedure supersedes Rev. Rul. 73–304
(1973–2 C.B. 42); Rev. Rul. 73–305
(1973–2 C.B. 43); and Rev. Rul. 79–284
(1979–2 C.B. 83).
SECTION 2. SCOPE
This revenue procedure applies to all
taxes under the Internal Revenue Code,
except alcohol, tobacco, and firearms
taxes and the harbor maintenance tax. For
purposes of this revenue procedure, the

2002–15 I.R.B.

term “penalty” includes any additional
amount, addition to tax, or assessable
penalty.
SECTION 3. PROCEDURE
.01 If additional taxes, penalty, and
interest for one or more taxable periods
have been assessed against a taxpayer (or
have been mutually agreed to as to the
amount and liability but are unassessed)
at the time the taxpayer voluntarily tenders a partial payment that is accepted by
the Service and the taxpayer provides
specific written directions as to the application of the payment, the Service will
apply the payment in accordance with
those directions.
.02 If additional taxes, penalty, and
interest for one or more taxable periods
have been assessed against a taxpayer (or
have been mutually agreed to as to the
amount and liability but are unassessed)
at the time the taxpayer voluntarily tenders a partial payment that is accepted by
the Service and the taxpayer does not provide specific written directions as to the
application of payment, the Service will
apply the payment to periods in the order
of priority that the Service determines
will serve its best interest. The payment
will be applied to satisfy the liability for
successive periods in descending order of
priority until the payment is absorbed. If
the amount applied to a period is less than
the liability for the period, the amount
will be applied to tax, penalty, and interest, in that order, until the amount is
absorbed.
.03 Payments made pursuant to the
terms of offers in compromise (or offers
in compromise and collateral agreements)
that have been accepted by the Government in compromise of outstanding tax
liabilities, in accordance with § 7122 of
the Internal Revenue Code, will be
applied as follows:
(1) If an offer in compromise and collateral agreement have been accepted by
the Government in compromise of an outstanding liability and the offer in compromise and collateral agreement provide for
the allocation of payments made pursuant

746

thereto, payments made pursuant to the
agreements will be applied by the Service
in accordance with the terms of the agreements.
(2) In all other cases, the Service will
apply payments, whether paid in installments or in a lump sum and whether paid
pursuant to the offer or a collateral agreement, to periods in the order of priority
that the Service determines will serve its
best interest. The payment will be applied
to satisfy the liability for successive periods in descending order of priority until
the payment is absorbed. If the amount
applied to a period is less than the liability for the period, the amount will be
applied to tax, penalty, and interest, in
that order, until the amount is absorbed.
.04 If any part of a payment is applied
to interest under the rules set forth in this
revenue procedure, the amount applied to
interest is treated for purposes of § 163 of
the Code as interest paid in the year in
which the payment is made. Under § 163,
interest paid or accrued in a taxable year
may be deducted in calculating taxable
income for the year except to the extent
such interest is personal interest as
defined in § 163(h) and § 1.163–9T(b)(2)
of the Income Tax Regulations or is otherwise disallowed under applicable provisions of the Internal Revenue Code and
Income Tax Regulations.
SECTION 4. EFFECT ON OTHER
DOCUMENTS
Rev. Rul. 73–304, Rev. Rul. 73–305,
and Rev. Rul. 79–284 are hereby superseded.
SECTION 5. DRAFTING
INFORMATION
The principal author of this revenue
procedure is Inga Plucinski of the Office
of Associate Chief Counsel (Procedure
and Administration), Administrative Provisions and Judicial Practice. For further
information regarding this revenue procedure, contact Emly Berndt at (202) 622–
4940 (not a toll-free call).

April 15, 2002